Developers must pay extra after selling land cheap

A development firm must pay more than it bargained for to a local authority after selling on land at below market price to a group company.

The developers bought the land from the authority with a view to creating a business park. The authority retained a share in the open market value of the land, which meant an uplift was payable if the developers disposed of the land by sale or lease, or if they wanted to buy out the authority’s share.

The developers then sold the land to a group company for a notional sum, triggering the uplift clause. This led to a dispute as to whether the uplift should be calculated on the basis of the actual market value or on the basis of the notional sum paid by the group company.

Surprisingly, perhaps, the contract did not make this clear and so the court had to decide what both sides had intended at the time they made their agreement.

The court held that although the contract was not explicit, the context showed that the intention of both parties was that the base figure for the calculation of the uplift was to be the open market value of the land rather than the actual sale price.

It could be assumed that that was what the parties would have said had they been asked about it at the time.

Please contact Hugh Beeley if you would like more information about issues raised in this article.