Commercial PropertyProperty Law

Commercial Property: The Construction of Conditional Agreements

In negotiating real estate contracts the importance of getting conditions precedent accurately drafted cannot be over-emphasised. The Court of Appeal agreed in a recent decision.

British Overseas Bank Nominees Ltd and another v Analytical Properties Ltd and another [2015] EWCA Civ 43 involved the sale, by Analytical Properties, of the King Edward Court shopping centre in Windsor to British Overseas Bank Nominees. The sale and purchase agreement (the Contract) was finalised in December 2013.  The exchange of contracts took place on 13 December 2013. The dispute between the parties arose from what happened next, on completion.

Conditional Agreement
The Contract included a condition precedent clause, which stated that, “as a pre-condition to completion”, the seller had to provide true copies of all “emergency lighting certificates” to the buyer “as soon as practicable and in any event prior to the date of actual completion”. The term “actual completion” was defined in the Contract to mean the date that the transaction finally completed, whether this was on the planned completion date or not.

The planned completion date was 17 December 2013. However, the seller failed to deliver the certificates until 14 January 2014. Completion eventually took place on 17 January 2014.

Was the Seller in Breach?
Delay in receiving condition precedent documents is common in commercial property transactions. Generally, parties negotiate either to waive the condition precedent or to delay completion.  In this case, the buyer may have been left open to significant liability without the emergency lighting certificates.  Consequently, the buyer did not grant a waiver. The question at issue was whether the seller breached the terms of the Contract by failing to provide the certificates by the original completion date?

The court of first instance held that the pre-condition requiring delivery of the certificates had been inserted solely for the benefit of the buyer.  As a result, the court found that the pre-condition could not be used by the seller to justify a delay to completion. The pre-condition clause required delivery on 17 December 2013.

However, the drafting of the clause required delivery of the certificates by the seller “as soon as practicable” as a pre-condition to completion “and in any event prior to actual completion”. On appeal, the Court of Appeal decided that “and in any event prior to actual completion” meant that there could be a delay to completion if the certificates were not provided without this being a breach of contract. Consequently, the Court of Appeal found that the seller did not breach the Contract by providing the certificates on 14 January 2014. The court did comment that the seller may have breached its obligation to provide the certificates “as soon as practicable” which could give the buyer a right to damages, but this was not a matter before the court in this case.

Unambiguous Drafting is Vital
The ambiguity in the drafting of what seemed like a minor clause, caused a major dispute.  This case confirms what we all already know.  Clear, unambiguous drafting in all clauses is vital for the smooth progression of any transaction.

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