The Facts
Property owner enters into contract to sell parcel of land
A parcel of land in Fairfield, Sydney, was sold at auction for $1.46 million. The buyer and seller entered into a contract for sale and the buyer paid a 10 per cent deposit of $146,000. The contract stated that the “completion date” was to be 20 June 2015.
Some time prior to entering into the contract, the seller had performed earthworks on the property. The local council had declared the earthworks illegal and issued an order requiring that the seller reinstate the property to its previous condition.
By a special condition contained in the contract, the seller agreed to reinstate the property as required by the order “before completion”. The contract stated that the buyer would be entitled to terminate the contract and be repaid the deposit if the seller failed to do so.
Buyer cancels contract and seller refuses to refund deposit
When the completion date of 20 June 2015 arrived, the seller had not complied with the special condition. The buyer issued a notice requiring the seller to complete the work by 29 July 2015 and when that date came and went without the work being done, the buyer terminated the contract and sought repayment of his deposit. The seller refused.
Some months later, the seller finished the work and approached the buyer to complete the contract. When the buyer failed to comply with a notice to complete, the seller terminated the contract and declared that the buyer had forfeited his right to the deposit.
It was up to the court to determine who had validly terminated the contract and who could keep the deposit – the buyer or the seller?
Expert commentary on the court's decision
Supreme Court of NSW finds in favour of property seller
In the case Ebadeh-Ahvazi v Namrood [2017] NSWSC 399, the seller won. The court found that the seller, Mr Ebadeh-Ahvazi, took steps to comply with his contractual obligations and had not repudiated the contract, which meant that the buyer’s termination of the contract was invalid.
The court decided that the seller validly served the Notice to Complete and the buyer was in default at the time the notice was issued, which meant the seller was entitled to terminate the contract and could keep the ten per cent deposit paid by the buyer.
The buyer, Mr Namrood, appealed the Supreme Court decision and the matter was heard by the Court of Appeal. (See Namrood v Ebedeh-Ahvazi [2017] NSWCA 310.) Unfortunately for Mr Namrood, the Court of Appeal upheld the original decision and dismissed his appeal.
Importance of using precise language when writing legal documents
This case demonstrates the importance of making sure the contract you are signing exactly reflects your understanding and your intentions. The court identified an important distinction between the meaning of “completion date” and “completion”. The seller was only required to satisfy his obligation to complete the works by “completion” – that is, the date on which the seller could be made to complete the contract.
Had the contract specified that the seller was required to satisfy his obligation to reinstate the property to its previous condition by the “completion date”, rather than by “completion”, the outcome would probably have been the opposite. The buyer would have been entitled to cancel the contract and have the deposit paid back to him.
Benefit of having a lawyer review your contract before you sign it
Unfortunately, the buyer entered into the contract without first obtaining advice from a lawyer. Indeed, he had not obtained a copy of the contract before bidding for the property at auction, because he only became aware that the property was for sale on the morning of the day of the auction.
Had he engaged a lawyer to review the contract for him, the important distinction between the terms “completion date” and “completion” would likely have been recognised, and the unfortunate outcome for the buyer could have been avoided.
For more information, please see Release of deposit clause in property sale contracts.