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Could a land owner terminate his option agreement with a developer because of delay by the developer? Which case won?
22 Nov | Which Case Won

Could a land owner terminate his option agreement with a developer because of delay by the developer? Which case won?

by Zohra Ali, Parramatta

The Facts

Land owner and developer enter into put and call option agreement

A land owner owned a large block of land in West Pennant Hills, in Sydney’s north west. The land owner was approached by a developer who indicated he was interested in purchasing the land under a put and call option agreement. This is an agreement for the sale of land under which the developer can compel the land owner to complete the contract once certain conditions have been met.

The relevant conditions were that development approval would need to be granted first, before the developer would commit to completing the purchase, and the developer was responsible for obtaining the development approval.

Land owner seeks to terminate agreement and developer lodges caveat on the land

Significant time had passed, and development approval had not been granted. Due to the time that had elapsed, the market value of the land had increased substantially from the time when the contract was entered into. With no clarity as to when the option under the agreement would be called, the land owner sought to bring the contract to an end.

The developer refused and lodged a caveat on the land to protect its alleged interest. The land owner commenced proceedings in the Supreme Court to have the contract brought to an end

casea
The case for the land owner
  • The developer had indicated that he would have development approval within six months of us entering into the contract in April 2015. My initial intention was to sell my land within six months.
  • After it became clear that the developer would not be able to call the option in that time, in November 2015 we negotiated a further six-month term, and this was reflected in a deed of variation. This meant that the developer had over a year from the date of us entering into the original agreement to call the option. It has now been three and a half years and the option has still not been called.
  • The developer has no current development application on foot with the council. This shows that he is not making any reasonable attempts to complete the contract.
  • The developer does not have a caveatable interest in my land, because in my view, the contract came to an end six months after the deed of variation was negotiated. His caveat is preventing me from being able to deal with my land and the court should order that the caveat be withdrawn.
caseb
The case for the developer
  • While it was my intention to try to complete the transaction within six months, this was not included as a term of the contract, because although I could try to obtain development approval, I could not guarantee that it would be granted within six months.
  • I did make an application to the council for development approval within the six-month period. However, the application was refused because the council had some concerns regarding asbestos contamination of the land. I was not previously aware of the extent of this contamination, nor the impact that the contamination would have on obtaining the development approval.
  • The council required that certain works be done regarding the contamination before it would consider granting development approval. I obtained a quote for undertaking the contamination works and found it to be quite costly. Procuring the finance required to fund the contamination works would take some time.
  • I am ready, willing and able to perform the contract. The land owner should not be able to end the contract because I have not breached a term of the contract. The relevant term of the contract is that I must call the option within 30 days of development approval being granted. Since development approval has not been granted yet, I am not in breach of the contract.

So, which case won?

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Case A Case B

Case A won. You were right!

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b31%

Expert commentary on the court's decision

Zohra AliSenior Associate
“The court found that because the developer did not currently have a development application on foot and had not taken any steps to remedy the contamination identified by the council, the developer could not be considered to be ready, willing and able to perform the contract.”

Declaration of interest: Stacks Champion acted for the landowner in the proceedings described in this article.
Court finds in favour of land owner

In Rosengreen v Saadie Group Pty Ltd [2018] NSWSC 1068, the court ruled in favour of the land owner, Mr Rosengreen, in a claim that looked at whether the passing of time could cause the contract to come to an end.

The court determined that while the relevant contract term stated that the developer had 30 days from the date on which development approval was granted to call the option, it was clear that the intention of the parties was that the development approval would be obtained within six months of the contract being entered into.

The court found that for the developer’s argument to be successful, the court would have to find that the contract was not time bound. The court determined that it was clear from the evidence that this was not the case and that the landowner had an expectation that the contract would be performed within six to 12 months.

Further, the court found that because the developer did not currently have a development application on foot and had not taken any steps to remedy the contamination identified by the council, the developer could not be ready, willing and able to perform the contract.

Option agreements should clearly specify an expiry date

Developers must be very careful in stipulating contract terms for prospective land purchases. Having a clear, express term that indicates the final date by which the developer must call the option will alleviate any doubts as to the end date of the contract.

Stipulating time periods based on the anticipation of a certain milestone being reached can result in ambiguity as to the true expiry date of the contract. It can lead to a contract becoming frustrated due to the impossibility of it being performed, or alternatively, as occurred in this case, being terminated due to the passing of time.

NOTICE: This article is accurate as at the time of publication and does not constitute legal advice. Please see our legal notices page for more information. Information related to coronavirus can be outdated very quickly.
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