The Facts
Purchasers enter into off-the-plan contract to buy townhouse with grass lawn
In June 2017, the purchasers entered into an off-the-plan contract to buy a townhouse from the developer.
At the time of signing the contract, the townhouse’s outside area was bare dirt.
However, the purchasers’ understanding was that this area would be covered with grass.
A grass area was important to them as they had an 18-month-old son.
The grass area was shown in the floor plan and the landscape plans.
These were approved for the purposes of the development consent and the construction certificate that had been issued to the developer before construction of the townhouse began.
Grass lawn replaced by stormwater detention tank and timber deck
In November 2017, the purchasers discovered that instead of installing grass, the developer had built a stormwater detention tank on the townhouse’s outside area and covered it with a raised timber deck.
After a final occupation certificate was issued in December 2017, the developer pressed for completion of the contract.
Purchasers initiate proceedings in Supreme Court to rescind contract
In January 2018, the developer served a notice to complete, calling for completion by 20 January 2018.
The purchasers declined to proceed to completion.
Instead they sought a declaration from the NSW Supreme Court that they were entitled to rescind the contract and had elected to do so.
The developer disagreed and sought an order requiring the buyers to complete the purchase.
Expert commentary on the court's decision
Supreme Court finds in favour of purchasers
In Victorsen v Easy Living Holdings Pty Ltd [2019] NSWSC 1721, the NSW Supreme Court ruled in favour of the purchasers, Ana and Trent Victorsen.
The court declared that the Victorsens were entitled to rescind the contract and had elected to do so.
The court also ordered the developer, Easy Living Holdings, to refund Mr and Mrs Victorsen’s deposit plus interest, and to pay their costs.
Rescission of contract allowed for material and substantial discrepancy
In seeking to rescind the contract, the Victorsens argued that the subject matter of the contract had been substantially misdescribed by Easy Living Holdings.
The Victorsens relied on a principle established in the 1834 case of Flight v Booth. Although that case dates back more than 180 years, it remains relevant in Australia today.
In Flight v Booth, the court ruled that a purchaser may rescind the contract if the vendor makes a material and substantial misdescription that so affects 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 circumstances, the discrepancy between the subject matter of the sale as described in the contract and what is actually available to be conveyed, means that the purchaser is no longer purchasing that which was really the subject matter of the sale.
Court finds material and substantial discrepancy and allows purchasers to rescind contract
Applying the principle of Flight v Booth, the Victorsens argued that they contracted to purchase a “building” built in accordance with the approved plans.
The approved plans in turn included the provision of an outdoor area that would be turfed or covered by lawn.
Easy Living Holdings did not provide this as promised, instead building a stormwater tank covered by a timber deck. The Victorsens said that but for this misdescription, they would never have entered into the contract.
The court agreed, noting that the discrepancy was “so substantial as to give the [Victorsens] something entirely different from that which they contracted to acquire”.
Allegation of misleading or deceptive conduct
The Victorsens also argued that Easy Living Holdings had engaged in misleading or deceptive conduct, and therefore rescission was available under the Australian Consumer Law.
The court found it unnecessary to consider this claim, having already ruled that rescission was available under the principle of Flight v Booth.
Were the purchasers lucky to succeed in court?
Although the Victorsens were successful in this case, they were perhaps fortunate in that regard.
The court’s finding that the subject matter of the contract was a townhouse with a turfed outdoor area rested on nothing more than its interpretation of the phrase “the building” in a special condition in the contract.
This phrase was not defined in the contract, and there was nothing else in the contract to assist the Victorsens in making their case for rescission under the Flight v Booth rule.
In addition, although the director of Easy Living Holdings made a pre-contractual representation that the townhouse would have a grassed outdoor area, the court suggested that if the Victorsens were required to make out a case of misleading or deceptive conduct, they might have struggled.
First, they would have had to surmount an “entire contract” clause. This clause said that the Victorsens were not induced to enter into the contract by any pre-contractual representation, and that they could not rely on anything other than the conditions and warranties in the contract itself.
Secondly, under section 4 of the Australian Consumer Law, a representation with respect to a future matter is misleading if the person making it does not have reasonable grounds for doing so.
However, in this instance, the court noted that there was evidence that at the time the director of Easy Living Holdings made the representation about the grass lawn, he did have reasonable grounds for doing so.
Have your off-the-plan contract reviewed by a lawyer before you sign it
This decision illustrates the importance of ensuring that any off-the-plan contract you sign carefully details exactly what you expect to receive when the property is completely built and the contract has been settled.
If, as in this case, you require that the property has certain features and you do not want to buy the property if those features are absent, this should be specified in the contract.
You should ask your solicitor to insist that the contract includes a special condition, including a right to cancel the contract, if the completely built property does not meet your requirements as set out in the special condition.
Further, you should let your solicitor know whether the vendor or their agent has made any pre-contractual representations on which you are relying. Your solicitor can then seek to give those representations contractual force and deal with any “entire agreement” clause in the contract.