Sheffield City Council v Scotfield Group Limited & Anor.

A contract may require an implied term where, without it, the arrangement lacks practical or commercial coherence. Where completion is suspended until a purchaser provides evidence of a building contract, the purchaser may be obliged to provide that evidence within a reasonable time after the contract becomes unconditional.

A contractual termination clause is available after the contract becomes unconditional unless its wording clearly restricts its operation. Failure to provide the required evidence within a reasonable time may constitute a substantial breach. A deposit validly forfeited for the purchaser’s default will ordinarily be retained. Repayment under Law of Property Act 1925, section 49(2), requires special or exceptional circumstances.

The claimant sold development land to the first defendant under a contract dated 21 March 2019. Planning permission was obtained and the contract became unconditional in April 2020. The contract suspended completion until the purchaser provided evidence of a bona fide arm’s-length building contract, but did not specify a time limit for doing so.

The claimant alleged that the purchaser had failed to provide the required evidence within a reasonable time. It served a notice to rectify and then terminated the contract under clause 29(a). The defendants disputed the implied obligation, the availability of termination after the unconditional date, the alleged breach and the forfeiture of the deposit. They counterclaimed for specific performance or repayment of the deposit.

1. Implied term. The contract contained a lacuna. Without an implied obligation, the purchaser could indefinitely prevent completion while leaving the claimant bound. It was therefore necessary and possible to imply a term requiring the purchaser, within a reasonable time after the contract became unconditional, to provide evidence of a building contract which had been or would be entered into for the development. The test in Marks & Spencer plc v BNP Paribas Securities Services Trust Co (Jersey) Ltd [2016] AC 742 was satisfied.
2. Termination. Clauses 29 and 30 did not restrict termination for insolvency or breach to the period before the contract became unconditional. The clause could therefore be exercised both before and after that date.
3. Breach. By 7 October 2021, more than 17 months after the unconditional date and after prolonged requests for evidence, a reasonable time had passed. The purchaser’s failure to provide adequate evidence of a bona fide arm’s-length construction contract was a substantial breach under clause 29(a). The documents supplied on 18 October 2021 did not identify an arm’s-length contractor and did not remedy the breach. A related subsidiary was not an arm’s-length contractor on the evidence.
4. Deposit. The court declined to order repayment under section 49(2) of the Law of Property Act 1925. Expenditure on planning permission and any possible enhancement in value were ordinary incidents of development and did not constitute special or exceptional circumstances.
5. The contract was terminated by the notice dated 18 November 2021. The claimant was entitled to forfeit and retain the deposit under condition 10.2 of the Standard Commercial Property Conditions (3rd edition), and the defendants were ordered to re-convey Property 2 for £1.