Contract termination

The marketeer guaranteed to cover the owners’ mortgage payments and other outgoings in exchange for a long-term option to

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A national house and land marketer has defeated a developer attempt to deny it a refund of option fees when the plan of subdivision for call-optioned lots remained unregistered at the option deed sunset date.

In June 2015 Metricon Homes entered into put and call option deed over 30 lots in a proposed subdivision at Edmondson Park in the outer western suburbs of Sydney.

The developer, Angela Carbone, secured a call option fee of $20k for each lot paid to her on signing.

Although she intended that in the event that the options weren’t exercised she be entitled to retain those fees, none of the option deeds stated that the fees were non-refundable.

Rather the deeds provided that “either party could rescind the deed” if the subdivision plan was not registered by the specified date.

Metricon exercised its option to purchase some of the lots. The option fees paid on those lots were refunded to it – as envisaged in the documents – when it nominated buyers for lots who contracted with Carbone for their purchase.

In September 2016, three days after the sunset date, Metricon issued notices of rescission in respect of nine of the lots and demanded a refund of call option fees totalling $180k.

The subdivision plan was registered two months later, the delay being only attributable to the local government planning process.

Carbone refused the refund on the grounds – she alleged – that the parties had intended option fees to be non-refundable if Metricon did not proceed with the acquisitions for any reason.

The dispute that came before the District Court of New South Wales.

Metricon contended that the term “rescission” was a reference to rescission ab initio, such that the parties should be restored thereafter to their pre-contractual positions. On that basis it should be repaid by Ms Carbone – it argued – the whole of the option fees for the nine lots plus interest.

Developer Carbone counterclaimed in respect of the already-refunded option fees on two buyer contracts where Metricon’s nominees had defaulted.

Judge Anthony Dicker dismissed Carbone’s counterclaim because a refund of the option fee to her in the event of a nominee default was not envisaged at all in the option agreement.

Although he agreed that the term “rescission” can have different meanings including a contractual right of termination, he concluded that rescission of a contract other than in a breach situation meant rescission ab initio as Metricon had argued.

He ordered Carbone to return the option fees plus interest and costs – making a total of $253k – so as to restore Metricon to the position in which it would have been had the option deeds on the nine lots not been entered into at all.

Carbone appealed arguing that the option fee was paid in consideration the grant of the entitlement to buy the lots. It was never to be treated as a refundable deposit.

“The fact that the plan had not been registered by the sunset date did not mean that Metricon did not substantially enjoy the benefit of the option,” she argued.

The appeal judges disagreed.

“Use of the word ‘rescind’ rather than ‘terminate’ in conveyancing transactions has a generally understood meaning of rescind from the beginning,” they ruled.  Read Case

Carbone v Metricon Homes Pty Ltd [2018] NSWCA 296 Meagher JA, Payne JA and White JA, 7 December 2018

A developer who defaulted on the purchase of a $25m condominium project at the historic Albion Flour Mill site has been ordered to pay the vendor millions in compensation for the collapsed deal.

Fridcorp Group – operated by developers Paul Fridman and Chris Roche – signed up to buy the 12 lot FKP site in July 2015.

The company’s $400m “Odyssey” development was to consist of two 20-storey buildings totalling 634 residential units.

Council approval was received in August 2016, but in December the deal was pulled.

Fridcorp alleged FKP failed to disclose all required information, which, by their claim, breached statutory environmental protection rules.

But all necessary reports were available via a virtual “data room” that both parties had access to prior to signing the contract.

FKP sued in Brisbane’s Supreme Court for the difference between the sale price and the site’s diminished value as at the due date for settlement.

Justice David Jackson had no difficulty in ruling that notice had been duly given, because Fridcorp had specifically consented to documents being disclosed by way of the mutually accessible “data room”.

Justice Jackson said the use of the online platform satisfied all legal requirements and dismissed Fridcorp’s attempts to justify its withdrawal from the deal.

It was irrelevant, he reasoned, that the requisite contamination notice was one of scores of documents deposited into the data room because it was clearly titled and easily available.

Valuer Troy Linnane, head of residential development at Jones Lang LaSalle, argued by comparison with other developments in Bowen Hills and Newstead that the site’s value in December 2016 had dropped from $25m to $17m.

He then reasoned that by March 2017 the value had collapsed further to $15.75m.

Justice Jackson thought that to be too much of a stretch as such a conclusion was “unsatisfactory” and “inconsistent”.

There were also unresolved questions as to why the valuer rated an inferior comparison site at a far higher dollar rate per square metre than the Albion Mills site.

That said, the value drop to $17m was taken as reasonable conclusion, yielding a value collapse over just 18 months of $8m or 32%.

Given that a deposit of $2.75m had already been paid, the Fridcorp Group was ordered to pay $5.25m plus interest – a total of $5.46m – for what was ruled to be a serious contract breach.

For more details on the case, visit:

FKP Commercial Developments Pty Ltd v Albion Mill FCP Pty Ltd & Anor [2017] QSC 322

It didn’t take long for the Red Rock Realty agent to get her seller’s signature on the buyers’ offer.
An email to buyers Joshua Long and Vanessa Wilson followed shortly after with a copy of the contract at around 2 pm.

The reference schedule for the Springwood sale amended the usual requirement for payment of the deposit from “on the day the buyers sign” to “on acceptance” of the contract.

With that in mind, Vanessa notified their solicitor to transfer the deposit to the agent’s trust account that day.
That occurred at 8:30 pm but the funds did not land into Red Rock’s trust account until the following day.

It was uncontroversial that the contract was formed once acceptance had been communicated to the buyer.
And because Red Rock had cautioned that if a deposit was to be paid by Internet banking or credit card, payment should precede the due payment time by 48 hrs, the seller contended it had not been paid as required, thereby entitling the seller to terminate.

On the other hand, Wilson and Long argued they should be entitled to specific performance of the contract that seller Milize Hijazi had repudiated by way of wrongful termination.

Judge Julie Dick in Brisbane’s District Court agreed. She noted the contract did not require the deposit to be paid contemporaneously with acceptance. Neither was there any specification for payment “by close of business” or within “banking hours”.

She had no difficulty in holding that there was no failure to pay the deposit by the due date and thus specific performance of the contract should be allowed.

The seller also argued she had been pressured into the sale without any legal advice or the opportunity to consult family. That argument gained no traction given that the Form 6 Appointment stated in clear terms that “the client is advised to seek independent legal advice before signing this form”.

In any event within 7 days of her purported termination, her solicitors notified the buyers that “she agrees that contract was still on foot and withdraws her termination”.

Thus if she were wrong as regards the validity of the deposit payment’s timing, Judge Dick reasoned the purported termination had been clearly and unambiguously withdrawn and therefore the contract had been validly reinstated.

It would therefore be unconscionable, she ruled, to allow the seller to rely upon any earlier breach by the buyer to avoid the contract.

Long and Wilson succeeded in their application that they be entitled to finalise their purchase of the property.

Gold Coast hair salon owner Michelle Glynn has been forced to sell her Varsity Lakes home following the collapse of an unusual arrangement for its rental.

In September 2013 she was influenced by an acquaintance Doug Wroe to grant a lease of the home to a company owned by Malcolm Brown and in turn enter into a similar arrangement to lease a nearby home owned by Wroe .

In both cases the 5 year leases included a “call option agreement” that granted the tenant an option to buy the rented property at any time during the period at an agreed figure with “equity credits” being accrued along the way for a portion of the $2.5k/ month rent installments.

The grant of the options entailed a payment of a $20k option fee which became the deposit under the contract if the option was exercised.

In the case of the property Glynn was selling, Brown’s company was entitled to construct an extension to the home, which he did.

The arrangement worked well until about March 2015 until Glynn and Wroe had differences regarding the property Glynn was renting from Wroe and over which she had an option to buy.

He obtained an order evicting her from the home as a consequence of which she lost the benefit of her call option agreement and had nowhere to live.

Brown promptly decided to exercise his company’s option to buy, by sending Glynn the appropriate paperwork.

Glynn retaliated – in the realisation that she had lost the opportunity to purchase the property from which she had been evicted and now was being forced, as she saw it, to sell hers to Brown for $399k – by purporting to terminate the option.

The dispute inevitably led to the District Court where judge David Reid was required to adjudicate.

In his view Brown’s company had properly exercised the option and Glynn’s purported termination was of no effect.

He ruled in Brown’s favour.

Settlement of the contract was ordered to be effected forthwith and Glynn is required to pay the company’s legal costs.

Glynn v Brown & Anor [2016] QDC 313 Reid DCJ 2 December 2016