Development Contracts And Disputes: What Are The Issues?

• Published date: 08 February 2021
• Subject Matter: Corporate/Commercial Law, Real Estate and Construction, Contracts and Commercial Law, Construction & Planning, Real Estate
• Law Firm: Walker Morris
• Author: Claire Acklam

Development contracts and disputes: What are the issues?

Contracts relating to the development of land and property commonly include promotion agreements, joint venture arrangements, overage provisions, agreements for sale and options to purchase, among others.

When negotiating any development or commercial contract, it is important to ensure that the contract ultimately entered into accurately reflects the parties' intentions and understanding.

Development contracts, and the schemes that they underpin, are usually high value. Each development and the issues that arise are particular to their own site and factual circumstances, and they are often complex and fraught with risk. It is notoriously tricky to cater in the contract for unknown future events; for parties with changing and potentially conflicting interests; and to cover all possible eventualities. However the consequences of getting the contractual position wrong can be devastating, especially where planning is involved.

At the outset of any development venture, when landowners, developers, and perhaps other joint venture partners consider doing business together, a multitude of enquiries, discussions and negotiations take place before any deal is done. Agreement of 'heads of terms' can, therefore, seem like the point at which most of the hard work has been done. However, if very close attention is not paid to every iteration of every clause in every development contract, there is a risk that parties will complete contractual documents which do not actually reflect their intentions, and the obligations and protections which have been agreed and are required. As a result, some of the most frequently encountered forms of development dispute are contractual interpretation disputes.

So, when one party believes that a clause says one thing, and another party believes the clause says something completely different, how does the law resolve the situation?

Correct approach to contractual interpretation

The starting point for a court (and therefore for any settlement discussions/negotiations) is to look at the actual wording of the contract itself. Wherever possible, the courts will strive to uphold the clear wording of the clause, applying the natural and ordinary meaning of the words and applying the objective test of what the reasonable businessperson would understand the clause to mean, even if that results in a 'bad' bargain for any party [1].

The court's task is to ascertain the meaning of the...