It is well established that terms can be implied into express written agreements where it is necessary to do so in order to make the agreement effective. The bar is intentionally set high in such cases. The 2017 case of Sparks v Biden offers a good example of how and when that bar can be cleared.
By a written agreement Mr Sparks granted Mr Biden an option to purchase land in Wimbledon, Southwest London. Mr Biden exercised that right in 2008 and purchased the land for a sum of £500,000.
The agreement in question also provided for “overage” i.e. the payment of further sums by Mr Biden to Mr Sparks upon a specified trigger event. The sums that would be payable by Mr Biden should this ‘trigger’ occur were significant, and in excess of the original purchase price.
The land had the benefit of planning permission for the construction of eight houses. Accordingly it was agreed the ‘trigger’ would be the sale of any of the eight houses, with the overage payable by Mr Biden being calculated as a percentage of the sale price of each of the properties sold.
So far so normal.
Unfortunately the parties failed to expressly state in the agreement whether or not Mr Biden actually had to sell the properties once they were constructed. Ordinarily such an agreement would have, for instance, an express term requiring the party in question to market the properties for sale upon completion of the development.
Mr Biden elected not to sell any of the eight properties. Instead he moved into one of them himself and rented out the seven on ASTs.
Mr Sparks issued court proceedings. The basis of his claim was that the court should imply a term into the written agreement, on the basis of the principle of “necessity”, requiring Mr Biden to sell the properties “as soon as reasonably practicable” or “within a reasonable period of time”.
The thrust of the arguments made by Mr Sparks’ legal team were that the court should imply a term on the basis that:
Mr Biden’s legal team however argued, amongst other matters:
It is well settled that in order to imply a term by necessity, the following conditions must be met:
It is also well established that the court will not imply terms simply because it would be “fair” or desirable to do so, nor because one of the parties intended to include that term but failed to do so. Similarly terms will not be implied merely because the agreement in question is ‘better’ or clearer as a result. What the parties would or might have done if the clause had been discussed will also not, in itself, be enough to allow a court to imply a term.
Having considered all of the relevant authorities and arguments put before it, the court published a pleasingly short judgment on the key issue of whether or not it could imply a term as argued by Mr Sparks.
In just a single paragraph of the judgment the court found such a term did have to be implied, because without it the agreement lacked any practical (or commercial) coherence, adding that the term is “so obvious that it goes without saying”.
Whilst in this particular case most people will feel that ‘common sense prevailed’ that is not always the case. The courts are restricted in what terms they can – and cannot – imply into contracts and there will be plenty of cases where the “common sense test” will not be enough to save a party that has failed to expressly include something within a written (or oral) agreement.
Even though he won the case, no doubt Mr Sparks would much have preferred the clause to have been expressly included in the first place!
For any advice in relation to such matters please contact our Property Dispute Team or our Property Team, both of whom have significant experience in drafting and advising on overage agreements. The proper drafting of such documents will always be money well spent, something Mr Sparks would no doubt testify to.
Please note this information is provided by way of example and may not be complete and is certainly not intended to constitute legal advice. You should take bespoke advice for your circumstances.