10 March 2020

Professionals’ speculative and contingent fees on development sites

Professional consultants often carry out significant work in the early stages of a proposed construction project, without any guarantee that the project will be carried out.

Architects and others might provide considerable advice to their employer prior to the submission of a planning application, on a speculative or reduced-fee basis.

This carries obvious risks. For example, if the work is purely speculative (in the hope of a formal appointment at some point), the professional could be dragged into doing more and more with only a promise of jam tomorrow. If there is a formal appointment or agreement that fees are to be paid even if the matter does not proceed to development, what will trigger the payment of fees? Will the employer have the money to pay the fees?

In a recent High Court case, TC Development (South-East) Ltd, BUJ Architects LLP v Investin Quay House Ltd, John Downer [2019] EWHC 3727 (TCC), a project manager and an architect sued for their fees on a scheme where the developer sold the land before a planning application was made, but after the professionals had done a great deal of work. Happily, formal appointments of both were in place but there were doubts, in the case of the architect, about whether the obligation to pay the fees had been triggered.

The basis of the architect’s appointment was interesting: if the employer terminated the appointment prior to a planning application, a fee of £295,000 would be payable to the architect, but if the employer terminated the appointment after submitting a planning application, then the fee would be £500,000. In this case, despite the sale of the property prior to a planning application, the employer did not formally terminate the architect’s appointment. The architect brought a claim against the employer for payment of its fees.

The court held that the sale of the property by the employer meant that termination of the architect’s appointment was inevitable. The judge considered that there was an implied obligation on the employer to give notice of termination of the appointment to the architect on sale of the property. The fact that it did not do so gave rise to a right for the architect to claim damages from the employer for breach of the implied obligation. The amount of those damages would be the £295,000 plus VAT. The judge also approved another analysis: that the architect was entitled to and did, by submitting its invoice after the sale of the property, waive the employer’s obligation to serve a termination notice. The result of that was that the £295,000 plus VAT was due to the architect, as invoiced fees and therefore a simple debt. A debt claim has certain advantages over a damages claim, including that it can be easier to enforce, there is no need to mitigate loss and a debt sometimes carries interest at a higher rate on late payment than does a claim for damages.

Of course, it is one thing getting a court order. It is another thing getting the money (and associated legal costs) on time or in full or at all. What if the employer no longer has any assets? Professionals should be wary of spending large amounts of time on a job without certainty as to when they will be paid and how much and security for their fees and/or interim payments.

Please contact Andrew Harbourne from our construction team for advice on these issues or other construction matters.

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