North Eastern Properties Ltd v Coleman and another

Sale of land – Notice to complete – Specific performance – Respondent contracting to construct flats with due dispatch and sell them to appellants at discounted price – Contract containing entire agreement clause – Appellants serving notice to complete when flats unfinished – Respondent subsequently completing flats and serving notice to complete on appellants – Whether respondent entitled to specific performance – Whether contract void for failing to set out all agreed terms – Whether appellants entitled to rescind – Appeal dismissedIn October 2007, the respondent entered into 11 contracts with the appellants to sell, for £1.21m, 11 flats that it was constructing as part of a larger development. In the course of precontract negotiations, the respondent had agreed a discount of 10% from its standard price per flat in the light of the number of flats that the appellants were intending to buy. By agreement, 8% of this was recorded in the contracts as a “builder’s incentive”, while, at the appellants’ request, the remaining 2% was to be invoiced as a finder’s fee. The contracts incorporated the standard conditions of sale and an “entire agreement” clause; the respondent was required to complete the flats with all due dispatch and completion was to take place no more than 10 working days after notice was sent to the appellants that each property had been completed.In May 2008, the appellants served a notice to complete on the respondent, considering that a reasonable time had elapsed for the flats to have been constructed. The respondent did not comply. In July 2008, it served notice on the appellants that construction was completed. The appellants did not conclude their purchase of the flats within 10 days thereafter nor did they comply with a notice to complete that the respondent subsequently served.The respondent brought a claim for specific performance. The appellants contended that they were not obliged to complete since: (i) the contracts were void and unenforceable because they did not contain all the terms agreed, as required by section 2 of the Law of Property (Miscellaneous Provisions) Act 1989, having omitted any reference to the 2% finder’s fee; and (ii) the respondent’s failure to finish the flats within a reasonable time and to comply with their notice to complete had entitled them to rescind the contracts. Rejecting those arguments and allowing the claim, the judge held that the arrangements for the 2% finder’s fee did not form part of the sale contracts, such that section 2 of the 1989 Act had been complied with, and that the appellants had not been entitled to serve a notice to complete: see [2009] EWHC 18 (Ch); [2009] PLSCS 249. The appellants appealed.Held: The appeal was dismissed.(1) A party seeking to avoid a land contract under section 2 had to identify a term that the parties had expressly agreed but that was missing in the single, or exchanged, signed document. Section 2 applied only to the expressly agreed terms of the sale of the land, rather than the terms of some simultaneous contract, whether for the sale of a chattel or the provision of a service, that happened to take place at the same time as the land contract, and to form part of one commercial transaction. Accordingly, it was not sufficient merely to show that the land contract and formed part of a larger transaction that was subject to other expressly agreed terms that were absent from the land contract.Section 2 did not prevent parties to a composite transaction that included a land contract from structuring their bargain so that the land contract was separate from the rest of the transaction, in the sense that its performance was not made conditional on the performance of some other expressly agreed part of the transaction. They could also agree to structure their transaction to include the sale of two or more parcels of land by way of a separate contract for each, so that none of the land contracts was conditional on the performance of any of the others. However, where, on the true construction of the agreement as a whole, the performance of the land sale was conditional on other elements of the bargain, such as a chattel sale or service provision, or where agreements for the sale of separate parcels of land were conditional on the performance of each other, the use of separate documents to contain those terms would fall foul of section 2: Tootal Clothing Ltd v Guinea Properties Management Ltd [1992] 2 EGLR 80; [1992] 41 EG 117 applied, Grossman v Hooper [2001] EWCA Civ 615; [2001] 2 EGLR 82; [2001] 27 EG 135 and Godden v Merthyr Tydfil Housing Association (1997) 74 P&CR D1 considered. The parties were free, and should be positively encouraged, to make plain by express terms whether such conditionality existed; doing so served the purposes of section 2, an important part of which was to encourage clarity in land transactions.An obvious way of expressly providing that the performance of the terms of a separate contract were not to operate as a condition for the performance of the land contract, where they formed parts of a composite transaction, was for the parties to insert an appropriately worded entire agreement clause into the land contract. In the instant case, the 2% finder’s fee agreement formed part of a composite transaction that also included 11 land contracts. Although the entire agreement clause did not prevent the finder’s fee agreement from being contractually binding, it had the effect that the performance of the land contracts was not conditional on performance of the finder’s fee agreement. Properly construed, the 2% finder’s fee rewarded the appellants for finding willing purchasers of 12 flats, and did not form part of the consideration for the performance of any one or more or even all of the 11 sale contracts. The fee was a personal obligation of the respondent, and a personal right of the appellants, for finding the willing purchasers. The structure that the parties had adopted for the composite transaction was a sensible, commercially rational and legally appropriate means of ensuring that the finder’s fee, agreed as the bulk reward to the appellants for finding willing purchasers for the flats, was rigorously excluded from the ensuing 11 land contracts, since it properly formed no part of the terms of the sale of each flat thereby agreed.(2) The appellants had not been entitled to rescind the contract because of the respondent’s failure to comply with their notice to complete. Time for completion of the sale under each of the 11 contracts did not begin to run until the period for completion had arisen, which depended on the completion of the flat. Although the delay in completing the flats was a non-repudiatory breach and the notice could, in principle, make time of the essence in respect of their completion, the works could not have been completed within the 10-day period specified in the notice and it had therefore failed to provide a reasonable time for completion.Charles Holland (instructed by Wholley Goodings LLP, of Morpeth) appeared for the appellants; Jonathan Rodger (instructed by Sintons LLP, of Newcastle upon Tyne) appeared for the respondent.Sally Dobson, barrister