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Developer installs stormwater tank and timber deck instead of grass lawn. Could the purchasers rescind the contract? Which case won?
08 Sep | Which Case Won

Developer installs stormwater tank and timber deck instead of grass lawn. Could the purchasers rescind the contract? Which case won?

by Tony Mitchell, Tweed Heads

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.

casea
The case for the purchasers
  • The developer promised us a grassed outdoor area as set out in the approved plans for the construction of the townhouse.
  • Instead, the developer built a stormwater detention tank on the property and put a raised timber deck over the top of it.
  • Prior to signing the contract, we explicitly told the developer that a yard was essential for our 18-month-old son to play in. The developer assured us that we would have grass for our son to run around on and plenty of room for a cubbyhouse.
  • Had we been made aware prior to signing the contract that, instead of grass, the outdoor area would contain a stormwater tank covered by a timber deck, we would not have entered into the contract.
  • If we were to proceed with this purchase now, we would be buying something entirely different to what we contracted to acquire.
  • In these circumstances, the law allows us to rescind the contract. The court should affirm our decision to do so and order the developer to repay our deposit, plus interest and costs.
caseb
The case for the developer
  • After we signed the contract with the purchasers, we were advised by our plumbing contractor that it was no longer possible to place the stormwater detention tank in its originally planned location. This meant that we were required to relocate the tank to its present position.
  • The buyers’ main concern was not that the outdoor area must be grassy, but that it had to be of a sufficient size for their child to play in. The outdoor area has never changed in size, and we gave the buyers the option, if they preferred, to install artificial grass over the stormwater detention tank instead of a deck.
  • Contrary to what the buyers say, the property as currently built is not entirely different from what they contracted to acquire. The discrepancy between a grassed area and a timber deck is merely nominal and there is still ample space for their son to play.
  • Accordingly, the purchasers are not entitled to rescind the contract and the court should order that they complete the purchase.

So, which case won?

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b28%

Expert commentary on the court's decision

Tony MitchellLawyer
“This decision illustrates the importance of ensuring that any off-the-plan contract that 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.”
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.

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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