Overage – why it’s important to make sure the terms are clear

In a recent case (Sparks v Biden), Mr Sparks owned land that was suitable for residential development. Mr Biden, a developer entered into an agreement with Mr Sparks to start the development. The agreement was to grant Mr Biden an option to buy the land and he would have to use all reasonable endeavours to obtain planning permission. Once planning was granted Mr Biden was under an obligation to build as soon as possible.


Overage – why it’s important to make sure the terms are clearMr Biden was granted the relevant permission and exercised the option. He paid the initial purchase price and was to pay a further sum (overage payment) to Mr Sparks on the sale of each property. The minimum sum of £700,000.

Although both parties’ solicitors agreed the terms, there was one significant omission within the agreement which later was rectified to give the agreement business efficacy. Mr Biden was under an obligation to obtain permission and build but he wasn’t under an obligation to sell each property once completed.

Mr Biden took his own beneficial approach to this omission and – having obtained permission for and built 8 properties - decided to reside in one and let the remaining ones. It was clear that Mr Biden was delaying the payment of the overage indefinitely. Mr Sparks argued that the interpretation of the option undermined its underlying purpose. He applied to the Court for a term to be applied which would compel Mr Biden to sell each newly built house either “as soon as reasonably practicable” or “within a reasonable period of time”.

The judge considered the law about implying terms into a contract and agreed that there should be a term implied to give the effect that the developer was to market and sell each property within a reasonable time. It was concluded that the agreement without it lacked commercial and practical coherence.

Sparks v Biden [2017] EWHC 1994 (Ch)

 

Further Reading:

The Reynolds Report- Landlords beware!

Building Disputes - 7 Ways to Avoid Them

Commercial Property and Conveyancing

 

 

 
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