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Archive for October, 2009

A recipe for disaster

Property purchase is not straight forward and an overage payment (an agreement that a sum is paid over and above the basic purchase price if and when certain conditons or contingencies are fulfilled) adds to the complications.  Such clauses are often added late in the day and the terms may be negotiated by advisers under pressure to conclude the deal.  A recipe for disaster and sadly, litigation can ensue.

In Walker v Kenley and another [2008] EWHC 370, if the purchaser of a hotel obtained planning permission for a development of “residential flats”, an overage payment was payable to the hotel’s vendor in respect of each flat sold.  The purchaser obtained planning permission for 17 apartments subject to a condition that they be used “for holiday accommodation only”.  Did holiday apartments amount to “residential flats”?  The court held the words, given their natural meaning, meant flats which an occupier would consider his or her residence and there was nothing in the circumstances of this case which led to the conclusion that the words would include a holiday apartment.  Is that what the parties meant?  We will never know.

It should be remembered that evidence of negotiations is not accepted by the courts.  As Lord Wilberforce explained in Prenn v Simmonds [1971] 1 WLR 1381, this is because the position of the parties change until a final consensus is reached and that consensus is then recorded in the written agreement.

Nevertheless, the House of Lords ordered rectification of the wording of an overage agreement in Chartbrook Ltd v Persimmon Homes Ltd [2009] UKHL 38.  Lord Hoffman stated that the wording used by the parties is paramount but there must be some exceptions to this rule if a mistake is made in recording the deal done.  For instance, the words used may be capable of more than one meaning or the parties might have given during their negotiations, a particular meaning to the words used or the wording used does not reflect the agreement reached.  In such cases, the courts might consider rectification and then, said Lord Hoffman “All that is required is that it is clear that something has gone wrong with the language and that it should be clear what a reasonable person would have understood the parties to have meant.”

Contact Hatherleigh Training to hear more re overage payments and mistakes in written agreements.