Case notes... from Ann Wright

St Mildred’s Tannery, on the banks of the River Stour in the centre of Canterbury, Kent, had been owned by Connolly for many years. In the late 1990s Connolly decided to sell the 8.44 acre site for development and in 2000 hired Hertfordshire-based Pace Projects as its agent to handle the sale.

Bellway offered £14.51m for the site, subject to planning. It indicated that it wanted 1.5 acres for retail and 1.2 acres for a hotel within the scheme, with the remaining land being used for housing. As gaining this planning approval could delay the sale by several months (in fact it was several years), Pace’s Paul Draper insisted that Connolly receive a share of the increased value of the land over that time. Bellway’s negotiator, Michael Davis, agreed, but he also wanted to factor in any increases in construction costs.

The parties eventually agreed on a formula that protected their positions. The basic price in the formula for the housing was £212 per square foot (psf). Although it was Draper who had suggested this figure, it was based on £210 psf which Bellway’s Davis said was the average price ‘being achieved’ elsewhere at that time (May 2001) in Canterbury.

When satisfactory planning permission was eventually given on April 28, 2005, the housing value for the formula had risen to £268 psf. However, when the agreed formula was used, taking into account all the factors, including increased construction costs, Connolly was found to have gained no increase, because the original price of £212 psf had been too high. Connolly cried foul.

The court found that at May 1, 2001, the correct average price should have been £183 psf, which would have given Connolly an uplift of £710,214.38. In addition, Bellway had known that its originally proposed average price of £210 psf was too high.

Courts are generally reluctant to interfere in such agreements, but as Connolly had believed the £210 psf was a genuine estimate, it was awarded the uplift of £710,000 plus its costs.

Moral: Negotiators must be honest and reasonable.

Case: Connolly Ltd v Bellway Homes Ltd. (TCC April 2007)