UK: Point Me To The Clause That Says I Can´t Sell My Land

Last Updated: 8 November 2007
Article by Bruce Anderson

Could agreement stop sale under promoter’s nose?

Berkeley Community Villages Limited, a subsidiary of Berkeley Group plc, the major development company, signed an agreement with the Pullens, a family of dairy farmers in Kent. Berkeley was to use its property development expertise to promote around 520 acres of the Pullens’ land for development; in return Berkeley was to receive a fee (based on 10% of the net sale price) if it was successful.

Berkeley made considerable efforts to promote the land and maximise its potential for development and it was generally recognised that the prospects of the land gaining planning permission for development were greatly enhanced by Berkeley’s efforts.

However, before Berkeley had completed its obligations under the agreement and its fee became payable, the Pullens received an offer of over £35 million for the land from a third party; they decided that they wished to accept that offer.

The agreement between Berkeley and the Pullens did not contain a clause specifically prohibiting the Pullens from selling the land but, since a sale of the land to a third party before planning permission was obtained would deprive Berkeley of its fee, Berkeley raised proceedings to prevent the sale.

A number of arguments were put forward on each side but the principal conclusions of the court were:

  • No account should be taken of the wording of draft agreements. The Pullens had argued that, because wording in earlier drafting explicitly prohibiting sale of the ground did not appear in the signed agreement, that implied that the Pullens could sell the ground: the court rejected that.
  • While there was no explicit provision prohibiting sale of the ground, the Pullens would be in breach of a number of other terms of the agreement if they sold the ground. Those terms included obligations on the Pullens: (1) to co-operate with Berkeley and use all reasonable endeavours to promote the property for development through the planning process (2) to render all reasonable assistance necessary to Berkeley in connection with Berkeley’s efforts to obtain a consent (3) not to do anything which might directly prejudice Berkeley achieving the consent (4) to enter into a planning agreement if requested by Berkeley and (5) to "act with the utmost good faith" towards Berkeley.
  • A prohibition on the Pullens disposing of the land while the agreement with Berkeley remained in place could be implied into the agreement.

Bruce Anderson, Head of our Strategic Land Team, comments:

This case is good news for developers, promoters of development land and solicitors. It is also a victory for common sense.

The judge applied an approach to the legal issues which resulted in Berkeley being protected. He even went as far as to decide on a matter (that there was an implied term that the land could not be sold) which he didn’t need to decide at all but which he threw in just in case another part of his decision was wrong. (I’ve a feeling he did not have much sympathy for the Pullens!)

While it is an English case, it is likely that most of the reasoning would be followed by a Scottish Court, as it is largely in line with previous Scottish cases. In the first place, it demonstrates that, when there is a dispute over the meaning of a contract, the Courts usually try to establish the intention of the parties at the time that they entered the contract. In doing so, it is quite reasonable to take account of external factors (such as the local planning situation at the time) but draft wording which does not appear in the final agreement should not be taken into account. All sorts of things can appear in draft documents but it is the final, signed document that matters as it has been agreed by both parties.

Of course, the whole case could have been avoided if the agreement had stated categorically that the sale of the ground was not permitted. It seems clear from reading the case that, at the time the parties entered into the agreement, it was not intended that the Pullens would sell the ground before the agreement had run its course. However, it is encouraging to see that the Court took a sensible, overall view of the agreement and not only decided that a sale would breach a number of clauses but also that the whole arrangement was such that there was an unwritten, but binding, term to the effect that the Pullens would not sell the land.

On the face of it, for the Court to decide that there is an additional term which is not written in the contract, is a little disturbing. How do you know where you stand? However, it has been generally recognised for many years that a term can be implied into a contract in limited circumstances. Usually, as in this case, it is in the situation where the contract does not really make commercial sense without the implied term. Why would Berkeley have entered into the agreement and spent so much time and money promoting the ground if they had thought that the Pullens could sell to someone else at any time and deprive them of their fee? It is comforting rather than disturbing.

Nevertheless, the case does illustrate that it is always worth identifying and stating the obvious when drafting agreements and much time and money can be saved that way.

Going back to the words which were in the agreement, it is interesting that one of the clauses that worked in Berkeley’s favour was that both parties were to act in utmost good faith towards one another. It is easy to think of clauses such as that as "standard" clauses which are just put in for the sake of it. This case is a helpful reminder that, when it comes to the crunch, such clauses can prove to be more than mere padding. I suspect that "utmost good faith" clauses will be appearing more often in developers’ drafts from now on – and how could a landowner argue against one?

Finally, while all the points arising from this case would apply equally to option agreements, it is worth noting that this dispute related to what is increasingly referred to as a "Promotion Agreement" (although it is not actually referred to as that in the case). A Promotion Agreement contains all the obligations on the promoter/developer to use its expertise to gain planning permission for a development that an option agreement would usually include, but differs in that it contains no option or other provision for the promoter/developer to acquire any ground. The promoter simply receives a fee. It would seem that such agreements are becoming more common in the current market where landowners are being advised, quite literally, to "keep their options open" for as long as possible.

The full text of the decision is available

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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