A conditional contract is a binding contract for the sale and purchase of land which is subject to satisfaction of a condition precedent (for example, satisfactory planning permission must be obtained before the sale and purchase provisions can become operative). Developers often enter into contracts conditional on planning as a means of securing an interest in land but without an obligation to buy unless the planning condition in the contract is satisfied.
The contract will attempt to define the conditions precedent in detail so that it is clear when they have been met and when the contract will become unconditional. In the case of any dispute between the parties, the contract will usually provide for a dispute resolution procedure to be followed.
In brief, the stages involved with a conditional contract are:
- The landowner and developer enter into a binding contract for the sale and purchase of land which is conditional on certain defined conditions precedent being met (i.e. satisfactory planning permission being obtained, satisfactory ground survey results, satisfactory planning agreement or CIL obligtions);
- On the conditions being met, the agreement for the sale of the property by the landowner to the developer will become unconditional and the sale will proceed on the terms set out in the agreement;
- If the conditions are not met by a pre-agreed long-stop date, the agreement will terminate automatically or may be terminated by one or both of the parties.
If a developer wants the freedom to be able to exercise its discretion over whether or not the planning permission is satisfactory and acceptable to it, a call option will be the more appropriate structure for the transaction, rather than a contract conditional on planning permission being obtained.
From the landowner’s perspective, where a condition precedent is the grant of planning permission, the developer should be under various planning obligations, which may include:
- Submitting the draft planning application to the landowner for approval within a specified period of exchange of contracts;
- Using reasonable endeavours to obtain a satisfactory planning permission as soon as reasonably possible;
- To appeal against a refusal of the planning application (often where planning counsel advises that there is a greater than 60% chance of success);
- To keep the landowner updated as to progress of the planning application and any appeal;
- To provide the landowner with a copy of any decision relating to the planning application; not to implement any planning permission until after the date of completion of the sale to the developer.
A developer will also expect the condition contract to contain obligations on the part of the landowner, which may include obligations:
- To assist in obtaining a planning permission;
- To enter into any necessary planning agreements (i.e. S106 Agreement) required as a condition of granting planning permission;
- To procure that any mortgagee enters into any necessary planning agreements;
- To oppose any town and village green applications made in respect of the property and commence proceedings to challenge the registration of the property as a town and village green;
- Not to change the nature or character of the property;
- Not to dispose of the property (i.e. lease, charge, sell) without the consent of the developer.
Whilst the purchase of land under a conditional contract is conditional upon the satisfaction of specified conditions, the contract usually allows the developer to waive one or more of the conditions and proceed to completion of the purchase notwithstanding the conditions remain to be satisfied. There may be good commercial reasons why a developer may choose to complete without satisfying the contract conditions.
