Walker v Kenley & Anor

A contractual overage clause referring to development “as residential flats” may distinguish flats available for permanent, year-round residence from apartments restricted to holiday occupation. Construction is objective and informed by the language, the commercial background known to the parties, and the commercial consequences of competing interpretations. The ordinary meaning of “flat” already connotes residential accommodation; adding “residential” may therefore narrow the expression to flats available as permanent residences. Planning classifications, including the fact that both uses fall within Class C3, do not control the contractual meaning unless the contract is framed by reference to them.

The claimant, standing in the shoes of the purchaser, sought a declaration concerning an overage clause inserted into a property sale agreement by consent order. The clause required payment if the purchaser obtained planning permission to develop the property “as residential flats” and carried out that development.

The purchaser obtained permission for 17 holiday apartments, subject to a condition restricting their use to holiday accommodation. The issue was whether that permission fell within clause 23.1 and triggered the overage payment claimed by the vendors.

1. Construction. The court construed clause 23.1 objectively, having regard to the language used, the relevant commercial background and the consequences of the competing interpretations. The approach was consistent with Sirius Insurance Co. v FAI General Insurance [2004] 1 WLR 3251 (HL).
2. Meaning of “residential flats”. In context, the expression referred to flats available for full-time residential occupation and did not include flats restricted to holiday use. The Agreement’s focus on permanent residential units, the parties’ knowledge of the pending planning applications, and the distinction between unrestricted residential flats and holiday flats supported that construction.
3. The description “residential flats”, rather than merely “flats”, was intended to delimit the relevant category. The commercial structure of the overage provision also suggested that it was directed to a development different from the holiday-apartment permission already available when the Agreement was made.
4. The court rejected reliance on the fact that both holiday apartments and permanent residences fell within Class C3 under the Town and Country Planning (Use Classes) Order 1987. The contractual language was not framed by reference to that planning classification. The court also rejected comparisons with the expressions considered in Owen v Elliott (Inspector of Taxes) [1990] Ch 786, since that case concerned a different phrase and context.
5. The claimant’s construction was correct. The vendors were not entitled to an overage payment in respect of the permitted holiday-apartment development. The parties were invited to agree the appropriate form of order.