Should social housing be a “permitted disposal” on which no overage is payable?

1st November 2017

The case of Burrows Investments Ltd (Burrows) and Ward Homes Ltd (Ward) (2017) is another case highlighting the importance of careful drafting and negotiation of overage provision but this case also shows the importance of being aware of how matters such as changes in planning policy should be taken into consideration when drafting.  In the early 1990’s Burrows obtained outline planning consent (which contained no provision for social housing) for a large residential development.

Burrows built out part of the land, thereby implementing the consent. Burrows sold the rest of the site to Ward in 2007 with the benefit of the planning. The land was subject to overage payment upon completion of the development from sales of residential units on the open market which exceed a specified sum per square foot.

Ward had agreed not to make disposals, except for disposals which constituted a “permitted disposal”, without procuring that the transferee entered into a deed of covenant with Burrows in respect of overage. A “permitted disposal” would include disposals such as a “transfer/dedication/lease of land for the site of an electricity sub-station,” and it also includes disposals for “other social/community purposes”.

Ward was granted further planning permission after completion of the sale and entered into a Section 106 agreement making provision for five units of affordable housing to private providers of social housing or to one of a number of specified registered social landlords. It was now the case that changes in planning policy since the 1990’s meant that an element of the development had to comprise social housing.

Without informing Burrows, Ward quietly disposed of the five units to a social housing provider in accordance with the Section 106 agreement and provided self-certification to the Land Registry that all overage contractual requirements were complied with in order to satisfy the title restriction. When Burrows found out about the sale, Ward argued amongst other things, that the disposal of the five units was a permitted disposal as a sale of one or more of the residential units in the open market at arm’s length and then later raised the alternative argument that the transfer was permitted as a transfer for social purposes.

Burrows contested Ward’s interpretation of the agreement and stated the disposal was not a permitted disposal and claimed that Burrows might reasonably have demanded a sum of money for releasing Ward from the restrictions in the agreement that prevented the disposal of the five units.

The Court of Appeal held that Ward was in breach of the agreement. The disposal of the five units to a closed list of registered social landlords was not in the open market and the disposal was not a permitted disposal for social purposes. The court held that the parties could have expressly provided for social housing to be a permitted disposal, but no such provision was made. Burrows was held to be entitled to damages for lost opportunity to negotiate. The case was remitted for a determination of quantum.

 This case demonstrates the following:

(a) How a developer could avoid liability either by widely defining the list of permitted disposals in an overage agreement or by agreeing terms with the seller before completing the disposal of anything which has not been agreed in the overage documentation. Ward’s revised planning consent could not be implemented without either a variation of the agreement or Burrow’s consent to the disposal of the social housing units.

(b) The risk in allowing a buyer to self-certify compliance of an overage restriction to the Land Registry.

If you have any questions about overage, please contact our Real Estate team.

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