Overage Agreements-Recent Reported Cases
Overage agreements are always a ripe source of litigation because there are can be such large sums of money at stake and because they are difficult documents to make absolutely water-tight. There are 2 reported cases this year on overage agreements and there are some interesting principles emerging from these recent cases.
In the case of Ross River Ltd (1) and Blue River LP (2) v Cambridge City Football Club Ltd, the High Court held that a football club was entitled to rescind an overage agreement with the developer of its football ground, because of fraudulent misrepresentations made by the developer's agent. What is interesting about this case is the court based its argument on an academic essay which suggested that the way in which rights and powers are allocated in a contract can show whether a party to a contract is to act in its own interests, the parties' joint interests or the interests of the other parties. Conflict of interest should be a constant concern of professional advisers during a transaction.
In the case of Berkeley v Pullen a landowner signed a contract with a developer under which the developer agreed to obtain planning permission for some land and then would receive a fee when the land was sold. In the overage agreement, the landowner agreed to use all reasonable endeavours to assist with the planning process as well as act with the utmost good faith. However, the contract was drafted in such a way that it did not bind successors in title and there was no wording preventing a sale. So in 2007, the landowner agreed to sell elsewhere for £35m. The developer sought an injunction on the basis that the landowner was not free to sell until the planning permission had been granted or refused. Surprisingly, the court found in favour of the developer saying that whilst there was a specific "good faith" clause in this contract, the courts would be prepared to imply a duty of good faith even if there was no such wording. The court said it would intervene to protect the commercial purpose behind the contract. This is a significant departure from prior cases in this area.
In the case of Ross River Ltd (1) and Blue River LP (2) v Cambridge City Football Club Ltd, the High Court held that a football club was entitled to rescind an overage agreement with the developer of its football ground, because of fraudulent misrepresentations made by the developer's agent. What is interesting about this case is the court based its argument on an academic essay which suggested that the way in which rights and powers are allocated in a contract can show whether a party to a contract is to act in its own interests, the parties' joint interests or the interests of the other parties. Conflict of interest should be a constant concern of professional advisers during a transaction.
In the case of Berkeley v Pullen a landowner signed a contract with a developer under which the developer agreed to obtain planning permission for some land and then would receive a fee when the land was sold. In the overage agreement, the landowner agreed to use all reasonable endeavours to assist with the planning process as well as act with the utmost good faith. However, the contract was drafted in such a way that it did not bind successors in title and there was no wording preventing a sale. So in 2007, the landowner agreed to sell elsewhere for £35m. The developer sought an injunction on the basis that the landowner was not free to sell until the planning permission had been granted or refused. Surprisingly, the court found in favour of the developer saying that whilst there was a specific "good faith" clause in this contract, the courts would be prepared to imply a duty of good faith even if there was no such wording. The court said it would intervene to protect the commercial purpose behind the contract. This is a significant departure from prior cases in this area.
posted by Dominic Beeton at
1:49 PM
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