North Eastern Properties Ltd v Coleman & Anor

A composite transaction involving land may be divided into separate contracts without infringing section 2(1) of the Law of Property (Miscellaneous Provisions) Act 1989. The decisive question is whether performance of the land contract is conditional upon performance of the separately agreed terms.

An entire agreement clause may establish that no such conditionality exists. It does not necessarily extinguish a distinct collateral agreement supported by its own consideration.

A notice making time of the essence must allow a reasonable period, assessed in all the circumstances. The time needed for performance is important but not invariably decisive.

The vendor agreed to sell eleven flats under separate, assignable contracts. A separately agreed 2% finder’s fee, payable for finding purchasers, was deliberately omitted from those contracts. Each contract contained an entire agreement clause.

After construction was delayed, the purchasers gave ten working days for the development to be made ready for occupation. They stated that otherwise they would regard themselves as discharged. The judge ordered specific performance, holding that the contracts complied with section 2(1) of the Law of Property (Miscellaneous Provisions) Act 1989 and had not been rescinded.

The appeal concerned whether the omitted fee invalidated the land contracts and whether the ten-day notice validly made time of the essence. The dismissal of the purchasers’ counterclaim for the fee was also addressed.

1. Appeal dismissed. The eleven land contracts complied with section 2(1) of the Law of Property (Miscellaneous Provisions) Act 1989. A party relying on that provision must identify an omitted, expressly agreed term of the land sale. It is insufficient that the land contract forms part of a wider commercial transaction containing other agreed terms.

2. Parties may structure a composite transaction through separate contracts where performance of the land contract is not conditional upon performance of the other agreement. If such conditionality exists, the relevant terms must be incorporated as section 2(1) requires. Each land contract must be analysed separately.

3. The finder’s fee was a separate reward for finding purchasers of twelve flats. It was payable on exchange, applied even to a flat purchased by another person and was not assignable with the individual land contracts. Performance of the eleven sales was not conditional upon payment of the fee. The entire agreement clauses confirmed that separation and placed the matter beyond doubt.

4. The entire agreement clauses did not extinguish the finder’s fee agreement. Commercial reality required them to mean that the fee was outside, and not a condition of, each land contract. The fee agreement remained independently enforceable because it was supported by its own consideration. The judge should therefore not have dismissed that part of the counterclaim. The vendor was liable for the £28,800 fee with interest, without a set-off arising from the land contracts.

5. The purchasers’ notice was capable in principle of making time of the essence because the vendor was already in non-repudiatory breach of its obligation to build with all due despatch. Its ten-working-day period was nevertheless unreasonable. Both parties knew that completion could not occur within that period; there had been no earlier complaint about delay; and the purchasers had just been told that a further month was required. The notice therefore did not create a repudiatory breach and the contracts were not rescinded.

6. The court left open whether a time-of-the-essence notice may also contain an effective prospective election to terminate if the notice is not complied with. Briggs J considered that no obvious principle prevented a sufficiently definite prospective election, but determination was unnecessary.

1. Court of Appeal (Civil Division): Dismissed the purchasers’ appeal against the order for specific performance, while holding that their counterclaim for the finder’s fee should be allowed.
2. High Court, Chancery Division, Newcastle upon Tyne District Registry: HH Judge Behrens ordered specific performance of the eleven sale contracts and dismissed the purchasers’ counterclaim.