Businesses urged to document agreements in light of Lidl case

Tom Johnson of Pinsent Masons, the law firm behind Out-Law.com, was commenting after the Court of Appeal dismissed a property developer's claims to rights in land that had been purchased by supermarket chain Lidl.

The Court of Appeal said Generator Developments failed to show that there was sufficient understanding between it and Lidl that the property purchased was for the joint benefit of both of the companies.

The court considered Generator Development's case in the context of legal principles that have been established in case law which provide for rights to property to be shared between parties even where those rights are not expressly provided for in a written agreement.

Lidl and Generator Developments had discussed various options around the purchase of the property, on an industrial estate in Essex, including establishing a special purpose company to acquire the land. However, the 'lockout' agreement put in place by the companies with the seller of the land listed Lidl as the sole 'purchaser' and Generator Developments as 'delivery partner'.

Despite this, Generator Developments said there was an understanding between the companies that the interest in the land would be shared equally once it had been acquired by Lidl.

However, the Court of Appeal dismissed those claims after reviewing the terms of the lockout agreement and further draft versions of contracts, and related correspondence, that had been exchanged by the companies.

In particular, the Court of Appeal noted that some provisions in the contracts that Generator Developments sought to rely on were expressly stated as being 'subject to contract'. Those provisions included a proposed sale and leaseback agreement which provided for Generator Developments to buy the land from Lidl after it had purchased it from the seller, and then build a store for Lidl to occupy on the site and other residential properties. Under that proposed agreement, Generator Developments would have granted Lidl a 999 year lease for the store.

However, the proposed sale and leaseback agreement was to be subject to the approval of the boards of both companies, and the Court of Appeal ruled that neither company was committed to it.

In its ruling, the court also said that the legal principles regarding when equitable interests in property should be deemed to apply should be interpreted differently where the dispute is between "commercial parties, advised by lawyers" and not individuals.

The principles are based on the "doctrine of common intention constructive trust", and as such they "operate quite differently in a commercial context from the way in which they operate in a domestic context", the court said.

Tom Johnson of Pinsent Masons said: "It is difficult not to have some sympathy for the developer. Had the initial meeting between Lidl and Generator decided to put Generator forward as the purchaser and Lidl as the occupier the outcome would have been very different."

"This case highlights the risks of proceeding without agreements being properly documented.  Understandably, the commercial imperatives mean that developers sometimes do have to carry out work on 'trust', but this case is a reminder of the risks they are taking by doing so. Getting lawyers involved early will often mean that alternative structures can be put in place to help to minimise or manage these risks," he said.