Indemnity covered land transfer outwith option exercise

In the early part of 2003, the owner of a farm granted an option to a housebuilder to purchase part of the farm during a 10 year period. The option could only be exercised over the parts of the 104 acres of land concerned in the event of planning permission being granted for residential development. The option agreement included a clause whereby the housebuilder would indemnity the farm owner in respect of any obligations contained within a s 75 agreement which might be necessary before planning permission would be granted.

In terms of a minute dated 14 June 2010, the farm owner agreed to make over land to the planning authority for community and education facilities (CEF land) for a nil consideration as a condition of planning permission for housing development being granted over other parts of the farm land. That land was duly conveyed to the planning authority in August 2013. The housebuilder, however, only exercised its option over part of the land designated for housing, and resisted the owner's claim for the agreed value of the CEF land.

Overturning the decision at first instance, the Inner House held (Kenwright v Stewart Milne Group Ltd [2016] CSIH 45) that the housebuilder required to indemnify the landowner for the cost of the CEF land, valued at twice its agricultural value, as had been stipulated in the missives concluded between the parties. It held that an indemnity granted at the time of the exercise of the option required payment where loss of whatever nature ensued from a s 75 agreement necessary for the grant of planning permission. That loss in those circumstances superseded any need for it to be calculated in terms of the original missives: indemnity was payable since the landowner had suffered the loss of the CEF land as a consequence of the planning obligation even although the option over the CEF land had not been exercised.