What measures are permissible for a developer to escape unit or land presales in a rising market or where the cost to complete a project is no longer palatable?
A good illustration the second dilemma concerns 14 options secured by property spriuker John Fitzgerald’s JLF Corporation Pty Ltd on vacant lots in a Park Ridge subdivision in June 2021.
The deals allowed JLF to recruit third-party buyers for each lot at a price higher – to its profit – than the per lot sum it guaranteed if no buyers could be found.
Otherwise, each option was on conventional terms with a contract being deemed to come into existence provided it was exercised strictly in a specified manner.
In March and April 2022, JLF exercised the call for proposed lots 31 and 34 in the development by delivering to the developer’s solicitors by email the required documents, including a contract for each lot signed by a third-party buyer.
The developer attempted to back out of the sales by contending – notwithstanding the terms of the option deed and that the options had been validly exercised – it was not bound until it had signed what had been submitted to exercise the option.
It argued that the exercise of the option “only conveys an offer to purchase” which the developer ultimately did not accept.
It also submitted that each sale was unenforceable by reason of s 59 of the Property Law Act which requires a document in writing “signed by the party to be charged”.
Justice Melanie Hindman rejected its contention that the validly exercised options still required the seller’s sign-off before attaining the status of a concluded sale.
“Properly construed,” she observed “the exercise of an option under the Option Deed gives rise to a contract and no separate signed purchase contract is required”.
And the option deed, taken with the documents exercising the option, “contain the writing required to satisfy s 59 PLA “.
Thus the two options the exercise of which the developer had resisted were upheld as fully enforceable.
The developer also alleged it was entitled to terminate those sales – and many others the option paperwork for which it had already accepted – because of a road and sewerage infrastructure levy notified by the local authority.
By May 2022, the developer decided not to pay what it thought to be wrongly calculated infrastructure contributions and then notified each buyer it terminated the sales on the basis of such specific provision.
Each contract resulting from the options contained a special condition subsequent, allowing it to “terminate this contract by notice to the buyer” if the council imposed any conditions with which it was “unwilling to comply”.
Nine of JLF’s buyers – including those of lots 31 and 34 – contested the developer’s attempt to back out.
They contended that its obligation to pay the infrastructure charges was a pre-existing obligation contained in an Infrastructure Agreement it had agreed and the charges recently notified were consistent with those stated therein.
Because – they said – the special condition was “prospective in operation”, it was not engaged in respect of such pre-existing obligation.
The developer claimed though that its dissatisfaction was not with the charges themselves but with the infrastructure offsets the Logan City Council had allowed, which – although referred to in the IA – had not been quantified.
Justice Hindman agreed. The special condition should be allowed unfettered operation.
“The amount that actually is required to be paid depends on the quantification of the offsets, which in the IA included estimates and ‘to be determined’ amounts”.
Her honour went on to observe that even if the charges and offsets were entirely consistent with sums specified in the IA, the special condition would allow termination if – by when it came time to pay – the developer had “become unwilling”.
The only caveat to the operation of such a provision is where the developer – might be acting dishonestly – perhaps let’s say, to catch the benefit of a sharply rising market rather than actually being “unwilling to comply” – in which event the court would protect the buyers and their bargain.
The buyers did not challenge – and the court accepted – the developer’s bona fides in this instance as to its “unwillingness”.
The contracts were ruled to have been validly terminated.