In what circumstances can a buyer terminate a contract by reason of an important third-party covenant not having been signed up as intended, prior to settlement? And when does such termination constitute a repudiation?
Those were the questions that confronted developer Eleven 17 Pty Ltd who had exercised call options to buy two adjoining low rise office buildings – under different ownership – in Ocean Street, Maroochydore in June 2022.
The transactions each at $9.25m – and each with a deposit of $462.5k – were subject to contemporaneous completion on July 29 with a default under one contract being considered a default under the other.
The Evangelista Pty Ltd site that was the subject of one side of the deal enjoyed the benefit of a licence from the Sunshine Coast Regional Council that permitted foot and car traffic to gain entry from an adjoining public car park that fronted Duporth Ave.
In return, Evangelista allowed pedestrians to cross its car park from the council car park side to its Ocean Street frontage.
A special condition in the Evangelista sale contract required developer Eleven 17 to enter into a Deed of Covenant with the Council “on or before completion” novating the reciprocal access licence.
The buyer’s solicitors first raised this issue with their counterparts opposite on the afternoon prior to settlement.
Evangelista’s solicitors quickly prepared the requisite deed – as the special condition required them to do – and submitted it to the buyer’s solicitors on the morning of settlement, for execution.
Despite difficulties in getting two directors in different parts of the country to sign the document that day and the “extraordinary belated delivery of the deed”, the buyer’s solicitors returned a copy of the “duly executed deed of covenant” and notified that they required Evangelista to procure its execution by the Council before the buyer would settle.
At about 4:30 pm – after Evangelista had pointed out there was no requirement for the Council to sign the deed prior to completion – Eleven 17 purported to terminate the contract.
The Council did in fact countersign the “simple one page document” by 5 August.
A few days later – recognising the transaction was not going to proceed – Evangelista notified that it was terminating the contract and forfeiting the deposit by reason of the buyer’s repudiation.
The other seller – TWM (Qld) Pty Ltd – did likewise in respect of the contract and deposit on its adjoining block.
Evangelista and TWM then applied to the court for declarations that they had validly terminated the contracts and forfeited the deposits.
The matters came before the Supreme Court in Brisbane where Justice Paul Freeburn observed that the obligation to “enter into” the deed before settlement, was merely an obligation on Eleven 17’s part to sign it.
The special condition did not require the Council to have signed it by the time of settlement.
Although Evangelista’s ought to have prepared it much earlier, the delay in providing it to the buyer’s solicitors was of no real consequence because Eleven 17 had been able to have it signed on time.
“There is no evidence that in fact the failure to prepare the draft deed caused Eleven 17 to be unable to fulfil its obligations,” he wrote his 18 pages of reasons.
Eleven 17’s purported termination was ruled to be a wrongful repudiation entitling Evangelista and TWM to each terminate their contracts and forfeit each deposit.