27 May 2011

Rowe up a creek without a paddle

The Message: Failure to comply with the strict requirements of a contract may be fatal.

The Case: The Court of Appeal has decided whether a buyer of development land can rely on a technical breach to free itself from an uncommercial contract in Barratt London North v JM Rowe Investments (12.05.11).

In February 2008 Barratt entered into an agreement to purchase from Rowe a site in Watford that had planning permission for a 56-flat development with shops below. The price was £1.8m and Rowe would lease back the shops for 999 years at a peppercorn rent.

The agreement was subject to Rowe satisfying various conditions by 7 July 2008. After that date either party could terminate the agreement, provided it was not responsible for the default.

One of the conditions related to Rowe paying Alliance & Leicester £95,500 to terminate its lease of part of the site. The lease was due to terminate on 18 March 2008 but, without any consultation with Barratt, Rowe agreed that Alliance & Leicester could stay until nearer completion of the agreement.

The £95,500 payment was postponed until Alliance & Leicester vacated. The deadline of 7 July 2008 came and went with Alliance & Leicester still in occupation, and Rowe and Barratt still sorting out various other matters.

On 25 November 2008, however, Barratt suddenly gave notice to terminate the contract, on the grounds that Rowe had not paid the £95,500 by 7 July 2008. Its reason for doing so was purely that it had calculated the development was unprofitable. It relied on the fact that it had an absolute right to terminate for any delay beyond 7 July 2008, and did not have to show good reason for doing so.

Rowe argued that it was not in default and that, if it was, Barratt could not terminate because it had failed to provide documents that Rowe needed to ensure vacant possession by 7 July 2008, or that Barratt had waived its right to rely upon it. Barratt won the ensuing court case, but Rowe appealed.

The Court of Appeal agreed with the trial judge, that the agreement clearly required Rowe’s solicitor to give notice by 7 July 2008 that the £95,500 had been paid, failing which Barratt could terminate. It also agreed that the fact that Barratt had been in default as well was not relevant, because it had not delayed the process.

Rowe’s last argument was that, by not serving notice to terminate in July 2008, Barratt had elected to continue with the agreement and had lost or waived the right to terminate. Rowe relied on the law that a party that knows it has alternative rights loses them if it acts in a way consistent with it choosing to not exercise them.

Once again, however, the Court of Appeal agreed with the judge. It did not consider that this law applied to a contractual right to terminate at any time after a certain date. This was not a case of one party breaching a contract and the other party having to decide whether to continue or not.

Barratt was simply entitled to terminate because the condition was unsatisfied by the required date and it could only lose that right if it had made clear that it had decided not to act. So, simply because it failed to meet the time limit, Rowe lost a profitable contract and Barratt was freed from an unprofitable one.

Summing up: Barratt v Rowe

  • Barratt wanted to terminate a contract because of a breach by Rowe.
  • Rowe claimed Barratt had acted in a way that stopped it meeting its responsibility.
  • The judge found a contract condition was not met by Rowe and so Barratt was able to terminate.

 

First seen in Property Week, 27 May 2011.

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