One of URHL’s arguments was that the requirement to pay the £240,000 amounted to a penalty clause and was therefore unenforceable. ![]() It then brought proceedings to recover the payment. In order to become registered as the owner of the site, and even though the dispute over whether development had commenced remained unresolved, URHL agreed to pay the £240,000 to HBC. A dispute arose, but was not resolved and in 2019, IL sold the site to URHL for £850,000 for the construction of a health centre. IL’s position was that some development works had been carried out, albeit by LCL. In 2015, HBC contacted IL claiming the £240,000 payment on the basis that no development had started within the 36-month period. IL entered into the required deed of covenant, and again, a restriction was put on the title. LCL then transferred the site to IL for £125,000. In 2012, the parties entered into additional documents relating to the site, including a Deed of Variation of the 2011 transfer, which provided that if LCL hadn’t started development on a specified part of the site within 36 months from the date of the 2011 transfer, it would have to pay an additional £240,000 to HBC. As is usual, the 2011 transfer required LCL to obtain a deed of covenant from any future owner of the land that they would make the necessary payments to HBC, and a restriction was placed on LCL’s title to the land meaning it couldn’t be registered in the name of a new owner without HBC’s consent. The sale was conditional on the renewal of an expired planning permission and provided for LCL to make various additional payments by way of overage if triggered by certain events. HBC sold a development site in Widnes to a buyer (LCL) for £220,000. The rule against penalties is applied sparingly, as it is effectively an interference with parties’ freedom of contract, but it is important that penalties are not exorbitant or unconscionable.The test for whether a contractual clause is a penalty is whether it imposes a detriment on the contract breaker out of all proportion to any legitimate interest of the innocent party in the enforcement of the primary contractual obligation.In Planning Points, we consider upwards development under permitted development rights and our Tax Tips cover two cases involving unhappy taxpayers who ended up paying out considerably more Stamp Duty Land Tax than they had planned for.ĬASE LAW UPDATE Contracts – penalty clause: Upton Rocks Healthcare Ltd v Halton Borough Council In the Landlord and Tenant round-up, we look at the grounds on which a landlord can oppose the grant of a renewal lease and to what extent the costs of (very expensive and lengthy) litigation can be recovered from tenants through a service charge. This quarter, we look at cases on penalty clauses in sale contracts, what ‘reasonable’ means when it comes to not unreasonably withholding consent under a restrictive covenant and what factors the Upper Tribunal will take into account when considering whether a restrictive covenant is obsolete. Welcome to the latest edition of the Real Estate Legal Update.
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