Can a contract for the sale of land be terminated where the party terminating is in breach?

Under UK contract law, a property contract (or any contract) cannot generally be terminated by a party in breach of the agreement. This means that the party in breach of contract cannot terminate the contract themselves unless the contract allows for such termination under specific conditions (e.g., a clause allowing for termination upon a breach) or the other party agrees to terminate it.

Background

However, the recent case of Weston Homes PLC v Henley Developments 211 Ltd & Anor has shed some light on this. The claimant property developer applied for summary judgment on its claim for repayment of a deposit it had paid to the defendant under a property purchase contract.

The contract provided for the claimant to purchase property from the defendant for £14.5 million. It paid a deposit of £870,000. Completion of the purchase was conditional on a compliance date having occurred by the expiry of a relevant period defined in the contract. The compliance provision required there to be a grant of satisfactory planning permission for the property development. Clause 23.2 of the contract detailed scenarios in which either party could terminate the contract, including if the compliance date had not occurred by the end of the relevant period, in which case the defendant was to repay the deposit to the claimant.

The claimant applied for planning permission for the development, but until the compliance date, the application had not been determined. Given the lack of satisfactory permission, the claimant terminated the contract and requested its deposit be returned.

The defendant submitted that the claimant was not entitled to repayment of the deposit because the contract required the claimant to act reasonably and diligently to obtain the necessary planning permission and it had failed to do so. The defendant asserted that, pursuant to the breach of contract principle, the claimant was precluded from relying on its own default to bring the contract to an end.

The claimant argued that the breach of contract principle fell within the prevention principle, which was not a freestanding principle in its own right and would only apply if the court found it necessary to imply a term to that effect into the contract. It argued that there was no justification for an implied term.

High Court decision

The High Court ruled in favour of Weston Homes, concluding that the contract could be terminated and the deposit should be returned to them.

In its reasoning, the Court expressed that the language of the parties in the contract (which was substantial and professionally prepared), particularly in relation to the termination clause, was “clear and entirely unequivocal”. The terms of the contract allowed either party to terminate under clearly specified circumstances where the conditions of the contract were not satisfied by a certain date, irrespective of whether the failure to satisfy the conditions was attributable to a contractual breach by the party seeking to terminate.

The Court ruled that where the circumstances triggering the parties’ termination rights under the contract exist and the rights are not caveated in any way, either party should be able to bring the contract to an end.

Conclusion

The decision is an important reminder of the need to ensure that the provisions contained in property contracts are clear and unequivocal, particularly in relation to termination provisions. Although the meaning and effect of any given contract will turn on its own terms, it is a reminder that the drafting of contractual provisions needs to be precise, and any termination clauses should unambiguously set out the events that trigger the right to terminate. A properly drafted termination clause will help prevent disputes around whether a breach justifies termination or not.

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