Stalled negotiations
In the case in question, real estate developers (plaintiffs) intended to purchase two parcels of land to develop a real estate project with housing, parking and commercial space. To this end, they had entered into purchase agreements with sellers (defendants). These purchase agreements were subject to resolutive conditions. Due to a pre-emptive right (based on the Municipal Preferential Rights Act) established on the plots by the municipality, the developers' plans were delayed and the purchase agreement had to be extended several times.
Eventually, negotiations for further extension stalled after which the sellers sold the plots to a third party. The developers then claimed damages for improperly breaking off negotiations.
Should negotiations break down?
The case in the judgment revolved around whether the breakdown of negotiations should be considered unacceptable under the circumstances and whether the sellers had been unjustly enriched by the efforts of developers who were already advanced in the project development process.
The court held that the sellers' breaking off negotiations was not unjustified. The sellers were allowed to make further demands on the extension agreement, and when they failed to reach an agreement with the developers, they were no longer bound by the purchase agreement. For that reason, no damages were awarded. In contrast, the Supreme Court ruled otherwise.
Taking advantage of buyers' efforts
According to the Supreme Court, the Court's ruling could not stand. The Court had simply dismissed the plaintiffs' claim because the negotiations were allowed to break down and therefore there was no "unauthorized" breaking off of negotiations. That was too short of the mark. The Supreme Court held that if the breaking off of negotiations is not unauthorized and is permissible in itself, there may still be unjust enrichment, so that an obligation to pay damages may arise on that basis.
In this case, the developers had made considerable efforts, including defending against the municipal right of first refusal and changing the zoning that applied to the plots. Partly because of these efforts, the sellers were eventually able to sell the plots to a third party for a higher price.
Importance for practice
This ruling highlights for real estate developers and sellers how important it is to handle contract negotiations carefully. Parties can be held liable for costs incurred by the other party, even when breaking off negotiations is not unacceptable. When the other party's efforts have created added value for the property in question, unjust enrichment may come into play and damages may be awarded.
