Property development disputes

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In these uncertain times, one economic certainty at least short term seems to be that development land values will continue to rise. The result of this is an increase in disputes about development land.

Savills in a recent report confirm that development land values are at their highest since the crash in 2008 (going up 8.8% in 2021 alone). The one curb on this is increasing environmental regulation, but they are forecasting growth of 4.4% over the next 5 years (similar to 2015-19).

The result of this is an increase in disputes about development land. Just as post financial crash there was an increase in disputes about development land (and property generally) when funding dried up, so the increase in land values leaves much to play for when looking at the wording of Option Agreements or other land related contracts. Two recent cases from the Court of Session illustrate this. In New Ingliston Limited v Edinburgh Airport Limited [2020] CSOH 64 Lord Ericht was asked to interpret the terms of an Option Agreement entered into by Edinburgh Airport with the owner of farmland adjacent to the Airport for development of an International Business Gateway, as identified in the West Edinburgh Planning Framework 2008. The Option was entered into in the early 2000s for an initial 10 years, extended to 15. A Notice exercising the Option was issued in 2016, but the landowner challenged this and sought to argue that the Notice was invalid. This hinged on interpretation of contract terms, and in particular whether the zoning of the land met the Key Objectives under the Agreement. This in turn came down to the balancing of various objectives: Did any form of zoning as an International Business Gateway fulfil the conditions precedent for exercising the Option or did zoning have to meet all the key objectives? Both parties were to share in the increase in value of the land over the intervening period. The landowners led valuation evidence showing that the value of the land would be far greater as development land for housing than as an International Business Gateway. However, Lord Ericht decided in favour of Edinburgh Airport, holding that the right to share in an increase in land value was subservient to the operation of the Airport – and that the Key Objectives had to be interpreted to give priority to that objective.

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Lord Ericht (and our Appeal Court, the Inner House) applied a similar “purposive” interpretation to a land related contract in a case pursued by MBM on behalf of a former Strategic Land Director of Stewart Milne Group against that company (Loudon v SMG [2021 CSOH 61 and [2022] CSIH 3]). That contract entitled the Director to a bonus on the profit margin made by the company on the purchase of development land under Option. The question was whether the entitlement to bonus survived retirement of the Director or ceased at that point, which hinged on interpretation of a provision saying the Director would continue after retirement to be entitled to payment of bonuses earned but not paid. Did “earned” mean just that the work to earn the bonus had been done (identifying the site and bringing it through to planning consent) or that the trigger events (the grant of planning permission and the purchase of the site) had actually happened? Both Lord Ericht and the Inner House reached the view that, in the light of the long term nature of Strategic Land development, the commercially sensible construction was the former, rewarding the work done by the Director over the previous 5-10 years on planning permission for sites which were always likely to come to fruition post-retirement. SMG have applied for permission to appeal to the Supreme Court and a decision on that is awaited.

Property development remains a critically important part of our economic future – not for the faint hearted but exciting and rewarding for those prepared to take the risks. It is encouraging to see the Courts engaging with the commercial realities of this industry and hopefully this will make entrepreneurs more willing to look at Court remedies where disputes and problems arise.

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