Reasonable endeavours in property development
A recent case has provided some interesting insight on property development. It related to the development of an 'eco-town’ in Oxfordshire where negotiations broke down between the developers.
We flag a couple of key points to take away:
- The background was a strategic site built up between 2009 and 2014. In 2015 the parties entered into heads of agreements to use 'all reasonable endeavours' to enter into a conditional sale contract. By 2018 the parties had failed to conclude the conditional sale contract and relationships had become strained.
- The matter went to Court. One question was what 'all reasonable endeavours' meant. While the meaning of these words is important in all commercial contracts, the property context adds colour to how they will be interpreted and provides guidance for real estate deals.
- The case confirms that there is a spectrum of what endeavour clauses mean. Generally, 'reasonable endeavours' is at one end and ''best endeavours" is at the other end.
- It was confirmed that "reasonable endeavours" is the lightest obligation and the judge stated "if one reasonable path is taken then the obligation is discharged". This is compared to "best endeavours" which was said will likely require the "sacrifice of some commercial interests on the part of the party, whereas an obligation to use all reasonable endeavours is probably less likely to do so".
- The Court considered what the obligations to use “all reasonable endeavours” to negotiate the further property contract meant. Stating that this is "normally interpreted as requiring all reasonable paths or actions to be exhausted. In this respect it may be said there is little difference with such a clause and duty to use best endeavour".
- The point we highlight is the distinction made between one reasonable path and all reasonable paths.
- While all reasonable endeavours falls between best and reasonable, fleshing it out further the Court stated that all reasonable endeavours will likely mean active steps and that "passivity or inactivity is likely to be construed as a potential breach".
- The example from the case was not providing a red line plan of the land area in question. This was seen as possible, if not standard, in property negotiations. Hence the view of the judge was that this inaction could constitute not using all reasonable endeavours.
- It is interesting that the Court put the meaning of "all reasonable endeavours" much more towards best endeavours, even in the context of an obligation to negotiate. It is clear that 'all reasonable' is less in the middle of the spectrum and more towards 'best'.
- So it should be borne in mind when considering signing up to such wording that the party will be taking obligations to be active and following through on at least one reasonable pathway, to show the commitment has been satisfied.
- This case highlights that property development is uncertain. Drafting wording to cover uncertainty is tricky. Setting out in writing what steps a party will do, in detail, to achieve the given result can avoid further dispute as to what action is expected or required.
The case is Brooke Homes (Bicester) Limited v Portfolio Property Partners Limited and Others  EWHC 3015 (Ch). The property development company was awarded over £13m in damages. It is a long judgement but worth a read, for those interested in property development. The judge also comments on remote trials and mentions COP26 in the background.
This article is for general information only and does not, and is not intended to, amount to legal advice and should not be relied upon as such. If you have any questions relating to your particular circumstances, you should seek independent legal advice.