A developer who guaranteed his investor a $100k gain by buying back the Goodna house & land stock four years after its sale is appealing a court rulingthat sees it liable to the investor for rejecting the buy back agreement.
John Fitzgerald’s Custodian WealthBuilders signed up the buyer in October 2011 for a lot at Cunningham Rise at $199k with a house to be constructed on the site for a further $210k.
Joel Matos settled the buy in January 2012 at which time Custodian granted him an option to sell the home back to related company JLF Corporation Pty Ltd at $510k on 31 December 2015. The put option was required to be exercised by end December 2014.
The build was completed in August 2012 and tenants installed. Ray White Aspley managed the property and another JLF company – Custodian House and Garden Care Service – provided regular landscaping services.
In September 2014 Custodian enquired of Matos whether he intended to exercise the sell back option given that “land prices had increased”.
It recommended either way, that Custodian should promptly apply to the council on his behalf for dual occupancy approval before that policy – which had added value to the home – was reversed.
Matos accepted Custodian’s offer to make the council application but nevertheless notified he intended to activate his option.
His solicitors provided JLF in December with written notice of exercise accompanied by a contract for the sale back, signed by Matos as seller.
Then followed a number of offers starting at $20k and rising to $75k from JLF of “cash payments” were Matos to agree to cancel the sell back.
It became apparent the investor had no intention to resile. JLF commissioned a building and pest inspection that it claimed identified a large number of “defects that required immediate rectification” pursuant to the put option agreement.
Shortly after, JLF purported to terminate the contract on the basis of a “complete and total failure” to rectify the maintenance defects in breach of that obligation.
JLF defended the inevitable lawsuit on those grounds but its major contention was that the buyer – when exercising the put option in December 2014 – had sent an REIQ 10th edition contract rather than utilising the edition 8 version that was annexed to the option.
That arose from the repeal – on 1 December that year – of PAMDA and its replacement by the Property Occupations Act which necessitated a very different contract format and different compliance measures.
In the view of Justice Ann Lyons, it would “be an absurdity if the applicant was required to send an obsolete form and potentially be exposed to a penalty” in order to do the exercise the option.
In Her Honour’s view, the option “did not envisage any requirement of strict compliance in respect of the manner in which it was exercised”.
Rather, the contract issue arose out of a “machinery provision”.
“It would seem to me that the intention of the parties was that it was the version of the standard REIQ Contract in use at the time of exercise of the option was to be used,” she reasoned even though had the put option been exercised before December 1, it could have been done strictly in accordance with the option deed.
And because any maintenance defects were raised after the exercise of the option, they were not referable any obligation under that agreement. At that point, the terms of the contract applied under which a buyer had no right to require defects to be remedied.
Thus the sell back option was held by the court to have been validly exercised and JLF’s purported contract termination, refused.
But whether or not Mr Matos’s conduct in relation to maintenance gave rise to equitable considerations that should deny him specific performance required further evidence and was reserved to an ultimate trial.
JLF has filed an appeal against the court’s rulings. If Mr Matos successfully defends his judgment, the legal remedy for his loss may be restricted to damages established by re-sale or valuation evidence.
The economic behavior of the parties does not signal well for the SE Queensland subdivision market in terms of capital appreciation of house & land stock over the last 4 1/2 years.