“Rescind” or “terminate”: developer hands back $253k over poor choice of words

A national house and land marketer has defeated a developer attempt to deny it a refund of option fees when the plan of subdivision for call-optioned lots remained unregistered at the option deed sunset date.

A new subdivisionIn June 2015 Metricon Homes entered into put and call option deed over 30 lots in a proposed subdivision at Edmondson Park in the outer western suburbs of Sydney.

The developer, Angela Carbone, secured a call option fee of $20k for each lot paid to her on signing.

Although she intended that in the event that the options weren’t exercised she be entitled to retain those fees, none of the option deeds stated that the fees were non-refundable.

Rather the deeds provided that “either party could rescind the deed” if the subdivision plan was not registered by the specified date.

Metricon exercised its option to purchase some of the lots. The option fees paid on those lots were refunded to it – as envisaged in the documents – when it nominated buyers for lots who contracted with Carbone for their purchase.

In September 2016, three days after the sunset date, Metricon issued notices of rescission in respect of nine of the lots and demanded a refund of call option fees totalling $180k.

The subdivision plan was registered two months later, the delay being only attributable to the local government planning process.

Carbone refused the refund on the grounds – she alleged – that the parties had intended option fees to be non-refundable if Metricon did not proceed with the acquisitions for any reason.

The dispute that came before the District Court of New South Wales.

Metricon contended that the term “rescission” was a reference to rescission ab initio, such that the parties should be restored thereafter to their pre-contractual positions. On that basis it should be repaid by Ms Carbone – it argued – the whole of the option fees for the nine lots plus interest.

Developer Carbone counterclaimed in respect of the already-refunded option fees on two buyer contracts where Metricon’s nominees had defaulted.

Judge Anthony Dicker dismissed Carbone’s counterclaim because a refund of the option fee to her in the event of a nominee default was not envisaged at all in the option agreement.

Although he agreed that the term “rescission” can have different meanings including a contractual right of termination, he concluded that rescission of a contract other than in a breach situation meant rescission ab initio as Metricon had argued.

He ordered Carbone to return the option fees plus interest and costs – making a total of $253k – so as to restore Metricon to the position in which it would have been had the option deeds on the nine lots not been entered into at all.

Carbone appealed arguing that the option fee was paid in consideration the grant of the entitlement to buy the lots. It was never to be treated as a refundable deposit.

“The fact that the plan had not been registered by the sunset date did not mean that Metricon did not substantially enjoy the benefit of the option,” she argued.

The appeal judges disagreed.

“Use of the word ‘rescind’ rather than ‘terminate’ in conveyancing transactions has a generally understood meaning of rescind from the beginning,” they ruled.  Read Case

Carbone v Metricon Homes Pty Ltd [2018] NSWCA 296 Meagher JA, Payne JA and White JA, 7 December 2018

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