Agricultural Law | Option Agreements
Adam Corbin FAAV
Posted on 4 Aug 2016

Option Agreements: The Devil is in ("the Detail")

Introduction

The Court of Appeal has recently declined to grant permission for a second appeal of the decision on appeal in H & S Developments v Marjorie Chant. The result is that practitioners may wish to consider carefully how Option Agreements have been drafted in the past, and those which they may draft in the future.

This is particularly so in the circumstances where the Courts' decision on appeal and at first instance, now left undisturbed by the Court of Appeal, was such that the meaning attributable to the phrase 'detailed planning permission', is contrary to the meaning ascribed to the phrase in numerous precedent agreements, and common parlance.

In this article we will briefly describe the background dispute between these parties, and go on to describe how the Courts have construed and applied the law. In conclusion we suggest some points which professionals advising developers and landowners should consider when agreeing Heads of Terms or the drafting Option Agreements.

Background

Miss Chant was the freehold owner of a farmyard in Somerton, South Somerset. She entered into an Option Agreement with H & S Developments Limited. That Option Agreement was part of a conveyance of a large part of the farmyard to H & S Developments in order that they could develop the site to build a number of houses. As H & S Developments were, at the point of sale, unsure as to what exact areas of land they would require in order to obtain planning permission, (for items such as landscaping, mitigation, and highways); an Option was agreed with Miss Chant. H & S Developments could call for further land for the purposes of developing the site upon obtaining 'detailed planning permission'.

H & S Developments first served notice following the decision of the planning committee granting outline planning. However, Miss Chant declined to transfer the land called for,  arguing that the term "detailed planning permission" meant that a successful decision had to be obtained upon reserved matters, in order that the Option could be exercised.

Some complication is added by the fact that upon reserved matters approval, H&S Developments served a further notice pursuant to the Option Agreement, although they chose to pursue the litigation on the basis of the first notice.

The trial at first instance

At trial the District Judge sitting in Taunton formed the view at [15] that "The use of the term 'detailed' in front of the words planning permission, I find, added nothing to the claimant's obligations beyond obtaining planning permission…".

and at [16] "The purported distinction created in the Option Agreement is not supported by any substantial fact or imperative requiring something more to be undertaken than just obtaining planning permission. In this regard therefore I find for the Claimant on the meaning of 'planning permission' described in the Option Agreement".

Relevant case law

The District Judge was directed by Counsel to the authorities: Castle Bay Limited v Asquith Properties [2016] 2P.&C.R. 22, and Hargreaves Transport Limited v Lynch [1069] 1W.L.R. 2015.

In Castle Bay the Court of Appeal was asked to consider an Option where the time for activation or call would be extended if a decision was awaited in respect of a 'planning application'. In that case the Lord Justices found that where the outlined and reserved matters procedure was used, the only 'planning permission' required was the outline permission. In passing it is relevant to note that their Lordships construed the Option in Castle Bay by reference to planning law and procedure. They then took the view, based upon the Town & Country Planning Act 1990, and in particular Section 70 and Section 92; that the only planning permission is the application for outline permission, notwithstanding that reserved matters are yet to be decided. The result in Castle Bay was that the Court of Appeal viewed the application for reserved matters as not extending the period for calling the Option, as it was not an application for planning permission.

In Hargreaves the Court of Appeal were concerned with construing a contract for sale, which was conditional upon gaining planning permission for a certain purpose, being use as a transport depot and to develop the property by erection of buildings, carrying out of works, and using the property in a manner appropriate for a transport depot and the business of road haulage contractors. By the deadline imposed under that contract, only outline permission had been gained. Certain reserved matters had not been given approval following concerns  that the development would be detrimental to the village amenities of occupiers and houses in the vicinity, and that the detailed planning did not show a satisfactory external appearance.

In the circumstances, the purchaser sought the return of their deposit and declined to proceed with the sale. The Court of Appeal made up of Lord Denning, Master of the Rolls, Russell and Widgery LJJ found that the outline permission sought and gained was not sufficient in order that the condition precedent of the contract was fulfilled, and as such the purchasers were entitled to the return of their deposit.

Of note is the fact that in his judgement the term 'detailed planning permission' was used by the Master of the Rolls no less than eight times, to distinguish between outline planning permission and full planning permission including reserved matters.

Miss Chant's appeal

Following the Trial in front of the District Judge the matter was then appealed to a Circuit Judge, who applied the principles expanded by Lord Neuberger in Arnold v Britton & Others [2015] UKSC 26 as to the objective interpretation of written contracts. The Circuit Judge considered the authority of Hargreaves, and noted it was essentially the object of the conditional contract for sale that the claimants used the site for the purpose under which planning permission had been sought.

The Circuit Judge also considered Castle Bay at length, he stated at [34] that: "It is clear therefore that in the context of planning law there is only one planning permission. That is the outline planning permission which was granted in January 2014." The Circuit Judge then went on to say at [35]: "As I understand it, the phrase 'detailed planning permission' does not actually exist in the planning legislation. What is being referred to is the definition and the setting out of what are known as reserved matters and the question the learned District Judge had to decide and which I have to decide is whether the reference 'detailed planning permission' in this Option Agreement effectively means that until reserved matters had been dealt with, no 'detailed planning permission' had been given for the purposes of the option."

and at [36] "Given the background to which I have alluded and given that the word 'detailed' in planning terms as I understand it adds nothing to the words 'planning permission' I believe that, like the learned District Judge, one is left in the position that if one is to give a meaning to these words it can only be done in the context or against the background of the legislation and in particular the authority of Castle Bay".

Analysis

Those involved in commercial development projects may be somewhat surprised at the conclusion drawn by the Circuit Judge that the word 'detailed' added nothing to the phrase 'planning permission'.

Indeed it is a drafting option in most precedent Option Agreements to state either 'detailed planning permission' where the Option is crystallised upon reserved matters being decided in addition to any outline permission; or 'outline permission' where the Option is to crystallise upon the obtaining of only outline planning permission.

The decision on appeal arguably leaves the date for crystallisation of Options granted using the term 'detailed planning permission' open to question, where Options have been drafted using the term 'detailed planning permission' as shorthand for a full planning permission where all detailed matters have been decided.

The application for permission to appeal to the Court of Appeal

Miss Chant's application hearing for permission to appeal a second time to the Court of Appeal was heard by Lord Justice Sales at the Royal Courts of Justice on 26 July 2016. Readers may or may not be aware that in order to obtain permission to appeal for a second time litigants need to meet a much tougher test than the requirement for a 'real prospect of success or some other compelling reason'. That test is set out at Civil Procedure Rule 52.13 (2) which states that: "the Court of Appeal will not give permission unless it considers that (a) the appeal would raise an important point of principle or practice; or (b) there is some other compelling reason for the Court of Appeal to hear it."

After hearing lengthy submissions on behalf of the appellant, Lord Justice Sales was not persuaded that in this instance there was an important point of principle or practice or other compelling reason to grant permission, and as such the decision of the Circuit Judge remains undisturbed.

A feature of His Lordship's decision was that in these specific circumstances, he was of the view that the second Option notice served by the respondent could be activated in any event, bringing about the same result, and as such, even if the Appellant were successful at appeal it would be a pyrrhic victory.

Points of note

In considering Heads of Terms and the drafting of Option Agreements in future, the use of the convenient shortcut of 'detailed planning permission' is to be approached with caution. In this case the Court was construing a relatively straightforward Option Agreement containing a term used in judgement  by the former Master of the Rolls no less than eight times, to distinguish between outline planning permission and full planning permission. The Court decided, in searching for the clear objective intentions of the parties, that the Option Agreement should be  construed in exactly the opposite way. In future it will be necessary to ensure that in definitions it is stated clearly that detailed planning permission is, for the avoidance of doubt, to include permission on all reserved matters.

As an aside, it was also an issue in this case whether or not planning permission was granted as at the date of the committee's decision to recommend, or as at the date of the permission being notified to the parties by letter in the conventional way. As such a future drafting point might also be made that  the date of permission needs to be  further defined.

As to current agreements containing the phrase 'detailed planning permission' (of which there are no doubt thousands), advisors might consider whether or not their clients could dispute whether a valid notice has been served. Perhaps the High Court might be encouraged to reconsider the law in a similar matter in future.

For further information please contact Adam Corbin at adam.corbin@michelmores.com or 0117 906 9324.