The Supreme Court has ruled on a Tennyson Reach contract termination argument about balcony size and whether they measured up to contract terms.

This time the buyer had signed a $1.5 million off-the-plan apartment contract in July 2007 for a third floor apartment in a building with outlooks over the Brisbane River.

The annexed plans depicted the floor layout and specified the floor area of the interior (173 m2) and the areas of the north facing balcony (29 m2) and the south facing balcony (13 m2).

However after construction, the floor areas of the balconies were measured 15% and 10% smaller than as specified. The overall floor area reduction was 3%.

In February 2009, the seller sent a further BCCM disclosure notice attaching a revised plan showing the “as constructed” floor areas. The buyers would have been entitled to cancel the contract within 14 days if they were “materially prejudiced” by the floor area reductions, but they did not do so.

In April 2009, the seller notified the buyers that the community title plan had registered and called for settlement 14 days later.

The buyers purported to terminate because the seller had failed to provide a Land Sales Act (“LSA”) rectification notice specifying the diminished balcony sizes. They argued that they had been “materially prejudiced” and were therefore entitled to terminate pursuant to LSA section 25.

The court examined the contract. It obliged the seller to construct the building “substantially as shown or described” but allowed it to make changes to “the size of the lot or any part of the lot” of up to 5%.

The balconies clearly did not measure up so the seller could not rely on the 5% clause for protection. But, held the court, a greater than 5% reduction would not of itself establish that the seller was in breach.

The real question to be decided was whether the apartment had been constructed “substantially as shown or described”.

In a surprising ruling, the court held that even such large reductions in the floor areas of the balconies were not “substantial”. It held that the apartment had indeed been constructed “substantially as shown or described”.

The seller was entitled to demand that the buyers complete the contract.

The buyers’ only valid opportunity to terminate the contract had been after the further BCCM notice had been given in February – an opportunity that they did not take advantage of.

This case illustrates, yet again, the hoops and hurdles – in terms of legislation compliance with PAMDA, BCCMA and LSA – that buyers and sellers face on the road to settlement.

Mirvac v Beioley (QSC – April 2010)