Outer House case considering an option agreement over land at Greystone farm, Alford in Aberdeenshire.
Background
Mr Kenwright owned the land and entered into an option agreement with Stuart Milne by missives agreed in 2003. In terms of the agreement Stuart Milne could exercise the option to purchase parts of the farm land with detailed planning permission (which the parties were to work together to obtain) and consents for a housing development. Under the agreement Mr Kenwright was bound to enter any section 75 agreement[1] required by the local authority and Stuart Milne was to indemnify Mr Kenwright against any obligations he incurred under such an agreement.
Stuart Milne applied for and entered negotiations with Aberdeenshire Council regarding planning permission. It was agreed that the council would grant planning permission for two areas referred to as phase 1 and phase 2 and that an area of land between the two phases would be conveyed (for no purchase price) by Mr Kenwright to the council for the building of a new school/community centre. The planning permission was then granted subject to a section 75 agreement obliging Mr Kenwright to transfer the school land to the council.
In June 2010 further missives varied the agreement to change the purchase price for the phase 1 land and made provision for Stuart Milne to exercise the option in respect of the school land (at a purchase price of twice the open market agricultural value of the land). Stuart Milne also wrote to Mr Kenwright in June 2010 undertaking to “implement and perform or to procure the implementation and performance” of the obligations under s75 agreement and indemnifying him against any loss.
In July 2010 Stuart Milne exercised its option to purchase phase 1 and began building the development. The option agreement expired in January 2013 and the council called on Mr Kenwright to convey the school land to it in August 2013. He did so in September 2013.
Arguments
Mr Kenwright argued that the indemnity granted in June 2010 obliged Stuart Milne to exercise the option in respect of the school land (paying him the agreed price) and then convey it to the council (for no consideration) in terms of the 2010 missives.
The questions for the court were whether Stuart Milne was obliged to indemnify Mr Kenwright and, if so, what loss had he suffered.
Decision
Lord Woolman found that, in terms of the June 2010 indemnity letter, Stuart Milne had the option to implement and perform the obligation contained in the s75 agreement using the procedure contained in the 2010 missives (i.e. purchasing the school land from Mr Kenwright for the agreed price then selling to the council for no consideration) or it could ‘procure’ the implementation and performance of the obligation. Stuart Milne had procured implementation and performance of the obligation when Mr Kenwright had conveyed the land directly to the council. There was no binding obligation requiring Stuart Milne to follow the procedure contained in the 2010 missives and it was able to choose not to do so.
Lord Woolman observed that, if Mr Kenwright had not transferred the school land to the council, the council would have refused to grant planning permission or required a developer’s contribution from Stuart Milne (which would have reduced the price Stuart Milne would have been willing to pay Mr Kenwright): meaning that, in effect, Mr Kenwright had already received the value of the school land. Lord Woolman also noted that Mr Kenwright retained the phase 2 land which had an enhanced value due to the planning permission.
The full judgement is available from Scottish Courts here.
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[1] Agreements which local authorities can use to divert some of the benefit received from the grant of planning permission for a development back to the public sector.
