The implications of seeking to rescind conditional agreements

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A recent case in the High Court has wide implications for developers seeking to rescind conditional agreements:

In Extra MSA Services Cobham Ltd v Accor UK Economy Hotels Ltd (2010), the High Court was asked to determine whether a developer that had entered into a conditional agreement for a lease to construct a hotel was entitled to serve a notice rescinding the agreement.

The conditional agreement had several key provisions:

  • The developer had to obtain specific consents, licences and permissions etc for the development to proceed (the Conditions).
  • The developer had to use its reasonable endeavours to satisfy the Conditions as soon as possible after the date of the agreement.
  • If the Conditions were not satisfied by the long stop date, then the agreement would be rescinded providing that the rescinding party gave 10 working day’s notice.

In the High Court, the developer argued that it could terminate the agreement even though it had not properly performed its obligations.

The tenant argued that the developer only had the right to terminate where it had properly performed its obligations.

The High Court held that the developer’s right to terminate the agreement was conditional on the developer performing their obligations. A developer could not simply rescind a conditional agreement by saying ‘the Conditions have not been achieved’ where they have not taken the steps required in the agreement to bring about those Conditions.

Developers must therefore give careful consideration before ending a conditional agreement because the conditions have not been achieved. Care must be taken to ensure that the developer’s obligations in the contract have been performed before attempting to rescind.

It must be emphasised that in the Extra v Accor case, the High Court was specifically asked to determine the above point of law. The facts of the case will be determined at a later trial.


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