Is there a binding development agreement?

At our recent promotion, development and overage agreements webinar, Daniel MacLeod, Jane Senior, and Vicky Khandker discussed transaction types, remedies, and endeavours and dispute resolution clauses.

Development transaction issues

Development transactions can sometimes present various issues due to the nature of such agreements. It is impossible to predict every eventuality when drafting development agreements. So, in drafting such documentation, it is important to establish a balance between trying to anticipate potential problems that could occur and ensuring you have a document that is still generic enough in its wording to reach an agreement between the parties involved.

It is more common than you may think for developers or promoters to start work before a legal agreement has been signed off. There may be heads of terms in place, but the legalities in terms of exact wording and negotiation can take some time to complete, as all parties wish to be as well-protected as possible.

So, what happens if a developer has spent a lot of time and money starting, or even finishing, a planning application, and then the relationship with the landowner breaks down before a written contract is signed? In this circumstance, if the landowner seeks to avoid payment, there is some existing case law around this.

Gladman Developments Ltd -v- Sutton (2016)

In Gladman Developments Ltd -v- Sutton, a 2016 High Court case, it was confirmed that development and promotion agreements need not comply with Section 2 of the Law of Property (Misc Provisions) Act 1989. Section 2 provides that any agreement transferring an interest in land must be in writing, with all terms properly set out and signed by all parties involved. It was determined in this case that not all these requirements must necessarily be met to enter into a promotional agreement. So, it is possible for such an agreement to be made verbally.

It is also important to remember that in development and promotion agreements, it is possible to have a verbal contract, and this needs to be considered when negotiating. One way to avoid unwittingly entering into a binding verbal agreement is by marking your communications as subject to contract. This can be good practice as a landowner, promoter, or developer.

Although in the case of Gladman Developments Ltd -v- Sutton, it was found that no binding agreement was established, there are other potential remedies that can be pursued by promoters and developers.

Remedies

Unjust enrichment: this occurs when the landowner has benefited from an increase in value of the land, due to the actions of the developer or promoter. There is no written agreement in place, but the landowner lets the developer or promoter continue with the process, then tries to walk away from the transaction. Under the right circumstances, the developer or promoter would be awarded a percentage of the uplift in the land value as damages.

Quantum Meruit: the landowner refuses to pay, but the developer claims on this basis. This remedy awards a form of reimbursement of the money spent during the process by the developer or promoter. This is usually more limited than unjust enrichment in terms of money awarded.

There is also another potential remedy for developers and promoters, known as estoppel.

Which remedy is available will depend upon the circumstances.

The importance of written contracts

To avoid needing to seek remedies, it is advisable to enter into a formal, written development agreement before investing as a developer or promoter, or before getting too involved as a landowner.

Lodders has a specialist Strategic Land and Development team, which sits within our wider Real Estate Group. We act for landowners, land promoters, and developers across all aspects of the development process. If you would like to find out more about how our Property Dispute Resolution team can help with issues arising in relation to such transactions, please contact Vicky Khandker.