Option to take a lease development

agreement or construction contract?

30.01.2006 United Kingdom

Where an agreement contains not only building obligations but also an option allowing one
party to acquire a leasehold interest in the property once the development has been
completed does the statutory adjudication procedure apply? The answer depends on
whether the agreement is a development agreement or a construction contract. This
was the issue that was recently discussed in the Captiva Estates Limited v- Rybarn
Limited (in administration) case.

Where a contract is a construction contract then the parties have the right to seek
adjudication pursuant to the HGCRA 1996. However, development agreements are
excluded from the adjudication process.

This case concerned a contract relating to the construction of 28 flats and ancillary car
parking spaces. The agreement also contained an option whereby the contractor could
purchase 7 of the 28 flats once completed.

A dispute arose in respect of the contract and the contractor, Rybarn, wanted to refer the
dispute to adjudication and tried to argue that the agreement was a construction contract.

The Technology and Construction Court disagreed. As far as the court was concerned an
option for the grant of a freehold or leasehold interest clearly fell within the definition of
development agreement. The fact that the agreement was, in effect, conditional in that the
option could only be exercised as and when the units had been built was irrelevant. As far
as the statutory definition is concerned a development agreement could be either a
conditional or unconditional agreement.

Accordingly the agreement was a development agreement and the adjudication

procedures did not apply.