Lock-out agreements & exclusivity: 6 ‘key’ drafting points

by Hardwick Legal | Jul 28, 2015 | Purpose Built (LexisNexis)

In an ever more competitive property market, exclusivity or “lock-out” agreements are coming back to the fore.

This blog post highlights a few of the ‘key’ points (pun intended) to keep in mind when drafting or negotiating these agreements.

If you regularly act on the sale and purchase of real estate - be it residential or commercial - there’s a good chance that you’ve recently been asked (or soon will be) for advice on an exclusivity or “lock-out” agreement.

While such agreements don’t guarantee that a sale contract will be entered into, they can at least provide buyers with a fixed period of exclusivity. The aim is to allow buyers time to negotiate (and incur expenses such as searches and surveys) without fear that the seller is continuing to talk to other interested parties.

In most cases, an exclusivity agreement should be a relatively short and relatively uncontroversial document (subscribers and users on a free trial can view our precedent here). Nevertheless, it never hurts to have a checklist handy so here are six points to keep in mind when drafting or negotiating a lock-out agreement.

1. “Lock-ins” are for the pub – not sale and purchase transactions…

A lock-out agreement is fundamentally a negative agreement. The sellers agrees not to negotiate with third parties. The Court of Appeal has confirmed that such agreements are enforceable. By contrast, it is not possible to bind parties to a ‘lock-in’ agreement that compels them to agree terms. An agreement to negotiate, like an agreement to agree, is unenforceable because it lacks the necessary certainty and the courts cannot decide whether it has been observed.

The agreement can (and should) however still contain positive obligations on the parties to take objectively viable steps to facilitate the transaction (eg instructing solicitors, providing documentation, raising and replying to enquiries).

In the context of a purchase where the buyer proposes to ‘develop’ the property (and such ‘development’ includes a change of use requiring planning permission) such obligations should also include carrying out all relevant investigations into the likelihood of obtaining any contents such development would require. These might include consents from the local planning authority, the highway authority and statutory undertakers. In such circumstances, the Buyer would likely be seeking either a conditional contract or an option agreement to avoid becoming bound to buy the Property before a satisfactory planning permission is available.

2. Consider consideration

Lockout agreements must be supported by valuable consideration. Sellers frequently seek a cash sum in the form of a non-refundable deposit. Alternatively, the buyer’s agreement to spend money on solicitors and/or surveyors and search fees would probably suffice, but a nominal £1 should also be provided to put the matter beyond doubt.

Alternatively, consider executing the agreement as a deed.

3. Duration

The agreement must specify the start and end dates of the exclusivity period. If specific dates are not stated, there should be absolute certainty as to when these will be. Where there is no fixed period, a contract is void for uncertainty, as either party could break off the negotiation at any time.

4. Withdrawal

Since a seller cannot be bound to agree the terms of a sale it is reasonable to include a mechanism whereby the seller can end any positive obligations where negotiations have broken down or where the seller decides not to proceed.

Typically, this would involve the service of a written ‘withdrawal notice’ on the buyer upon receipt of which such obligations would immediately terminate. The Seller’s negative obligations (not to negotiate with other parties etc) would however remain live until the end of the agreed exclusivity period.

By contrast, in most cases a withdrawal notice from the buyer will logically operate to bring the exclusivity period to an end immediately upon receipt by the seller.

5. Recovery of the buyer’s costs

In our precedent Exclusivity Agreement the seller’s liability for costs is triggered by the buyer’s service of a written notice (during the lockout period) confirming that it is ready, willing and able to exchange contracts. If the seller then fails or refuses to exchange contracts, the Seller must pay to the Buyer a sum equal to the total costs, fees and expenses incurred by the buyer during the lockout period. This may or may not be subject to a cap.

It is worth noting that an injunction is unlikely to be available to prevent breach of the restrictions imposed on the seller. Exclusivity or ‘Lockout’ agreements are designed to protect the Buyer from having incurred substantial costs in getting ready to complete and at the last minute losing the property because the Seller elects to sell to somebody else. As such, damages are likely to be regarded as a suitable alternative.

6. No interest in land

Lockout agreements are not contracts for the sale of a property and do not create an interest in land. They are not registrable agreements and Law of Property (Miscellaneous Provisions) Act 1989, s 2 does not apply to them.

For further background on exclusivity agreements or to access our precedent and associated drafting notes please login or sign up for a free trial.

Source: LexisNexis Purpose Built
Lock-out agreements & exclusivity: 6 ‘key’ drafting points

Defining “Deterioration” – Water; Weser; and the WFD

by Hardwick Legal | Jul 17, 2015 | Purpose Built (LexisNexis)

At the UK Environmental Law Association’s (UKELA) annual conference in Liverpool from 3-5 July 2015, Dr Nicola Notaro, Deputy Head of Water, DG Environment took us through key aspects of the Water Framework Directive 2000/60/EC (WFD).

He explained in practical terms the way in which the overall status of surface water and groundwater bodies is assessed, ie against a series of elements, such as macroinvertebrates, aquatic flora, fish etc.

Copyright:Tvabutzku1234

The Weser Case – interpretation of ‘deterioration’

Hot off the press, he referred to the Court of Justice’s decision in Case C‑461/13 Bund für Umwelt und Naturschutz Deutschland eV v Bundesrepublik Deutschland [2015] All ER (D) 15 (Jul) of 1 July 2015, which concerned dredging the River Weser in Germany to enable larger container vessels to call at German ports. The dredging had hydrological and morphological consequences for the river.

The Court delivered a preliminary ruling on whether the concept of a ‘deterioration of the status’ of a body of surface water in art 4(1)(a)(i) of the WFD should be interpreted as covering:

• only detrimental changes which resulted in a lowering of the overall status of that body of water (the status classes theory); or
• any detrimental change to the body of water at issue (the status quo theory).

The Court upheld the status quo theory, ruling that there is ‘deterioration’ of a water body as soon as the status of at least one of the quality elements, within the meaning of Annex V to the WFD, fell by one class, even if that fall did not result in a fall in the overall classification of the water body.

WFD exemptions

Dr Notaro also reminded us of two significant exemptions from the environmental objectives of the WFD, which apply where certain conditions are met:

• Article 4.6 exemption—applies where there is a temporary deterioration in the status of a water body resulting from ‘natural causes’ or ‘force majeure’ which are exceptional or could not reasonably have been foreseen (eg extreme floods and prolonged droughts, accidents which could not reasonably have been foreseen)
• Article 4.7 exemption—applies where there is a failure to achieve good status or to prevent deterioration as a result of new sustainable human development activities (new projects)

Download this FREE CHECKLIST: Table of Key Water Quality Directives

The Water Framework Directive 2000/60/ EC (WFD) sets the legal framework for protecting inland surface waters, transitional waters, coastal waters and groundwater in the European Union. It provides an integrated river basin system, which is underpinned by the use of environmental standards to assess water quality and identify the improvements required to bring waters back into a good condition.

The Water Environment (Water Framework Directive) (England and Wales) Regulations 2003, SI 2003/3242 implement the main requirements of the WFD in England and Wales, including the introduction of river basin districts, river basin management plans and a programme of measures to achieve environmental objectives.

This table provides a brief summary of the key European Directives which relate to water quality, including the WFD.

Source: LexisNexis Purpose Built
Defining “Deterioration” – Water; Weser; and the WFD

Learning and Leisure in Liverpool – UKELA 2015

by Hardwick Legal | Jul 17, 2015 | Purpose Built (LexisNexis)

Copyright:Christopher Kern

Earlier this month, I had the pleasure of attending the annual UK Environmental Law Association (UKELA) conference in Liverpool. The theme was “Water, Water everywhere” but - much to the delight of the delegates - not a drop of rain fell the entire weekend.

Not so lucky were the intrepid group of UKELA ‘recyclists’ who cycled 180km to the conference…Caught in a heavy downpour they were forced to take refuge in a field shelter! Nevertheless, they ploughed on gallantly and raised over £1300 towards the upkeep of Law and Your Environment.

For the usual suspects, there was an atmosphere of contentedness as friends and colleagues tracked each other down for their annual catch-up. For those new to the conference, there was an enthusiastic vibe as they met new people and anticipated the events ahead.

The plenaries

Any doubts as to whether a water-themed conference would be of interest to all members were quickly dispelled. The seminars flowed together seamlessly (forgive the pun), reminding us of the pervasiveness of water and its impact on other areas of legal practice, such as flooding, energy and nature conservation.

For me, the most valuable presentation was from Dr Nicola Notaro, Deputy Head of Water, DG Environment. He took a practical look at the Water Framework Directive, and gave us a run down on the recent decision of the Court of Justice in the Weser Case. For a summary of his presentation, see the separate blog piece: Defining “Deterioration” – Water; Weser; and the WFD.

For many, the most memorable presentation was Lynda Warren’s quirky, engaging and impassioned ‘rant’, as she called it, on marine conservation and marine protected areas. A refreshingly active and visual session highlighting the challenges of protecting the habitat of ubiquitous species, such as the harbour porpoise whose range covers much of the European continental shelf, and expressing frustration around efforts to protect less attractive, but environmentally critical species. Importantly, she reminded us of the significance and diversity of the marine environment, which for many, is nothing more than a vast expanse of water.

A cryptic conclusion

Copyright: chowells-commonswiki

On Saturday evening, the formal part of the conference concluded with the annual Gala Dinner. This year it was held in the world-renowned Lutyens Crypt - part of the grandest building never built…

Before descending to the spectacularly decorated venue, delegates received an exclusive tour of the Cathedral, learning about its fascinating history and Sir Edwin Lutyens’ original design for the building.

But, without a doubt, the highlight of the evening was Guest Speaker, Bishop James Jones, who gave a captivating talk about his environmental pursuits, and in particular how he visited local schools to see how much the future of the environment concerned them. The results were striking.

We were left stirred and reinvigorated for another year pursuing our environmental law careers in an ever changing market.

Download this FREE CHECKLIST: Table of Key Water Quality Directives

The Water Framework Directive 2000/60/ EC (WFD) sets the legal framework for protecting inland surface waters, transitional waters, coastal waters and groundwater in the European Union. It provides an integrated river basin system, which is underpinned by the use of environmental standards to assess water quality and identify the improvements required to bring waters back into a good condition.

The Water Environment (Water Framework Directive) (England and Wales) Regulations 2003, SI 2003/3242 implement the main requirements of the WFD in England and Wales, including the introduction of river basin districts, river basin management plans and a programme of measures to achieve environmental objectives.

This table provides a brief summary of the key European Directives which relate to water quality, including the WFD.

Source: LexisNexis Purpose Built
Learning and Leisure in Liverpool – UKELA 2015