Could the buyer terminate the property sale contract due to mental illness? Which case won?
Contract for sale of land contains mental illness clause
A seller and a buyer entered into a contract for the sale of land near Grafton in NSW in November 2007, intending to settle 13 calendar months later.
In the contract was a special condition, clause 33, which referred to the ability of the contract to be rescinded (i.e. cancelled without any consequence or penalty) by either party, prior to completion, if either party died or became mentally ill.
Seller allows buyer to occupy land subject to occupation fee
Prior to settlement of the contract, the seller agreed for the buyer to occupy the land, subject to the contract, with an occupation fee of $13,000 plus GST per quarter, paid in advance.
During the time the buyer occupied the land, he had two problems. The first was that he was having trouble with one of his neighbours. The second was that his finance approval fell through, due to the global financial crisis.
The buyer was forced into the position of attempting to sell eight other properties which he owned, in order to raise the funds required to pay the seller for the Grafton property.
Seller offers buyer extension of time to settle
In early December 2008, the seller offered to give the buyer an extension of time to settle the contract, due to the financial difficulty the buyer was facing.
However, the real estate agent responded to the offer, suggesting that the buyer was unable to settle or continue paying the occupation fee at the agreed rate. The seller then made another offer to the buyer, but that offer was not accepted.
Seller issues Notice to Complete, buyer serves Notice of Rescission
The contract did not settle, so the seller issued a Notice to Complete to the buyer, requiring settlement on or before 3pm on 30 January 2009.
On that day, the buyer served a Notice of Rescission, stating that he terminated the contract in accordance with clause 33(a) of the contract, because he was suffering from a number of mental illnesses. These included panic attacks, anxiety, possibly depression and possibly bipolar disorder.
Seller serves Notice of Termination when contract is not completed
The seller then served a Notice of Termination on the buyer, on the basis that the buyer had not settled the contract in accordance with the Notice to Complete.
The seller then commenced proceedings in the Supreme Court, seeking a declaration that the Notice of Termination was effective, and a declaration that the Notice of Rescission issued by the buyer was invalid.
The buyer made a cross-claim that his Notice of Rescission was effective and the seller’s Notice of Termination was invalid.