The marketeer guaranteed to cover the owners’ mortgage payments and other outgoings in exchange for a long-term option to buy their Camp Hill home at an agreed sum and a right to occupy pending completion for his nominee buyer.

No winners in this Rent to Buy dealOwners Stephen & Suzanne Lawson – then seriously overcommitted in servicing a $306k Adelaide Bank mortgage – were attracted in February 2012, by a “We buy your home” flyer on a lamppost near the property.

The couple had owned the Akala St property as an investment since 1999.

They reached out to marketer Mark Kelly who proposed a joint-venture – styled a “Working Together” arrangement – where they agree to take $460k for the rundown home with settlement in 5 years.

In return, Kelly – or rather the company Kelgar Pty Ltd with whom his associate Lisa Johnson was also connected – was to receive all profit and mark-up after payment of expenses and the mortgage.

It didn’t take long for Kelly to recruit “the right person” to “give the opportunity to Own this Home Today” via newspaper advertisements promoting a long settlement and the potential to carry out improvements in the pre-completion period.

“No bank! Is needed,” cried the ad. “U Fix it and U Keep The Profits”.

Single mother Anne Shepherd had recently separated and was looking for a roof over the heads of her four very young kids. She had been living in emergency accommodation. The dilapidated residence described as needing “some luv” would – she thought – suit her nicely.

She signed up in March to a “rent to buy” at $500k with an $85k deposit and weekly “licence to occupy” payments of $505 – fixed for the first 12 months but then “variable” – pending settlement in June 2015.

There was no finance clause. The buyer accepted responsibility for rates and utility charges and agreed to take the property “as-is”, covenanting to be solely responsible for all maintenance, repairs and damage.

The contract authorised the immediate release of the deposit to the seller or as he directed. Under the “Working Together” arrangement, it all went to Kelgar.

Shepherd had no idea when entering into the transaction, her status was that of nominee under the option granted by the Lawsons to Kelgar as intermediary.

On moving in she discovered the poor state of the wiring prevented Energex from connecting power. The hot water system and stove did not work and the home was “riddled with asbestos”. Those were her problems, said Kelly and Johnson.

The weekly occupancy payments went to Kelgar to cover the Lawson’s mortgage. Shepherd also paid further sums of $60/week described as instalments on the purchase price.

Weekly payments continued up until July 2015 at which time Shepherd lodged a caveat.

The sellers called for settlement in September and – after issuing a Notice of Default under Instalment Contract pursuant to Property Law Act s72 – again in October.

Shepherd filed the inevitable lawsuit in the Supreme Court contending that there was a constructive trust in her favour to the extent of $133k for the improvements performed and for the weekly instalments which she argued were payments on account of the buy price.

The sellers – who terminated the contract in February 2016 following which Shepherd promptly vacated – counterclaimed to forfeit the $85k deposit and for unpaid rates of $2.3k and unpaid occupancy fees of $16k.

The Lawsons also asserted that the renovations were worth far less than any cost paid because of poor workmanship, improper installation and building code breaches.

Ruling that the buyer’s “unjust enrichment” claim for improvements should be restricted to their value rather than their cost, her honour accepted the evidence of architect Markus Pye who assessed their reasonable cost at $93k and their value $103k.

Ruling that Kelly had the Lawsons’ authority to negotiate the terms of the pre-settlement occupation – including Shepherd’s right to carry out improvements – Justice Lyons reasoned she indeed had an equitable interest in the home in the $103k sum.

Shepherd also claimed for relief against forfeiture of the $85k “deposit” which she argued was in truth a part payment of the purchase price.

The judge ruled that “the usual 10% deposit” is “prima facie it reasonable” and not eligible for relief. However the $35k “paid over and above the true deposit” was recoverable in equity, as were additional weekly purchase price instalments.

Conceding that that the weekly occupancy payments could not be clawed back in the same way, Shepherd contended for and Justice Lyons allowed, a further credit for the additional $60 weekly instalments expressed to be in reduction of the price and totalling$15.9k.

When these credits were added to the $103k value of improvements and $18.3k was deducted rates and occupancy fee arrears, the balance payable by the owners to the buyer stood at $136k for which judgement was entered in Shepherd’s favour.

Presumably the $136k judgement and the Lawsons’ own legal costs plus any costs required to be paid to Shepherd were joint-venture expenses required to be borne by Kelgar. That wash up his left undiscussed in her honour’s 22-page written reasons for judgement.

Any suggestion that the Residential Tenancies Act apply for the occupancy arrangement was resisted by the owners and left unexplored in the judgement.

Shepherd v Lawson & Anor [2019] QSC 174 Lyons SJA 16 July 2019

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