The current property market in Queensland has posed various difficulties for developers and buyers alike.
From a developers' perspective, the well documented building cost increases and delays over the past few years have meant that many developments faced the possibility of being unprofitable projects. In such cases-many developers would, if possible, prefer to terminate any existing contracts and re-sell at a higher price rather than lose money on the project.
From a buyers' perspective, the property that they signed to buy "off the plan" some years ago will have increased significantly in the current market and they would want the developer to honour the contract price in order to benefit from the upturn in the market.
In the recent decision of Brightman Ors v Royal Pines Projects Pty Ltd [2024] QSC 149, the Court relied upon an implied term to assist the buyers in an "off the plan" project to stop a developer terminating their contracts.
Facts
The applicants were "off the plan" buyers of units in a Gold Coast development.
When they entered their contract, there was no opportunity for them or a valuer to inspect the property as it had yet to be built.
While the standard form of contract did not provide for the contract to be subject to finance, the terms of the contract envisaged that the buyer would have a "financier".
The trial judge noted, that the use by an overwhelming majority of buyers in the property market of loans to finance their acquisitions is notorious and the developer could not have been in any doubt at the time it entered into the contracts that practically all, if not all, of the buyers would need to obtain finance to complete their contracts when the development was finished and before the contracts were due to settle.
Just before completion of construction, the buyers requested that a valuer inspect the properties in order to obtain finance to complete their purchase. The developer failed to respond to the request so as to permit any valuer to inspect, but the same day-fixed the 14 day period allowed under the contract for settlement.
A week after the request was first made to have a valuer inspect the now completed unit, and only after the request was repeated and the court proceedings were commenced, the developer without admitting any obligation to permit access, proposed a protocol for each buyer's valuer to obtain access. However-that offer to allow inspection by valuers allowed insufficient time to inspect before settlements were due.
The buyers sought a declaration that by reason of the implication in the contract of a term requiring that each party co-operate to allow the other the benefit of the contract, the developer was required to permit access to the property that was the subject of the contract by a valuer appointed by the buyer in sufficient time to provide a valuation advice in advance of completion, and injunctive relief to restrain termination of the contracts.
The buyers relied on the developer's breach to engage the 'prevention principle'. In short, this principle is that a party cannot take advantage of a state of things that its own breach or failure to perform its contractual duty has produced. On this basis, the buyers sought a declaration that the developer was not entitled to insist on the nominated settlement date and terminate if the buyers could not settle on that date.
The buyers were successful in obtaining their declaratory and injunctive relief at the first instance and in the Court of Appeal.
The Law
The law of contract includes a general rule of construction that there is "an implied obligation on each party to do all that [is] reasonably necessary to secure performance of the contract". Griffith CJ in Butt v M'Donald referred to an implied duty to co-operate so as to give the other party "the benefit of the contract". The duty is implied by law as a matter of necessity.
In this instance, the contract required the buyer to obtain the finance to perform the buyer's central obligation, namely payment of the purchase price. The duty to co-operate by acting in a way to allow the buyer to obtain finance and complete the contract entailed the same practical content as the same implied duty in Grieve.
Expressed in negative terms, it was a duty to not hinder the buyer in obtaining the necessary finance. Expressed in practical terms, it was simply to allow access in a reasonable time frame for a valuation to obtain that finance.
The Court of Appeal dismissed the developer's appeal which attacked the trial judge's reasons on 3 points:
- Implication of the term to co-operate and allow a reasonable time for inspection when there was no contractual term to do so and the taking of judicial notice of the "commercial reality" that buyers needed to obtain finance. Courts will have regard to the commercial realities and the practicalities of transactions and look at usual and common practices.
- Breach of contract, and what a "reasonable time for allowing a valuation might be and
- Causation of harm and the finding that the failure to allow a time for inspection meant finance could not be obtained to settle in time.
The Court of Appeal described some of the developer's arguments as "most unmeritorious".
Summary-a warning to Developers, a foothold for buyers?
This case is most interesting in the current property cycle and sends a warning to developers that great care must be taken before termination of "off the plan" contracts, especially if their own conduct effectively stops, hinders or diminishes a buyer's ability to settle, thereby breaching the implied obligation to co-operate.
The case suggests that positive action is required to satisfy the implied duty of co-operation, and that ignoring, or idly proceeding towards the sunset date without co-operating with buyers will attract the suspicion of the court.
Robust contractual wording, well defined buyer protocols leading up to the sunset date and continuous legal advice are likely to safeguard developers from breaching their obligations, and suffering a substantial loss as a result.
If you are a buyer in this situation, it is still critical to mitigate loss, that is, to do all things necessary to complete the contract and proceed towards settlement.
At RCR Lawyers, our property and commercial team of experienced lawyers understand the challenges that follow "off the plan" purchases for both developers and buyers. Contact us to discuss your circumstances ad how we can assist you.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.