Phoenix Property Investors Ltd v Grange Securities Ltd

A contract for the sale of a partly converted building may require the seller to achieve practical completion and remedy agreed snagging items before completion, even where the written contract does not specify the works in detail. The court may imply obligations necessary to give the agreement business efficacy, including a requirement that work be completed within a reasonable time and to a good and workmanlike standard.

A contractual requirement that works be completed to the purchaser’s satisfaction ordinarily means reasonable satisfaction. Minor defects may fall below the threshold justifying refusal to complete, but substantial defects, including unresolved damp or significant mechanical and electrical deficiencies, may do so. Where completion is expressly subject to the works, their completion is a condition precedent to the purchaser’s obligation to complete.

The claimant agreed to purchase a listed building being converted into residential flats and offices. The contract fixed a completion date subject to completion of works identified in an agreed snagging list, but did not set out the works themselves.

The works remained incomplete for several years. After inspections identified outstanding defects, the defendant stated that it would perform no further work and regarded the contract as terminated. The claimant accepted that position and sought repayment of £200,000 paid under the contract.

The central issues were the scope of the defendant’s contractual obligations, the standard and materiality of outstanding defects, whether the claimant was entitled to terminate, and whether the deposit should be repaid.

1. Disposition. Judgment was entered for the claimant for repayment of £200,000, with interest.
2. The written contract was inadequately drafted, but its reference to a snagging list necessarily implied that the defendant would complete the orally agreed conversion works to practical or substantial completion by the date for preparation of the list. The defendant was then required to remedy the identified snagging items by the contractual completion date. Any further agreed items formed part of the contractual works.
3. The defendant’s obligation included an implied term that the works would be carried out to a good and workmanlike standard reasonably suitable for residential or commercial occupation. The reference to completion to the purchaser’s satisfaction meant reasonable satisfaction, not an unfettered subjective discretion.
4. Not every defect justified refusal to complete. Minor matters, considered individually and collectively, were below the relevant threshold. Unresolved damp, inadequate evidence concerning heating and electrical certification, an improperly vented extractor, and unresolved water-pressure problems were substantial matters capable of requiring significant expenditure and disrupting occupation.
5. Because the contract made completion subject to completion of the snagging works, that obligation was a condition precedent to the claimant’s duty to complete. The defendant’s letter stating that it would perform no further work was therefore a repudiatory breach. The claimant was entitled to accept that repudiation without waiting for the notice-to-complete period to expire, since the defendant had made clear that compliance would not occur.
6. The defendant failed to establish any breach by the claimant. Under condition 7.6, and subject to the court’s discretion under section 49(2) of the Law of Property Act 1925, the claimant was entitled to repayment of the deposit. There was no reason to exercise the statutory discretion in the defendant’s favour.