Locations
This article was included in the spring 2011 issue of Informer - the real estate newsletter.
The recent appeal in Bellway Homes Limited v Beazer Homes Limited contains some useful reminders of the importance of planning for the unexpected.
The dispute concerned a joint venture between Bellway Homes and Beazer Homes relating to development land at Cramlington.
Under the terms of the joint venture, land was sold at different stages by the joint venture company to either Bellway or Beazer by mutual agreement. The clear intention of both parties (reflected in the shareholders' agreement, which set out the terms of the joint venture) was that the land would be sold to each party in equal measure. However, in practice, land was often sold in unequal shares, to reflect the capacity of one or other party to develop that land at a particular time. Any imbalance in the value of the land was intended to be addressed in the allocation of the final plot sales.
The relationship continued amicably on this basis for nearly a decade. When the final allocations were determined in 1999, the arrangements were dealt with by exchange of letters. The letters included an allocation of 11.58 acres of a particular plot to Bellway and 6.29 acres to Beazer. It was thought that the area allocated to Bellway would be attractive for development as a result of its potential for residential use, which was supported by initial discussions with the local planning officers.
However, at the time that the land was split between the parties, planning permission had not been obtained. Unfortunately, contrary to everyone's expectations, planning permission was refused, so Bellway's land was worth far less than had been thought.
In order to compensate Bellway for being left with a worthless site, it applied to court for an order that Beazer should transfer some other land to Bellway at a completely different site which was also the subject of a joint venture agreement between the two parties. This order was granted at first instance.
However, the Court of Appeal, expressing sympathy for Bellway, took a tougher stance, echoing the commonly held stance that the courts will not remedy a bad deal, whatever the extraneous circumstances, and even if this does not allow for "commercial fairness".
Particular reasons highlighted were:
- Full planning permission was "unknown and at large" in the mind of the parties, who could have waited until planning permission was granted.
- What happened after the event was not relevant - the treatment of matters happening subsequently were not part of the contractual arrangement between the parties.
- The letters allocating the land were intended to create a final position, which was not intended to be re-opened.
- The parties were sophisticated and experienced home builders, who fully understood the impact of the contractual arrangements between them.
- In any event, the valuation itself had been conducted largely on an acreage basis.
The case also provides another reminder of the importance of a clear documented framework of joint venture arrangements, even with the most amicable of joint venture partners.
For further information please contact Vicky Nunn.