Chris Drayton
3 November 2015

Purchaser Must Complete

Chris Drayton


Tel: 02 9233 9029

Mob : 0421 006 305


Charities and Not-For-Profits

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A recent decision in the New South Wales Supreme Court (Frankel v Paterson [2015] NSWSC 1307), dealing with contractual rights and responsibilities serves as a useful reminder to ensure as a purchaser you document in the contract those matters important to your decision to purchase.

The plaintiff purchasers of a strata unit sought a declaration that they were excused from their obligations to perform a sale of land contract.  The complaint of the plaintiff purchasers was that when they inspected the unit they intended to purchase and the common property, they were particularly impressed with the garden which was part of the common property.  The purchasers took the position that the changes made to the common property garden post-exchange and prior to completion were so significant that it changed the whole environment in which they were going to live.  They stated that if the garden and building had been in their current condition at the time they inspected then they would not have had any interest in purchasing.

There are circumstances “where a misdescription although not proceeding from fraud is in a material and substantial point so far affecting the subject matter of the contract that it may reasonably be supposed that but for such misdescription the purchaser might never have entered into the contract at all; in such a case the contract is voided altogether and the purchaser is not bound to resort to the clause of compensation”.

The test is objectively, would a reasonable person in the position of the purchaser have taken the view that he or she was not getting substantially the property for which he or she contracted to obtain?  In this instance the Court was not persuaded even on the balance of probabilities that the plaintiffs would not have bought the unit if the garden was otherwise than as it was at the date of the contract.

The Court then considered what was the property contracted to be bought.  It was held that the interest of a lot owner as an equitable tenant in common is a product of the statutory provisions concerning the relationship of the owners corporation to the common property.  So far as the contract provided for the purchasers to receive an interest in the common property whilst they get equitable ownership of an undivided share, their actual rights in respect of the day-to-day use of the common property including the garden is limited.  The purchasers were receiving what they contracted to buy.

In the decision, the Court also had cause to revisit the ordinary meaning of “vacant possession” in vendor and purchaser law and restated the principle that on completion the purchaser is entitled not only to have the property free from occupation of other people but “also that there is no substantial impediment to the enjoyment of possession by the vendor leaving a substantial physical impediment such as junk or rubbish”.  The Court noted that it accepted the view that it is impossible to give vacant possession of a piece of property (such as common property) which is shared with others or to which one has no rights to possession.

This decision raises pertinent points to be considered by purchasers purchasing units in strata developments where potential issues of use of common property arise.  If contractually it is of such significance to a purchaser that rights of use be in existence at completion then this should be made a special condition of the purchase.  It is important to note that there was nothing in the contract that referred to the use of the garden and there was no promise by estate agent or in advertising material which could have had any contractual effect concerning the garden.

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