Summary

Where a sale agreement governing the sale of land for residential development restricted the manner in which the developer could dispose of the completed residential units with a view to protecting the seller's right to overage, the subsequent sale of five properties to a registered social housing provider as affordable housing was not within the definition of "the transfer ... of land ... for ... other social/community purposes". Properly construed, in its context and in accordance with the ejusdem generis rule, a "transfer of land" could not include the transfer of a completed dwelling.

Facts

A property investment company which had sold land to a development company in 2007 appealed against a decision that the developer's subsequent sale of five residential units to a social landlord as affordable housing amounted to a "permitted disposal" within the meaning of the sale agreement.

The land had been sold with a 1993 planning permission for 62 residential units. The agreement provided for the investment company to receive overage if the developer disposed of the units at a price exceeding a certain sum per square foot. A section in the agreement entitled "permitted disposal" restricted the types of disposals that the developer could make, so as to protect the right to overage. The first permitted disposal was a "residential disposal", defined as "a disposal ... in the open market at arm's length". The third permitted disposal ("paragraph (c)") was "the transfer/dedication/lease of land for the site of an electricity sub-station, gas governor kiosk, sewage pumping station and the like, or for roads, footpaths, public open space, or other social/community purposes". The 1993 planning permission contained no requirement for affordable housing. In 2011, when almost half of the units had been built, the developer obtained revised planning permission which increased the total number of permitted units to 75. Under the accompanying s.106 agreement, the developer had to provide five units of affordable housing to one of several registered social housing providers. It sold the units to a social landlord in 2012, without any prior notice to the investment company, on the basis that the transaction was a "residential disposal". The investment company disputed that assertion and began proceedings for a declaration that the developer had breached the sale agreement. A judge held that the transaction was not a "residential disposal", because it had not been made in the open market. He found, however, that the provision of affordable housing achieved an important social purpose of substantial benefit to the community and was therefore within paragraph (c).

Held

Properly construed, did paragraph (c) enable the sale of affordable housing to be a "permitted disposal"? No. It would be very strange to describe the transfer of a completed dwelling as a "transfer of land". Land transferred for any of the purposes listed in paragraph (c) was unlikely to have any buildings on it at the transfer date, let alone a dwelling house. That was the essential point of the ejusdem generis rule, which was not a rigid cannon of construction, but a flexible aid to construction which reflected the twin requirements of commercial common sense and the need to construe contractual provisions as a whole and in their context. The words "or other social/community purpose" in the second part of paragraph (c) had to be read in the light of the three specified purposes preceding them. The judge had been right to characterise the provision of affordable housing to a registered social landlord as having both a social and community purpose. Furthermore, the sale agreement expressly left open the possibility of the developer applying for revised planning permission and both parties would have known that modern planning policy might impose a requirement for the provision of affordable housing. Such considerations substantially supported the developer's case, but they did not satisfy the investment company's objection that the language of paragraph (c) was not apt to cover disposals of completed residential units. The developer should have negotiated with the investment company for release from the restriction if it wished to complete its development of the site in accordance with the new planning permission (see paras 48-51, 54-55 of judgment).

Was the investment company entitled to damages on a negotiating basis? Yes. It was entitled to compensation for the lost opportunity to negotiate an appropriate price with the developer for permitting the transfer of the five units to the social landlord, Pell Frischmann Engineering Ltd v Bow Valley Iran Ltd [2009] UKPC 45 considered. It was common ground that the investment company had suffered no loss, but that was irrelevant; the benefit of the contractual restriction on disposals was a potentially valuable piece of property in its own right and the investment company had been deprived of the opportunity to exploit it by the developer's unilateral action. The case was remitted for quantum to be determined (paras 56-61, 65).

Appeal allowed