Breach of a contract of consideration

The issue is to put an owner in the position they would have been in if the consideration agreement had been fulfilled

An owner who agrees to give their land through a written consideration agreement is exposed to serious risks, since the execution of the agreement depends on the person to whom they entrust the development of the land.

The risks depend on the solvency of the person who undertakes the construction, its completion within the set deadline, the quality of the construction and the possibility of payment or non-payment of compensation in case of non-execution or non-completion of the agreement.

Therefore, it is important for the owner to adequately secure their rights at the time of entering into the agreement, so that in the event of any failure or delay, they do not suffer losses for which they cannot be compensated.

Usually in such agreements, the owner of land hands it over and the other party undertakes the construction of a building in a specified timeframe, including drawing up plans, securing necessary permits and approvals and any other work needed.

The owner, on their part, undertakes to transfer and register a share of the land in the name of the counter-party, depending on the progress of the works, so that they become the owner of the corresponding percentage of the building and the rest remains with the owner of the land. In case of non-performance of the consideration agreement, the owner’s rights depend on the degree of completion of the building.

Judgment

The Court of Appeal of Cyprus in C.A.131/2018, dated May 22, examined the correctness of the decision of the court of first instance regarding award of damages for the benefit of an owner of land due to the termination of a consideration agreement.

Specifically, the consideration agreement stipulated that the owner would give to the developer company 1/6 of the land to build a house on it. The owner terminated the consideration agreement because the company did not proceed with the construction of the house.

The court ruled that the termination was lawful and considered it fair that the damages to the owner should be calculated taking into account the value of the house at issue on the date of termination of the consideration agreement minus the value of the owner’s share of the land on the same date.  Assessments by an expert valuer were taken into account.

The company disagreed with the judgment and filed an appeal. It suggested on appeal that the value of the owner’s share of the land at the date of signing the consideration agreement should have been taken into account and not its value at the date of termination, citing the well-known authority of Kalispera.

The Court of Appeal decided that the circumstances of the case in question differed from the circumstances of a sale of property for a sum of money.

Conclusion

It emphasised that the trial court’s task was to put the owner in the position he would have been in had he been delivered under the agreement a house the value of which the court determined on the basis of expert testimony. It had been agreed that instead of receiving a sum of money for the transfer of a share in the property, the owner would receive as consideration the house that the company would build on his behalf.

The Court of Appeal added that agreements of this type, since they also include elements of a project construction agreement, differ from simple property sale agreements. It referred to the law book McGregor on Damages, where it is stated that project construction agreements, depending on the terms of each one separately, resemble either land sale agreements or service provision agreements.

In the present case therefore, the court stated, the question was to put the owner in the position he would have been in if the consideration agreement had been fulfilled, ie if he had been delivered a house and had transferred the land in question to the developer company. Since the transfer of the land had not taken place, it still belonged to him at the time of termination of the agreement. It therefore agreed with the trial court that the loss suffered by the owner crystallised in the value of the house less the value of his share of the land, valued in money at the same time, and dismissed the appeal.

George Coucounis is a lawyer specialising in Immovable Property Law, based in Larnaca. E-mail: coucounis.law@cytanet.com.cy, tel: 24818288