Overage agreements: the cost of unreasonably refusing consent

​A look at the recent decision of Minerva (Wandsworth) Ltd v Greenland Ram (London) Ltd.
  • Submitted 1 September 2017
  • Applicable Law UK (England & Wales)
  • Topic Real Estate

Background

The case relates to the redevelopment of the Ram Brewery site in Wandsworth, South London. By 2006 brewery operations had ceased and the claimant (Minerva) later acquired the site. In December 2013 they obtained planning permission for a substantial mixed use scheme and the site was acquired by the defendant (Greenland) for £135m.

The sale agreement between Minerva and Greenland provided for an overage payment to be made to Minerva if Minerva were able to secure an improved planning permission for the site. The sale agreement allowed Minerva a short window of ten months in which to secure a resolution to grant an "enhanced planning permission". Minerva would receive an additional £200 per square foot of additional saleable space added to part of the site known as the Tower (a 34 storey mixed use block).

Minerva were responsible for obtaining the enhanced permission. Initially, Minerva wanted to add another ten storeys to the Tower but due to political sensitivities ultimately only pursued an application for an additional two storeys. Detailed design work meant that this revised application actually only added an additional 2.5 meters to the overall height of the building but increased the saleable space by some 18,932 square foot; generating an overage payment of £3,786,400.

With literally days to spare against the contractual timetable Minerva secured a resolution to grant permission for the additional two storeys. However, the resolution to grant was never converted into a planning permission as Greenland refused to enter into the section 106 agreement.

The dispute

Minerva brought a claim for damages equivalent to the overage which would have been due to them had the permission been granted. Minerva argued that Greenland was in breach of the sale agreement by having unreasonably withheld its consent to the planning application (which Minerva submitted anyway) and its unreasonable refusal to enter into a section 106 agreement. Greenland’s basic position was that Minerva had not followed the provisions in the sale agreement and in the circumstances they were reasonable both in refusing consent to the application and in refusing to sign the section 106 agreement.

What were the obligations in the sale agreement in relation to Minerva’s planning application?

In short, in relation to the planning application prior to submission Minerva was to consult with Greenland, to provide copies of all correspondence and to submit the draft application to Greenland for approval. There was an obligation placed on Greenland not to unreasonably withhold or delay consent to the planning application. There was a provision deeming consent if a response was not received within ten days.

Following submission of any application there were ongoing obligations on Minerva to keep Greenland up to speed. There was an obligation on Minerva to use reasonable endeavours to minimise the amount of affordable housing and obligation on Greenland to enter into any new section 106 agreement needed provided it was proportionately no more onerous that the existing agreement.

The outcome

The High Court found in favour of Minerva and awarded them damages equivalent to the overage that would have been due under the sale agreement.

The case included detailed analysis of the expert and witness evidence in relation to the approach taken by both parties. However, some points of note include:

  • Arguments by Greenland that relatively minor breaches of the schedule dealing with the planning application would mean that the permission had not been obtained in accordance with the schedule and so no overage was payable did not hold water. The court noting that the drafting of the agreement as a whole did not stand up to this interpretation and that if the parties had intended to make compliance with every provision of schedule 6 a precondition of the overage being payable then this would have been needed to be spelt out clearly (as had been done in relation to other provisions in the agreement) as it would have been a very important factor to Minerva.
  • Minerva’s initial request for Greenland’s consent to the submission of its planning application was made by email. This was held to be a valid formal request - nothing in the sale agreement stated the form in which the application had to be made.
  • There is a lot of case law as to how the courts assess the reasonableness of a party’s refusal of consent. The common law position remains that that the party refusing consent can rely on reasons that influenced his mind at the time even though he did not express those reasons to the counterparty (the court noting that that position has been changed by statute as regards the consent of a landlord to assignment of a lease in certain circumstances). However in this case, based on the evidence and pleaded case it was found Greenland unreasonably withheld consent.
  • Minerva in fact made two applications to Greenland for consent to submit the planning application. Greenland maintained in submitting the second request Minerva unequivocally waived any unreasonable refusal of the first request. Greenland argued this fell squarely within the doctrine of waiver by election. The court found that Minerva had certainly not expressly waived any such right and their conduct in submitting the second request did not prevent them from maintaining their position that the first request had been unreasonably withheld. Indeed the judge noted that "[i]t is important to recognise that parties who are in a continuing commercial relationship would naturally prefer to try to resolve their differences by further discussion rather than immediately standing on their legal rights".
  • Although not strictly relevant given the fact the first refusal of consent was found to be unreasonable, the court also commented on the second request for consent and a provision in the contract which provided that consent would be deemed if a response was not received within ten days. After receiving the second request Greenland responded that they would not be able to give an answer for at least four weeks. Minerva went on to submit the application to the Council before the ten day window had expired. The court commented that it was not open to Greenland to say that they might have given an answer had Minerva waited the remaining days. It found that consent was given under the deemed consent provision, Greenland having clearly indicated they would not respond in time.
  • Minerva had used reasonable endeavours to minimise the affordable housing contribution. The Court considered ‘what would a reasonable and prudent person acting properly in their own commercial interest and applying their minds to their contractual obligation have done’ and noting that in considering whether steps were reasonable ‘the court has also to consider whether any steps would have been successful’. Based on the evidence of the parties it was held that the negotiations for the new section 106 agreement had been conducted reasonably considering the tight timeframe and that the obligations contained in the new section 106 agreement were proportionately no more onerous than the original agreement.

Comment

The case contains interesting and detailed discussion around the actions of the parties and the process undertaken by the Minerva team in order to secure a resolution to grant for the additional two storeys.

The case is fact specific but highlights the importance of clear drafting (as was present in this case) and the need for parties to carefully consider their actions and approach when under a contractual obligation not to unreasonably withhold consent.

Minerva (Wandsworth) Ltd v Greenland Ram (London) Ltd [2017] EWHC 1457 (Ch)

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