UK: Making Time Of The Essence....

The Facts

This case involved a tripartite agreement for the sale of two plots of land between Bett Homes Ltd ("Bett"), East Dunbartonshire Council ("the Council") and Glasgow University ("the University"). The sale of the land was to take place as follows:

  • the Council agreed to purchase a site from the University on which a new Bearsden Academy would be built;
  • Bett would buy the former Bearsden Academy site from the Council for a housing development; and
  • payment for the two pieces of land was to be made over 3 instalments.

Under both parts of the agreement, the Council and Bett had the right to rescind the contract if there was a failure to give timeous entry to the sites on the phase 1 entry date. Crucially, there were no such provisions applicable to phases 2 and 3 of the sale.  The provisions applicable to phase 3 simply stated that, on the phase 3 entry date, the Council would give vacant possession of the subjects in return for payment of the final instalment of the purchase price.

Several days before the final phase 3 payment of £14,000,000 plus index linked sums was to be paid, Bett told the Council that it would be unable to pay the sum.  On settlement day, Bett did indeed fail to pay the sum due and the Council did not give Bett vacant possession of the site.

The Issues

The Outer House rejected Bett's claims that they were entitled to rescind the contract as a result of the Council's breach. Bett argued that time was of the essence in the contract and therefore, the Council had been in material breach of contract by failing to give Bett vacant possession on an agreed date. Consequently, this material breach by the Council allowed them to rescind the contract.

The Council, on the other hand, asserted that Bett was bound to pay the third and final instalment of the purchase price for the former Bearsden Academy site and to fulfil its other obligations in connection with phase 3.

The Decision

On appeal from the Outer House, the Court agreed with the Council and held that the contract remained "live for performance". In its decision, the Court said that a crucial factor in this case was that the parties had not expressly stated that time was of the essence in relation to the third instalment, but had done so in connection with the other instalments.

If time is to be of the essence in a contract for sale and purchase of heritable subjects, this should be expressly stated - the Court refused to imply such a term.

The clause relating to settlement stated that vacant possession would be given "in exchange for" payment of the third instalment, in other words, payment was to be made before vacant possession was given. Bett was unable to rely on the Council's breach as it had also failed to fulfil its side of the bargain.

Comment

The case is a clear indication of the reluctance of the Scottish Courts to imply terms into contracts for the sale and purchase of land. Scots law will not treat time as being of the essence in such contracts, unless it is expressly incorporated into the contract and therefore, if timeframes are crucial in a transaction, these should be written into the contract. This case provides a perfect illustration that the common law and the courts will not show much sympathy to those who only wish to assert that time was of the essence, after things have gone wrong.

© MacRoberts 2012

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The material contained in this article is of the nature of general comment only and does not give advice on any particular matter. Recipients should not act on the basis of the information in this e-update without taking appropriate professional advice upon their own particular circumstances.

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