The High Court was concerned with the question of the correct construction of a clause for additional payment in a sale and purchase agreement.
Background:
Harworth entered into an agreement with Westfield in October 2021 for the sale and purchase of York Holiday Park Development. The freehold interest in the site was owned by Harworth and is registered at the HM Land Registry under title number NYK223836. It was marketed for sale for Harworth by Savills as a holiday park comprising, amongst other facilities, a site for static caravans. It also has three distinct areas of woodland. Outline planning permission was obtained from York City Council on the 7th August of 2020 for the redevelopment as a leisure development.
Savills invited closed bids for the holiday park by 20 May 2021. Flannigan Enterprises Ltd was the successful bidder, offering £3 million. The buyer was particularly concerned, initially, about liabilities the purchaser might have to the Coal Authority (CA) under an indemnity in an earlier conveyance. There were some discussions in which the parties agreed in principle that the purchase price would be reduced to £2.6 million, but that an additional payment of a maximum of £400,000 would be payable under certain circumstances.
The £400,000 reduction was calculated based on the fact that up to 40 caravans, representing 13% of the static caravans permitted, could have been situated in the area of the zones of influence (ZoI). One of the conditions for the payment of the additional £400,000 was that the ZoI would not apply and that the areas in question could be developed within 12 months of completion. If the buyer could only have partial use of that ZoI, then they would pay an additional £10,000 per caravan pitch. The pitch part was considered too hard to quantify in practice, so it was changed to £88.96 per square metre.
In May 2022, the CA confirmed that there was no objection with regard to static caravans and that the ZoI where temporary structures cannot be placed was reduced to a radius of 3.66 metres. However, that letter was disputed.
The main issue is whether, on the proper construction of the relevant provision of the sale agreement, an additional payment was due.
Decision:
The Court could not apply a literal approach to Schedule 4 of the contract due to two aspects. The first was that the ZoI cannot be reduced other than by a dataset being updated which is not done based on local geological evidence. Second, clause 5 of Schedule 4 would defy commercial common sense if it was given a plain reading. Indeed, even if the ZoI were removed entirely by the CA, no development or parking could take place.
The Judge came to the conclusion that “on the proper construction of clause 3.1 in particular, a released land payment became due when the CA made a judgement that the siting of static caravans within the area of the ZoI is not objectionable (save for on the mineshaft protective capping slabs) and confirmed that in writing, as it did in the 15 September letter.” The reason is that any reasonable person would have understood the sale transaction to be for the sale of land for the siting of static caravans. The parties understood that static caravans could only situated in the ZoI if the CA did not object and that the price reduction reflected this understanding.
Implications:
This decision, though fact-specific, clarifies that it is possible to reduce the asking price and include a clause in the contract to the effect of paying an additional amount after authorisation from the relevant authority is received. By doing so, the parties ensure that the transaction is smooth and not delayed.
The judgement also provides insight into ZoIs and how they are dealt with by the CA and the courts. It also highlights that despite what seems to be a very detailed contract, the courts will not rely on the plain meaning of a clause if it goes against business common sense.