Many developers buy sites through conditional contracts. These can be complex documents which make the transaction conditional on various events, the most common of which is the obtaining of an ‘acceptable planning permission’. They can also be controversial, particularly when one party gets cold feet over the deal, and tries to extricate itself.

Sainsbury’s recently extricated itself from such a conditional contract [1], but only by the skin of its teeth.

In March 2011, Sainsbury’s entered into a conditional contract with Bristol Rovers for the purchase of Bristol Rovers’ Memorial Ground. Sainsbury’s intended to build a supermarket on it. The conditional contract was a complex document, containing five major conditions, including the obtaining of an acceptable planning permission for the Sainsbury’s store, and the obtaining of an acceptable planning permission for Bristol Rovers’ proposed new stadium.

The conditional contract provided that the parties must use their reasonable endeavours to obtain the planning permissions for the store and stadium, but if these (or other conditions) had not been satisfied by the ‘cut-off date’, then either party could terminate the contract.

Sainsbury’s duly submitted its planning application for development of the site as a supermarket. It obtained a planning permission, but with a restriction on delivery times that was unacceptable to it. The parties agreed that this was an onerous condition, and that the planning permission was therefore not an acceptable store planning permission.

Sainsbury’s then began to get cold feet, particularly as it realised that the store might not be as profitable as it first thought. The project was also facing increased local opposition, which ended in a challenge to the planning permission by way of judicial review.

It did, however, try and vary the restriction on delivery times by making an application to the council [2]. Unfortunately, its application appeared to be rather half hearted, particularly as it did not bother lobbying local residents, businesses and councillors.

Unsurprisingly, Sainsbury’s application was refused by the council. Sainsbury’s therefore indicated to Bristol Rovers that it wished to terminate the contract. Bristol Rovers, however, had spent a substantial amount of money on its new stadium, and so did not want to let Sainsbury’s get out of the deal. It therefore argued that Sainsbury’s was in breach of contract, as it had failed to use all reasonable endeavours to obtain an acceptable store planning permission. This was on the basis that Sainsbury’s application [2] was badly-timed and half-hearted.

In response, Sainsbury’s argued that it had used all reasonable endeavours to obtain an acceptable store planning permission. It also argued that the obligation to use all reasonable endeavours ended on the cut-off date, and since it made its application [2] after the cut-off date, it could not be in breach in respect of that application.

Cut-off date drama…

Sainsbury’s ‘cut-off date’ argument did not work. The High Court took the view that the obligation to use reasonable endeavours continued after the cut-off date, and only came to an end when one party actually terminated the contract. Luckily for Sainsbury’s, however, the judge found that even if it had put more effort into its application [2], it would have still been refused. In the circumstances, therefore, Sainsbury’s had used all reasonable endeavours.

Sainsbury’s was lucky to get away with it, and were only saved by the fact that nothing that they could have done would have changed the council’s decision. Yet there is an interesting point in all this – parties involved in a conditional contract should not assume that their obligations, such as obligations to use reasonable endeavours to obtain an acceptable planning permission, expire on the cut-off or long-stop date. Unless the contract states otherwise, those obligations will only expire when the contract is validly terminated.

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[1] Sainsbury’s Supermarkets Limited v Bristol Rovers (1883) Limited ([2015] EWHC 2002 (Ch))

[2] Section 73 of the Town and Country Planning Act 1990

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This blog is intended only as a synopsis of certain recent developments. If any matter referred to in this blog is sought to be relied upon, further advice should be obtained.