How reasonable are your endeavours?
Patrick Adie sets out the most common types of endeavours obligation found in property contracts and - depending on your circumstances - the best obligation to agree.
Endeavours obligations are common provisions in property contracts (and many other commercial contracts). They are entered into where a party is only prepared to attempt to achieve an outcome, rather than to commit to it absolutely, usually because it is dependent on a 3rd party.
The most common types of endeavours obligation are:
- Reasonable Endeavours – This requires one reasonable course of action to be taken and so can be discharged even if there are various other reasonable actions that are not taken. It generally does not require a party to act contrary to its own commercial interests. It is the least burdensome of the common endeavours obligations.
- All Reasonable Endeavours – This requires all reasonable actions and avenues to be exhausted. In practice this is generally as interpreted as not requiring a party to act substantially against its own interests, but it is still significantly more burdensome than just reasonable endeavours and may require “some subordination of commercial interests”, as the Brook case below highlights.
- Best Endeavours – This requires a party to use its best efforts and take all steps that are available to them to provide the desired outcome. The party providing the obligation may be required to place the obligation over their own interests, so it can result is spending ‘good money after bad’. It is generally interpreted as the highest level of burden of the common endeavours obligations.
The High Court provided further guidance on the “all reasonable endeavours” obligation in the recent case of Brook Homes (Bicester) Limited v Portfolio Property Partners Limited and Others [2021]. The parties had entered into binding heads of terms where the defendant committed to using all reasonable endeavours (together with a duty of good faith) to enter into the ultimate sale contract. Following the grant of planning permission, they failed to advance negotiations and refused to provide a red line plan of the land to be sold. Therefore, the Court considered that they had breached the obligation of all reasonable endeavours. Damages of £13.4 million were awarded (on the basis of loss of chance), which highlights the potential significant effect of these clauses.
Other earlier cases, such as Jet2.com v Blackpool Airport [2012], have noted that there is little or no difference between best and all reasonable endeavours, so caution is needed when considering the level of obligation. All the facts of the situation and the precise wording of the obligation need to be taken into account.
What obligation should I agree?
This really depends on what the underlying obligation relates to and the balance of power in negotiations. If the underlying obligation is something that is complex and dependent on factors over which there is little control, such as the grant of planning permission, then a lower obligation will usually be appropriate. If instead a party is confident that it can achieve the outcome, for example the commissioning of a report where there is a large pool of consultants available at a reasonable cost, or the procuring of letters of reliance where consultants are already contractually obliged to pass these on, it might be minded to agree a more onerous endeavours obligation (or an absolute obligation). However, endeavours obligations are inherently uncertain, so the more detail the parties can include on what steps are (and are not) expected, the less likely they will be to end up in a dispute. It is therefore very important that parties pay close attention to the obligations that they enter into.
Patrick Adie is a solicitor and National Head of Housebuilding and Strategic Land at Freeths.
