Drafting a contract

conditional on planning

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Nature of the condition It is common for contracts for the sale of commercial property contracts to be drafted on the basis that completion of the transaction is conditional upon one party (usually the buyer) obtaining planning permission. This Practice Note assumes that the buyer has that obligation. The sale price will usually be a figure which assumes that the property has the benefit of the planning permission for which the party is to apply. The agreement should specify who has the obligation of satisfying the condition and exactly what will be required (ie outline or full permission for a specified use or scheme).

Contracts conditional on planning often provide that the planning permission must be ‘satisfactory’ to the party charged with the obligation of obtaining the permission because that party will not want to complete the transaction if the planning permission will not permit it to carry out the development of its intended scheme on the property. ‘Satisfactory Planning Permission’ is often defined as a planning permission which does not contain an ‘onerous’ or ‘unreasonable’ condition.

Some buyers include their own tailored list of unreasonable conditions. A widely drafted list of conditions may give a buyer complete freedom whether to accept a planning permission and trigger completion of the purchase. If the list of unreasonable conditions is subjective, the buyer may have what is, in effect, a call option. For this reason, sellers usually try to ensure that the list of conditions is as objective as possible.

Drafting a contract

conditional on planning

Common unreasonable conditions include conditions attached to the planning permission which:

Buyers will often attempt to include a ‘catch all’ onerous condition along the lines of ‘any condition that is materially detrimental to the development of the property’. Sellers should be wary of this because it can give the buyer discretion to deem a planning permission unsatisfactory.

Consider including expert determination provisions which may be invoked in the event that there is a dispute over whether a planning permission is satisfactory.

Endeavours obligationsA buyer is unlikely to accept an absolute obligation to obtain planning permission so usually the contract will impose a lesser obligation, most commonly reasonable endeavours, to obtain a satisfactory planning permission before the longstop date. ‘Reasonable’, ‘all reasonable’ and ‘best’ endeavours obligations have been judicially considered but still leave considerable uncertainty as to the extent of the relevant party’s obligations.

The decision in Sainsbury’s makes it clear that the parties’ obligations should be clearly spelt out because general obligations such as a reasonable endeavours or good faith clause will not serve as a panacea where the relationship between the parties breaks down. An obligation to use all reasonable endeavours must be viewed in the light of specific contractual provisions which qualify the scope of that obligation. A general obligation of this character cannot be relied on to supplement, override or bypass the more detailed obligations which the parties have specifically agreed. Ideally, the contract should also address whether the party is expected to incur costs (and, if so, whether they should be capped). See Practice Note: Endeavours obligations.

References: Sainsbury’s Supermarkets Ltd v Bristol Rovers (1883) Ltd [2016] EWCA Civ 160

Ancillary obligationsThe contract should also address/include the following:

Planning agreementsThe planning authority may require that a section 106 agreement (or ‘planning obligation’) is entered into before it will grant planning permission. In such a case, the buyer will require the ability to call on the seller to enter into the agreement, because the planning authority will insist that it is executed by the land owner. The seller will want to protect itself by including some qualifications to this obligation by:

• giving the seller the right to approve the wording of the planning obligation

• making the planning obligation dependent upon the planning permission actually being granted and implemented

• the buyer indemnifying the seller against any costs and liabilities

References: Town and Country Planning Act 1990, s 106

See Practice Notes: Planning obligations—key points and Drafting section 106 agreements—practical advice for developers.

• require the planning permission to be implemented otherwise than within five years (for an outline permission) or three years (for a full planning permission) from the date of the planning permission(see Practice Note: Implementing planningpermission)

• restrict the proposed internal area of the development

• impose restrictions on the access to the development

• restrict trading hours

• who is to lodge the planning application, the timescales and whether the other party has approval rights

• amendments or variations to the planning application

• whether the party submitting the application should be obliged to appeal in the event of a planning refusal. A buyer is likely to want freedom to decide whether to appeal whereas a seller may prefer an obligation on the buyer to appeal unless planning counsel advises in writing than an appeal would have less than 50% chance of success

• an obligation on the parties to cooperate and keep each other informed

• a restriction on the seller applying for planning permission in relation to the property

Drafting a contract

conditional on planning

Planning gain liabilityIt is likely that the buyer will have an idea of the amount that it will be obliged to incur in terms of community infrastructure levy (CIL) and payments due under s 106 agreements (sometimes referred to as ‘planning gain liability’) in the event that it obtains (and implements) a planning permission. However, a buyer may require the ability to terminate the contract if the total planning gain liability exceeds a specified threshold. See our precedent Buyer’s CIL liability and planning gain liability termination clause for an example.

Challenges and extensionsPlanning permissions are susceptible to challenge, either under s 288 of the Town and Country Planning Act 1990 or by judicial review. In both cases, the challenge must be brought within six weeks of the date of the planning permission. For this reason, well-advised buyers will not accept an obligation to complete on issue of the planning permission, preferring instead to wait:

• until the six week period (plus a grace period, usually of two weeks—see below) has expired or

• if proceedings have been brought within that six week period, until those proceedings have been set aside, leaving in place a satisfactory planning permission which is not capable of further challenge

See Practice Note: Challenging a planning permission.

From a buyer’s perspective, these provisions are essential to avoid the situation that arose in Stoll v Wacks Caller, where a buyer obtained planning permission and the sale contract was completed, only for the planning permission to be quashed following a third party challenge by way of judicial review. Market practice in agreements conditional on planning is to state the period as eight weeks, giving an additional two weeks’ grace period to cover the situation where a challenge or claim has been made within the statutory period but there has been a delay in delivery or communication of the challenge to the buyer.

References: Stoll v Wacks Caller [2009] EWHC 2299 (Ch)

Drafting a contract

conditional on planning

WaiverIn the absence of an express waiver clause, a party to a contract cannot waive a condition (and demand specific performance) if the condition is not for its exclusive benefit. In Heron, a contract was conditional on the buyer obtaining planning permission to develop the property by building a petrol station and car wash. The seller intended to use the retained land for car sales. When it became apparent that the buyer was unlikely to obtain planning permission, it purported to waive the condition and called on the seller to complete. The court dismissed the buyer’s claim for specific performance. The condition was not solely for the buyer’s benefit, so it was not open to it to waive it.

References: Heron Garage Properties v Moss [1974] 1 All ER 421

For this reason the contract should make it clear whether the condition is capable of waiver and, if so, by whom. In addition, contracts conditional on planning often include separate provisions enabling the buyer to waive its right:

• to treat a planning permission as unsatisfactory because of the presence of an unreasonable condition

• to wait until the judicial review period has expired without challenge

TerminationThe agreement should specify a longstop date so that the contract can be brought to an end if little progress has been made in terms of satisfying the condition. However, the parties should consider including provision for the longstop date to be postponed if the determination of an appeal or third party challenge is awaited. Commonly, the contract will postpone the longstop date until a given period after the date of the appeal or challenge decision.

The contract may provide that it determines automatically upon occurrence of the longstop date, or it may continue after that date until a party serves notice to terminate. If notice is required to terminate the contract after the longstop date, the relevant clause should make it clear that the contract may only be determined at that stage if the condition has not been satisfied. A buyer who has obtained a satisfactory planning permission after the longstop date will not want the seller to be able to terminate the contract simply because the longstop date has occurred.

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