Agents and solicitors were last week dealt a harsh lesson from the Supreme Court about the operation of residential finance and building & pest conditions and how not to communicate the buyer’s elections under standard contract clauses.
In a sign of perhaps some upward movement in the market, the buyers tried to prevent change-of-mind sellers Anne Soineva and Alan Sward from terminating the sale of a luxury Broadbeach Waters home as a result of an inept solicitors’ notification regarding a building & pest report.
The buyers were required under REIQ (eighth edition) standard condition 4, to specify their intentions following receipt of the inspector’s report by the “inspection date” of 28 June 2011.
On 21 June, in anticipation of an allowance being made to the purchase price at settlement due to a building minor issue, the buyers’ solicitors, Charter Conveyancing, notified the sellers’:
We are instructed to advise that our clients are not satisfied with their building and pest enquiries. We have advised that it has been agreed that at settlement a bank cheque in favour of Pest-a-side Pest Management in the sum of $4500 will be handed over. Kindly confirm that these are also your instructions.
Under both REIQ and ADL standard residential form contracts, the buyer has a positive obligation to notify in writing by the inspection date as to whether or not a satisfactory report has been obtained and whether they terminate the contract if unsatisfactory.
As this case demonstrates, the operation of REIQ standard condition 4 is by no means as simple as it may appear. In summary, a buyer can affirm satisfaction by 5:00pm on the inspection date or terminate/waive any time after then if the seller hasn’t first exercised its corresponding termination right.
Clearly the 21 June fax did not have any effect under standard condition 4: it expressed dissatisfaction but did not effect a termination or waiver.
The solicitors for Soineva and Sward waited a week – until 4:48pm on 28 June (the “inspection date”) – to notify Charter that the sellers had not agreed to any financial compensation. The sellers terminated the contract the following day.
That same day the seller’s agent – in a good faith gesture to keep the $900,000 deal alive – transferred $4,500 to the buyer’s solicitors trust account from his own funds and shortly thereafter the buyer’s solicitors notified the sellers as follows:
We refer to the above matter and have been instructed to [sic] by our clients to confirm that they are satisfied with the Pest and Building Condition of the Contract.
Thus the buyers were purporting to notify their satisfaction with cl 4.1, pursuant to standard condition 4.2.
The agent then sent an SMS to one of the sellers: “Congratulations. It’s now officially SOLD!!!”
Unfortunately, so held the court, the solicitors’ “satisfaction” communication of 29 June was flawed.
Noting that the notification etc mechanism in clause 4.1 is the same as in the standard REIQ and ADL finance conditions, her honour concluded:
Because cl 4.5 expressly provides what rights the buyer is to have after the seller accrues, but does not exercise, a right under clause 4.4 [to terminate] my view is that after 5:00 pm on the inspection date, the buyer does not have a right to give notice under clause 4.2(2).
Thus the buyer’s only right after the expiration of the inspection date is to “terminate the contract or waive the benefit of the clause” if the seller has not terminated earlier.
However the notice from the buyer’s solicitors of 29 June was “rather absurd… poorly worded.. [and was] at best for the buyers, ambiguous”.
It was not an unequivocal communication “consistent only with the exercise of one of the two sets of rights and inconsistent with the exercise of the other” that her honour decided was essential to evidence waiver.
Although it is not strictly necessary to employ the word “waived” or “waiver” in the communication, the notice could not – she ruled – be objectively construed as constituting any sort of waiver of the benefit of the clause.
Thus the buyers had fallen short and the sellers had effectively terminated the deal and were entitled to re-sell the property elsewhere. The buyers agreed to withdraw their caveat.
This dispute demonstrates the extreme care that is needed in the preparation of exchanges that affect buyers and sellers rights in a conveyance. Those who choose to merely communicate the intended “vibe” do so at their peril.