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Developers beware: remember your obligation to use your ‘reasonable endeavours’

In the recent High Court case of Gaia Ventures Ltd v Abbeygate Helical (Leisure Plaza) Ltd, a developer was required to pay substantial damages where it did not use its ‘reasonable endeavours’ to fulfil conditions which would have triggered its obligation to pay overage.

Background

The developer, Abbeygate, acquired some development land at Elder Gate in Milton Keynes. As part of this, the seller required Abbeygate to use its ‘reasonable endeavours’ to secure planning permission for development of the site and, after the grant of the planning permission it would have to pay an overage (i.e. uplift) payment of £1.4million if the ‘trigger date’ of the payment was within 10 years and if some further conditions were met. These conditions included the surrender of substation leases at the site and variations to easements over the property which benefitted adjoining or neighbouring property.

‘How hard do you have to work to make yourself liable to pay £1.4million?’

The issue to decide here was whether Abbeygate used its ‘reasonable endeavours’ to achieve ‘as soon as reasonably practicable’ the satisfaction of certain conditions upon the fulfilment of which Abbeygate was obliged to make the overage payment.

‘Reasonable endeavours’ is a descriptive phrase which is not an absolute standard; you must look at the surrounding facts and circumstances on a case by case basis. When considering this, the judgment in the 2007 case of Rhodesia International Holdings Limited v Huntsman was considered:

“There may be many reasonable courses which could be taken in a given situation to achieve a particular aim. An obligation to use reasonable endeavours to achieve the aim only requires a party to take one reasonable course, not all of them, whereas an obligation to use best endeavours probably requires a party to take all reasonable courses he can. In that context, it may well be that an obligation to use all reasonable endeavours equates with using best endeavours…”

To do something ‘as soon as reasonably practicable’ is easily understood; it is to be done as soon as possible whether or not it is convenient or it is the best time for them.

In order to use ‘reasonable endeavours’, you should consider whether in all of the circumstances it was reasonable or unreasonable to take or not to take a certain course of action, balancing the obligation to do so against any negative consequences. Furthermore, using your ‘reasonable endeavours’ means that you cannot do anything to make achieving the agreed objective more difficult or to prohibit it entirely.

Upon ruling that Abbeygate had not used its reasonable endeavours to fulfil the conditions for payment of overage, Mr Justice Norris considered the following:

  1. Abbeygate did not do certain things until it suited its cash flow, rather than when it suited the development timescale; and
  2. Abbeygate dragged its heels, despite knowing the deadlines imposed, to ensure that the overage conditions were not fulfilled until after the overage payment deadline.

In short, Abbeygate had manipulated the course of development to avoid its obligation to pay overage. Planning permission had been obtained and all conditions had been met only a matter of days after the payment deadline, which was highly suspicious. Abbeygate had procrastinated over the years and had not shown the necessary levels of effort and commitment; instead, it was doing what it wanted to do for its own benefit and to maximise its own profit.

Gaia, as the beneficiary of the overage payments, was therefore entitled to damages equivalent to the sum payable under the overage provision.

Conclusion

Developments can involve a lot of difficult and time-consuming elements, but you simply cannot agree to use your ‘reasonable endeavours’ and subsequently refuse or delay to do something because it is inconvenient, costly or it conflicts with your own interests.

For more information on this story, contact Lauren Pearson in the Lodders Real Estate team on 01789 206126 or via email.

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Get in touch

For more information on this story, contact Lauren Pearson in the Lodders Real Estate team on 01789 206126 or via email.