English High Court clarifies nature of landlord's planning cooperation obligations

The High Court’s decision in Romal Capital (C02) Ltd v Peel L&P (Ports) Ltd usefully clarifies the practical steps that a landlord is required to take in order satisfy “reasonable endeavours” obligations to assist its developer tenant with a planning application.

The ruling has clarified that this type of "reasonable endeavours" clause places an active responsibility on a landlord to positively assist a developer tenant, and that passive support, or even silence, could breach these obligations. The decision also makes clear that where a landlord is pursuing its own adjacent development, it must actively align its strategy with a tenant developer’s application through real-time information sharing and cooperation, to avoid conflicting steps.

Planning cooperation clauses are a regular but often overlooked feature of agreements for lease (AFL) and options to acquire land for development. The case of Romal highlights the consequences of a failure to positively comply with these obligations, with the court reportedly expected to order the non-compliant landlord to pay damages of around £10 million to its developer tenant. 

Background

Peel held a long leasehold interest in Liverpool Waters, part of the historic Liverpool docks, and had secured outline planning permission for extensive redevelopment of the site.

In 2018 Peel and Romal entered into an AFL under which Romal was required to seek a planning permission to develop a part of the Liverpool Waters site known as Central Docks for residential purposes, with the ultimate intention of entering into a sub-lease and building out its residential development on the Central Docks site. The AFL expressly envisaged that Romal would undertake a development scheme consisting of at least 600 residential units.

The Central Docks site was one element of Peel's wider Liverpool Waters redevelopment project. The AFL acknowledged that Peel would continue to pursue its redevelopment of the surrounding land, whilst Romal pursued the development of the Central Docks site.

The AFL included express obligations for the parties to integrate their respective development plans, technical approval mechanics and a “landlord’s unacceptable conditions” clause.

Significantly, it contained two endeavours provisions which required Peel to "co-operate with [Romal] and use all reasonable but commercially sensible endeavours to assist [Romal] in obtaining a Satisfactory Planning Permission" and "use reasonable endeavors to assist [Romal] in pursuing a Satisfactory Planning Permission which will include but not be limited to [Peel] attending and/or hosting key meetings with the Determining Authority, consultees and other interested parties to assist in the planning process."

Romal initially pursued standalone planning applications for schemes of 646 homes and then later 538 homes. While Romal was making these planning applications, Peel was progressing non-material amendments to the outline planning permission and the neighbourhood masterplan, both of which conflicted with and undermined Romal's planning applications.

Eventually, in 2020, Romal secured a planning permission for just 330 homes.

The dispute

Romal commenced proceedings against Peel for losses of approximately £12 million. It claimed (among other things) that, had Peel complied with its endeavours obligations, there would have been a significantly greater chance that Romal could have obtained permission for a larger development rather than the planning permission for 330 homes which was eventually achieved.

Peel defended the claim on the basis that the larger schemes lacked realistic planning prospects; that it had done all that was expected of it to support Romal's planning application; and that the losses were a result of Romal's own failures.

High Court in favour of the tenant developer

In deciding the claim in favour of Romal, the judge made a number of observations on the practical application of the endeavours obligations in the AFL, with the key observations being that:

• The AFL was a collaborative endeavour rather than a unilateral contract on the part of Romal, with provisions designed for Romal to obtain the most valuable planning permission that it could, in the interests of both parties.
• The reasonable endeavours clauses took effect prior to the planning application being made; they placed broader obligations on Peel in the earlier stages (including pre-application meetings) and there was no specified end point for performance of these obligations.
• It was for Peel to positively assist Romal to obtain its satisfactory planning permission for a development of at least 600 apartments but in reality Peel was unwilling, either formally or informally, to be seen to openly support the application, despite its clear AFL obligations;
• Peel's failure to reply to emails from the City Council which queried Peel's position on Romal's development, amounted to a plainly obvious statement that Peel did not support Romal's application. This directly breached Peel's reasonable endeavours obligations and made it very difficult for Romal to achieve permission for its 646-unit development.
• Peel's passivity amounted to an attempt to "turn a mutual obligation into a unilateral obligation".
• Peel's conduct in pursuing its own development objectives to the potential detriment of Romal's application was deemed incompatible with its contractual obligations to support Romal's application and to integrate the two developments, with the judge commenting that rather than comply with its endeavours obligations Peel had shown a "total lack of endeavour". 

Osborne Clarke comment

The case pertinently demonstrates that a reasonable endeavours planning cooperation obligation in an AFL or option agreement goes further than not interfering, or even passive inaction, in respect of a counterparty's planning application. It places an active responsibility on the contracting party to take positive steps to demonstrate support for the specified development or face the risk of a multi-million pound damages claim.

The decision of the High Court in this case gives notice that planning cooperation provisions should not be treated as "boilerplate", but they should impose positive obligations. Landowners and their advisors should give close consideration to the practical implications of agreeing such clauses when entering into AFLs or options with developer tenants.

On the other hand, the decision should strengthen the hand of developer tenants who might hold the view that a landowner counterparty is not being sufficiently proactive in support of a planning process.