Sellers' right to deed covering further payment held prescribed

Sellers of land have lost an appeal against a decision that an obligation on the purchasers in the missives to deliver an executed deed providing for additional payments on the grant of planning permission, had prescribed as it was not an “obligation relating to land”.

Lord Justice Clerk Lady Dorrian, Lord Brodie and Lord Drummond Young upheld a ruling of Lord Doherty dismissing an action by John Law and others against Robertson Construction Eastern Ltd seeking to enforce the obligation in question, and alternatively payment of £1,025,000.

The parties entered into missives for the purchase by the defenders of land in Aberdeen. The price was £475,000 excluding VAT, but the defenders were also bound to execute and deliver to the pursuers an “overage agreement” under which the defenders would to make a payment to the pursuers in the event of certain types of development consent being obtained and the subjects being sold. More than five years after settlement the defenders applied for planning permission and the pursuers claimed the further payment. The defenders claimed that any obligation in this connection had prescribed. It was common ground that the case turned on whether the obligation was excluded from application of the five year prescription as an “obligation relating to land”: Prescription and Limitation (Scotland) Act 1973, sched 1, para 2(e).

In the Outer House Lord Doherty held that the obligation was personal and collateral; it did not form part of the purchase price of the land in question, as contractually defined. The relevant focus was the nature and main object of the particular obligation in issue, rather than any counterpart obligation; land had to be the main object of the obligation and not only incidental.

On appeal the pursuers argued that the core obligations of a transaction creating or transferring an interest in land would all be obligations relating to land within para 2(e). In the present case that included the obligation in question, and the Lord Ordinary had erred in failing to recognise it as such.

Delivering the opinion of the court, Lady Dorrian said: “On a plain reading, the object of the statutory provision is the substance of the particular obligation founded upon, rather than the character of the surrounding deed or contract within which it may be found... A deed or contract may relate generally to land, but a particular obligation contained within it may not.”

While it was legitimate to have regard to the wider context of the contract, “Nonetheless, the proper focus is the nature of the relationship between the particular obligation and land..., which must be sufficiently strong to ensure that the statutory distinction of a category of ‘obligations relating to land’ is a meaningful one.”

She observed that to ask whether the particular obligation was amongst “the central or core obligations” might shift the focus unduly from the relevant relationship between the particular obligation and the land.

Although the pursuers argued that the obligation was one of three constituent elements of the “core deal” between the parties, and in substance if not in form it was to be deemed a part of the consideration in return for which the land was transferred, that was not the relevant question.

“The fundamental flaw underlying the reclaimers’ approach has been to assume that the character of the contract, as embodying a 'land transaction', and the identification of an obligation as one of the central features of that transaction, will be sufficient and determinative of the obligation relating to land. Such an approach adopts the wrong starting point, namely an analysis of the contract as a whole, rather than the particular obligation. Moreover, it encourages a focus on the wrong relationship, namely that between the obligation and the wider features of the contract, rather than the obligation and the land itself.”

Lady Dorrian concluded: “In the present case, albeit that the parties may have intended otherwise, the delivery of the duly executed overage agreement did not form part of the contractually defined purchase price in respect of the land; nor did it otherwise amount to a direct counterpart, by way of consideration, in exchange for delivery of the disposition, on a plain reading of the particular clause founded upon.”

Such cases were highly fact specific and the Lord Ordinary could not be criticised for applying the authoritative guidance in Smith v Stuart 2010 SC 490, albeit it was not identical to this case.

Click here to view the opinion of the court.