Sellers who granted their buyers a 10 month option over a valuable harbour-view home have been able to escape the sale and obtain a substantially higher price as a result of their buyer’s failure to strictly adhere to how the option was to be exercised.
Stephen & Kathryn Timilty granted an option in June 2020 that allowed the tenants of their Sutherland Shire property to call for its sale to them at $2.9mil any time up to the an expiry date expressed to be 5.00pm on 24 April 2021 “unless a contrary intention appears”.
The grantees of the option – Stuart and Kerry Payne the occupants of the Burraneer property – paid $10k for the option which was to be credited to the $290k deposit.
The option deed required the balance of the deposit to be paid by way of a cheque accompanying the completed Notice of Exercise of Option and a purchase contract – in both cases in the form appearing in schedules to the deed – signed by the grantees and delivered to the grantor’s solicitors.
Two days before the expiry date, the Paynes’ solicitors delivered to the sellers’ solicitors the completed and signed Notice of Exercise of Call Option and the completed (but undated) and signed purchase contract together with a letter stating that the deposit would be transferred by EFT to the seller’s rent account.
Mr and Mrs Payne made several unsuccessful attempts to contact the sellers to get particulars of the bank account into which they wanted the deposit to be paid into.
Under advice from their solicitors the sellers ignored those calls.
Mrs Payne tried several times on 24 April – a Saturday – to transfer $280k into the sellers rent account but was unable to effect the transfer.
Early on 26 April 2021, Mr Payne and Mr Timilty had another phone conversation during which the latter said that he did not want the funds transferred at all.
The $280k transfer was made to the rent account shortly after, prompting a response from the sellers that they considered the option not to have been validly exercised and advising they had entered into a sale with another buyer for $3.35 mil.
The Paynes quickly filed a lawsuit in the NSW Supreme Court alleging that a valid exercise of option had occurred because they were entitled to complete the final step – namely the payment of the deposit – by doing so on the next business day after 24 April.
They relied in this regard upon a standard condition 21.5 appearing in the contract annexed to the option deed which specified if “the time for something to be done or to happen is a day that is not a business day, the time is extended to the next business day”.
It fell to Justice Rowan Darke to determine whether the words of standard condition 21.5 could constitute a ‘contrary intention’ sufficient to shift the last day for the exercise of the option until the following Monday.
His Honour noted that standard condition 21.5 was not a term of the deed itself – and although it may be taken into account on the construction of the option expiry date clause in the deed – it strictly only came into operation if the option were to be exercised.
Clause 2.2 of the deed was – he reasoned – required to be interpreted by reference to what reasonable business persons would have understood it to mean.
“I do not think that because 24 April 2021 is not a business day, reasonable business persons would have understood that by reason of cl 21.5 in contract annexed, the Call Option Expiry Date is 5.00pm on the next business day,” Justice Darke concluded.
“In my opinion, no contrary intention appears such as to warrant a departure from the defined meaning” of the option expiry date in the deed.
It follows from that conclusion that to be validly exercised, all items – the notice of exercise, the signed contract and the cheque for the deposit – were required to be delivered by no later than the expiry date.
Furthermore, payment by EFT could never have met the requirements as the option deed specified the deposit had to be paid by delivery of a cheque in favour of the grantor’s solicitor.
“The transfer of $280,000 into an account of the defendants does not satisfy cl 2.2,” so ruled His Honour. “It should be noted in this context that the deposit was required to be held by a stakeholder, not released to the [sellers]”.
Payne v Timilty  NSWSC 986 Darke J, 6 August 2021. Read case