The importance of getting the contract wording right

17th May 2018

The devil really is in the details and, when you don’t get the basics right, all manner of issues can arise from it. Take the case of Persimmon Homes Ltd v Hillier [2018] EWHC 221 (Ch) as an example.

A housebuilder agreed in principle to sell a developer a development site made up of six plots of land in Felbridge, Sussex. Options over four of the six plots were owned by subsidiaries of one company (Holdings) and freehold title to the other two plots were held in a separate company (Investments) also owned by the seller.

The legal documentation provided for the acquisition of the share capital of Holdings (and with it ownership of rights over four of the plots) but did not include the shares in the capital of Investments nor the final two plots owned by it. The drafting used, in particular in the definition of Properties was unclear as to whether it related to four or six plots. Unfortunately one of the two ‘missing’ plots was the access land for the four plots that had been correctly acquired and had, as a result, become an effective ransom strip.

When the buyer subsequently realised the error it applied to the courts to either ‘interpret’ or ‘rectify’ the acquisition documents to reflect the fact that all six plots should have been included. Based on the evidence available to it, including the conduct of the parties in the course of negotiations, the High Court ruled that the seller had intended to sell all six plots and agreed to use the remedy of ‘rectification’ to amend the terms of the legal documentation which in turn allowed the buyer to sue the seller for damages equal to the loss in value associated with only having ownership rights over four of the six plots.

This case is a good example of the issues that can arise if you don’t get the basics right. If (contrary to the Court’s interpretation) the seller had changed its mind in the course of negotiations, and had intended to exclude the two plots owned by Investments from the acquisition, it would need to have been much clearer in the language used in the legal documents.