Over Taylor Biggs

The Court of Appeal has recently considered a case involving Sellers who obtained Planning Permissions to trigger payments to them due in respect of "overage" under an Agreement entered into with Buyers of a development site where, clearly, the expectation was that the Buyers would make the Planning Applications, rather than the Sellers.

The Court's decision was based upon the actual document between Seller and Buyer.  The triggering of payment by a Planning Application made by the Seller was not expressly provided for, nor could be implied as giving the Sellers' entitlement to overage.

Owners of a development site sold it in October 2005 to residential developers for £4.5 million.  The site had the benefit of Planning Permission for 42 units.  The parties entered into an Overage Deed to subsist for five years.

The trigger event for overage was the grant of an enhanced Planning Permission, to authorise a greater net sales area than that prescribed by the underlying Permission.  This could also be achieved by variation of the existing Permission.

The Buyers were to notify the Sellers when a trigger event had happened.  The Buyers were required to supply the Sellers with a copy of the improved Permission, the Buyers' calculation of the net sales area resulting from the improved Permission and a copy of the Drawings and other information justifying the Buyers' calculations.

Following completion of the purchase, the Sellers rather than the Buyers, made applications to amend the underlying Permission and which increased the net sales area.  The Local Planning Authority granted Permission under both the Applications made.

After the Buyers had started development in January 2006, the Sellers made a formal claim to overage of just under £340,200.  The Buyers resisted payment on the basis that it was only for the Buyers to obtain the relevant Planning Permissions.

The High Court found in favour of the Sellers.  The Buyers appealed and argued that the actual document only contemplated improvements obtained as a result of a Buyers' Application.  They also argued that the normal commercial purpose of overage was to enable sellers to benefit from buyers' Planning Applications and that standard Agreements only provided for overage as a result of buyers' Applications. 

Perhaps more forcibly, it was argued that if the Sellers made a Planning Application, a Buyer might be bound by the resulting Permission and therefore be required to develop the site in a different manner than the buyer might have contemplated.  The buyer might end up paying overage for a Permission it would not want to implement.

Whilst the Sellers acknowledged some of these arguments, they pointed out the Deed in this case did not include, significantly, wording that limited Planning Applications to those only made by the Buyers.  It was suggested that because the Buyers were legally represented, they must have contemplated overage being payable in the case of any improvement (from any source) in the Planning Permissions obtained.

Essentially, the Court of Appeal agreed with the Buyers.  It held that the provisions of this Deed were consistent only with enhanced Planning Permission obtained by the Buyer.  Based on pure interpretation of the Deed, there was no suggestion that a Sellers' Application would give rise to overage.

Additionally, the Court said that no-one would enter into an Agreement to buy development land and give the seller a right, after completion, to further payment by obtaining a Planning Permission that the buyer would not want.  It would make no commercial sense to give a seller a right to determine the manner in which the site might be developed when bought by a buyer to develop it as the buyer wanted to.

This case highlights once again the degree of care needed in tying down precisely events that give rise to overage.  Interestingly, in this case the Court looked to the general context of the whole Deed and its ultimate commercial purpose, rather than at the actual wording of the particular clause.  Although not a point in the Court's Judgment, it was suggested that if the Planning Application were to be made as agent for the Buyers then the resulting Planning Permission might have given rise to overage.

There is also anecdotal evidence that landlords have in the past applied for planning permission in anticipation of rent review, where the wording of the relevant rent review clause permits the valuer to take account of uses permitted by a planning permission that might enhance rental value.  This is peraps more critical where a negotiated review has failed where the actual amount of rent is required to be determined by arbitration or expert determination (the tenant has failed to accept the enhanced value resulting from the landlord's planning application).

Again, attention to detail in the drafting of the rent review clause could specifically exclude planning applications, other than those made by the tenant (or only those applications made by the landlord prior to the grant of the relevant lease).