Property Law Roundup - October 2011

Welcome to the October issue of Anderson Strathern's Property Law Roundup.

In this month's issue, we provide a case comment on a dispute between two housing developers on whether or not land offered in a swap deal met the terms of the contract. We also include a briefing on the Business Premises Renovation Allowance tax break and a briefing on changes coming to improve the Real Estate Investment Trust regime. We also include other news items impacting on the property sector.

Case Comment Housebuilders left with no alternative: land swap ends up in court over "like for like" provision Briefings Business Premises Renovation Allowance Changes to REITs' rules News New CPO guidance Current Scottish Government consultations Case Comment

Housebuilders left with no alternative: land swap ends up in court over "like for like" provision

Persimmon owned a large development site at Wester Cowden, Dalkeith. The site being too large for a single developer to build out effectively, Persimmon sold a development parcel to Bellway. Bellway owned an area of land at Broomhouse, Glasgow and sold it to Persimmon. In this way, each developer was able to maintain a steady and programmed supply of development sites which were of a size capable of effective development.

The sale of Wester Cowden by Persimmon to Bellway proceeded without difficulty. The sale by Bellway to Persimmon of Broomhouse was more troublesome. The site infrastructure was not yet in place. Settlement of the sale was therefore to take place 28 days after Bellway completed the infrastructure works – these being the installation of roads, footpaths, services, the upgrading and realignment of a nearby road, and the construction of a roundabout, all as acceptable to the local authority.

The deal provided that Bellway would complete these works by a certain date. It was anticipated that completion of the infrastructure required to render Broomhouse developable would be costly and was not entirely within the control of Bellway. Since part of the commercial rationale for the deal was to provide Persimmon with a site it could develop, the contract stipulated that if the infrastructure works at Broomhouse were not completed on time then Bellway would be obliged to offer Persimmon another residential development site within Central Scotland. That site would be of comparable size and value to the Broomhouse site.

It became obvious that the infrastructure at Broomhouse could not be provided to the satisfaction of the local authority and at acceptable cost to Bellway by the due date. Bellway therefore wrote to Persimmon inviting them to acquire an alternative Bellway-owned site in Airdrie. This suggestion was not taken up by Persimmon, the due date for completion of the infrastructure works at Broomhouse passed and Persimmon sued Bellway for £1.8M in damages arising from Bellway's breach of contract.

Bellway successfully argued that there was no breach of contract merely from the fact that the due date for completion of the infrastructure had passed. A breach of contract by Bellway would arise only if Bellway also failed to offer the alternative site. (The position might have been different if there had been any evidence to suggest that Bellway had deliberately procrastinated on completing the infrastructure works in order to avoid selling Broomhouse to Persimmon.)

Having disposed of that initial question, the Court had to determine whether correspondence by Bellway amounted to making an offer to sell a residential site of comparable size and value to Broomhouse. It was not required by the deal that such an offer be accepted by Persimmon, only that it be made by Bellway.

It was decided that, in the absence of any specific provision in the contract, the offer did not have to be in any particular form and the informal offer in correspondence by Bellway to Persimmon was sufficient. It was not required that a price be agreed given that this could be arrived at by other means and was ultimately subject to court determination. The two sites were of comparable size, the difference in size amounting to 6.07% or 13.4% depending on whether one looked at the gross area or the net developable area. However, after lengthy...