A recent case relating to overage is a useful reminder of how the court will look at what a developer does when considering whether they breached their covenant(s) to act with reasonable endeavours.

In the case of Gaia Ventures v Abbeygate Helical (Leisure Plaza) Ltd [2018] EWHC 118 (Ch) the judgment poses the question: “how hard do you have to work to make yourself liable to pay £1.4 million?”. The answer given by Mr Justice Norris can be summarised into “harder than you might want”.

The facts are complex.  A succession of interlocking agreements were entered into to facilitate the development of a site in Milton Keynes which included the usual mix of retail space and leisure facilities (an ice rink).

There was a site assembly provision which involved agreements to acquire both freehold and leasehold interests as well as a funding agreement.  Most (but not all) of the agreements were conditional.

The crux of the case was whether the developer had done what they had promised to do under these agreements.  There were covenants by the developer to use ”reasonable endeavours” to achieve “as soon as reasonably practicable” the satisfaction of a number of conditions.  Ultimately, if these conditions were satisfied by a certain date the developer would have to pay £1.4 million as a top up payment under the deal with the long leaseholder of the ice rink.

The conditions were satisfied in the two and half weeks after the long stop date for the £1.4 million payment.  This looked suspicious as the timeframes for the various conditions were measured in months and – in some cases- years.  The initial agreement was set up in 2003, some ten years before the longstop date.

What “reasonable endeavours” means has been the subject of various court cases over the years (usually in the context of similar development disputes).  The courts will acknowledge that there are usually a number of different options that someone can take and (unless there is an obligation to take all reasonable endeavours) a party is usually only required to take one of them.

However, what you can’t do is prevaricate and sit back.  You cannot make the aim more difficult to achieve by delaying.  When you combine an obligation to use reasonable endeavours with an obligation to do something as soon as reasonably practicable you need to progress the development appropriately and not just at your own convenience.

The court held that the developer procrastinated so much they did not meet their contractual requirements.  It was suggested that the developer simply went about the site assembly to suit their own means without considering their contractual obligations.  If they had dealt with it appropriately the overage payment would have been triggered within the contractual timescales and the developer was ordered to pay the £1.4 million.

Practical points

• Developments can take a long time to assemble. Interconnecting agreements can create a web of obligations that can become lost in the mists of time.  Make sure you understand what you have promised to do and when.

by Jen Morris
Consultant (Litigation)