Ramping up the overage

Allyson Colby is all over a recent High Court decision that shines a spotlight on practical problems arising in overage transactions After calling “time please” on the Ram Brewery, SW18, the company that owned the site sold it to property group Minerva. It worked up a scheme and, after obtaining planning permission for a mixed-use development, decided to turn its investment into cash. The price payable under its contract for sale to another developer was nearly £136m. In addition, Minerva was entitled to charge overage if it obtained planning permission to increase the floor area of a triangular tower on the development. But, as is often the case where overage is involved, the parties fell out about the performance of their respective obligations, leading to the litigation in Minerva (Wandsworth) Ltd v Greenland Ram (London) Ltd [2017] EWHC 1457 (Ch); [2017] PLSCS 139. [caption id="attachment_884790" align="aligncenter" width="775"] Plans for the Ram Brewery, SW18[/caption] Planning application The deadline for obtaining enhanced planning permission had always been tight. Minerva had agreed to consult with its buyer, Greenland, and to obtain its consent before submitting an application. But, after giving Greenland two and a half weeks in which to consider its proposals, it pressed ahead with its application in order to meet the planning deadline, despite Greenland’s objections to the revised scheme. The application was well received and the planning authority resolved to grant planning permission subject to the execution of a section 106 agreement obliging Greenland to pay an affordable housing contribution of £1.75m. But Greenland refused to sign the agreement, the resolution lapsed and the deadline for obtaining enhanced permission expired, leaving Minerva out of pocket to the tune of nearly £3.8m (which was the overage that Minerva would have earned had planning permission been granted). Consent Did Minerva’s email, including a link to Dropbox containing information about the proposed planning application and asking for consent to proceed, constitute a request for consent for the purposes of the parties’ agreement? Or was it too informal? The judge agreed that it was a valid request in the light of the fact that there was nothing in the parties’ contract stating how requests should be made. Had Minerva failed to inform and consult Greenland while preparing its application? And did this invalidate its request for Greenland’s consent? In the absence of concrete evidence that Minerva had failed to comply with its obligations, the judge ruled only that it would be inconsistent with the language of the contract, and with commercial common sense, if minor breaches were to deprive Minerva of its overage (especially if such breaches were irrelevant to the merits of its scheme). Where consent was unreasonably withheld, the contract provided that consent would be deemed to have been given. So the judge had to decide whether Greenland’s objections to the planning application were reasonable. The judge noted that, at common law, parties refusing applications for consent are entitled to rely on factors that actually influenced them when they made their decision, even though they did not mention them to the applicants at the time: see Bromley Park Garden Estates Ltd v Moss [1982] 1 WLR 1019. But her conclusion was of no assistance to Greenland because the judge did not consider any of Greenland’s objections to be reasonable. Waiver Minerva delivered a further application for consent to Greenland’s offices shortly before lodging its planning application. Had it waived Greenland’s previous unreasonableness because it did so? Minerva had not expressly waived its rights and the judge ruled that it had not impliedly done so either, saying that the courts should be slow to discourage parties from trying to resolve their differences by negotiation. Greenland would have been no better off in any event. It had replied to Minerva at once, stating that it would take at least four weeks to consider the proposals (even though Minerva needed consent immediately in order to meet the planning deadline). However, the parties’ contract provided that, where decisions were not made within 10 working days, consent would be deemed to have been given. The judge applied Go West Ltd v Spigarola [2003] EWCA Civ 17; [2003] 1 EGLR 133, ruling that Greenland had foisted itself with a deemed consent, which took effect immediately.  Planning agreement Was Greenland entitled to refuse to sign the new section 106 agreement? It claimed that Minerva had not complied with its obligation to use reasonable endeavours to minimise the affordable housing contribution. It considered that Minerva’s initial offer to the planning authority had been far too high and complained that it had not negotiated for long enough. However, the judge ruled that Minerva’s obligation must be seen against the backdrop of the tight deadline agreed by the parties. It had been reasonable to open with a figure that was realistic in the light of Minerva’s discussions with the planning authority and there was no evidence to suggest that the negotiations had been mishandled. It was also a condition of the parties’ contract that any new section 106 agreement should be “proportionately no more onerous” than the existing planning agreement for the site, but the contract did not explain how this was to be assessed. The judge concluded that the condition must relate to the profitability of the scheme and, after comparing developer appraisals for both schemes, ruled that Minerva had satisfied the condition, given the extra profit that Greenland could expect to make from the revised scheme. Therefore, Greenland had wrongly refused to execute the section 106 agreement, thereby preventing Minerva from earning the overage that was due to it, and was liable for an equivalent sum in damages. Allyson Colby is a property law consultant