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07 Feb 2022

Must try harder – "endeavours" obligations have teeth…

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The scenario

You're a property promoter. You've identified a large site with development potential, and you've secured options from the various landowners to acquire it. You've found a developer that would like to buy part of the site from you. It's a complex project and there are several issues that need to be dealt with. 

The deal 

It's not yet clear exactly what's going to be needed, but you've kicked off the planning process and want to get an umbrella deal in place with the developer. Because the details still need to be hammered out, your umbrella agreement with the developer simply states that you'll use "all reasonable endeavours" to enter into a conditional sale agreement for the relevant part of the land and that you'll act in good faith. You also agree that the sale will be structured for the parties’ mutual commercial and financial benefit. You think that this will give you plenty of flexibility and wriggle room, should you need it.

Obligations

Time moves on. You get outline planning permission, but don't reach a final agreement with the developer and you find someone else that you'd rather do a deal with. Surely the agreement is vague enough to allow you to walk away?

Biting

No. You can't simply walk away and these facts are similar to those in the recent case of Brooke Homes (Bicester) Ltd v Portfolio Property Partners Ltd.

So called "endeavours" obligations do create meaningful and binding obligations.

Endeavours obligations

There are three categories of endeavours obligation. The differences between the three are not set in stone, but in broad terms, ranging from the least to the most onerous,:

  • "reasonable endeavours" obligations require one reasonable path to be taken;
     
  • "all reasonable endeavours" obligations require all reasonable paths or actions to be taken. Some subordination of commercial interests may be required, although to a lesser extent than for "best endeavours";
     
  • "best endeavours" obligations require parties to take all those steps in their power which are capable of producing the desired results, being steps which a reasonable and determined person, acting in their own interests and desiring to achieve that result, would take.

Required action

So, if you accept an all reasonable endeavours obligation, be prepared to take active and positive steps to fulfil the obligation. If you try and run the clock down by being passive or inactive, you're likely to be in breach. If there are reasonable actions or approaches that you could take but you decide not to, you'll need to be able to explain yourself.

Importantly, don't think that obligations to negotiate give you a free rein to prevaricate and delay until the matter is dead. The courts are increasingly willing to enforce obligations to negotiate when they're contained in binding agreements.

The moral 

Don't enter into any "endeavours" obligations lightly. 

A lot will depend on the precise facts and circumstances but the courts will try and give meaning to contracts where possible. Parties who've changed their minds can't simply wriggle out of their bargains. 

If you're not sure that you'll want to progress, consider using an option or some other form of conditional contract instead.

When putting deals together try and provide as much certainty and clarity as possible. If there are specific things that you will or will not do, state that in the contract and you'll be in a much stronger position. That may involve some short term pain in defining and agreeing particular obligations, but the long term gains are significant.

If you do accept an endeavours obligation keep an active and ongoing record of what you've done to fulfil it and keep it under regular review.

Our expert team would be delighted to help you navigate around the potential issues with endeavours obligations both before and after you've signed your deals.

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