Groveholt Ltd v Hughes & Anor

Where an overage charge secures payments subject to deduction of development costs, the relevant costs are those falling within the contractual definitions, whether incurred by the original purchaser, a successor or another developer. They need not have been incurred under the original agreement or under its procedural machinery. The court must assess the net costs which affect the value of the development, including grants received before the contractual costs are determined. A party cannot reduce the deductible costs by alleging delay unless it proves a contractual breach and resulting loss. A charge securing overage payments secures only the net amount after valid deductions.

The claimant owned land charged in favour of the first defendant to secure overage payments under an agreement between the defendant and the claimant’s predecessor in title. The charge was released by consent and replaced by a payment into court. The claimant sought payment out on the basis that site assembly and infrastructure costs exceeded the contractual threshold and extinguished the secured amount.

The defendant challenged the nature and amount of the claimed costs and alleged breaches concerning planning, site assembly, infrastructure works, consultation and assignment. The court also considered the effect of the disclaimer of the predecessor’s agreement and the subsequent involvement of Sainsbury and the claimant in completing the development.

1. Effect of the earlier decisions. The charge survived the disclaimer of the original agreement and secured the net amount of the overage payments after deduction of qualifying costs. Costs incurred by Chelverton, Sainsbury or Groveholt were deductible if they fell within the contractual definitions. They did not need to be incurred under the original agreement or under the cost-determination procedure in the Sainsbury agreement.
2. Planning and site assembly. The obligation to organise site assembly and infrastructure works arose only on the grant of detailed planning permission, not outline permission. The defendant failed to prove any breach of the reasonable-endeavours obligations concerning planning or site assembly. In particular, the refusal to release the charge over the Phase One Residential Land was itself a breach and prevented the defendant from relying on delay before June 2004.
3. Qualifying costs. Infrastructure Costs included works required by planning conditions and section 106, section 38 and section 278 agreements, together with reasonable professional fees involved in providing the works. They included the bus station, footbridges, road works and qualifying design, legal and engineering costs. Planning consultants’ costs incurred solely to obtain planning permission were not deductible. Provisional sums were limited to the amounts allowed when the accepted tender was made.
4. Net costs and grants. A public grant received before the contractual costs were determined had to be deducted. Treating the gross cost as deductible would create an unintended windfall and would not reflect the net cost of providing the infrastructure.
5. Disposition. Site Assembly Costs were £1,470,451 and Infrastructure Costs were £11,398,120, producing total deductible costs of £12,868,571. As the deductible costs exceeded £7.5 million, no sum was secured by the charge. The claimant was entitled to payment out of court and the personal guarantees were cancelled.

The judgment records earlier decisions in the same proceedings:

• Court of Appeal affirmed the decision of Nicholas Underhill QC in [2005] EWCA 897, reported at 2 BCLC 421.
• High Court (Chancery Division) made a declaration concerning deductible costs in [2008] EWHC 1358 (Ch).
• Court of Appeal affirmed Peter Smith J in [2010] EWCA Civ 538.
• High Court (Chancery Division) determined the remaining factual and contractual issues in the present judgment.