The Facts
Landowner and developer enter into put and call option agreement
A landowner who owned a large block of land in West Pennant Hills, in Sydney’s north west, 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 allowing the developer to compel the landowner 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. The developer was responsible for obtaining the development approval.
Landowner seeks to terminate agreement and developer lodges caveat on the land
Because significant time had passed without the development approval being granted, 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 landowner sought to bring the contract to an end.
The developer refused and lodged a caveat on the land to protect its alleged interest. The landowner commenced proceedings in the Supreme Court to have the contract brought to an end.
Expert commentary on the court's decision
Declaration of interest: Stacks Champion acted for the landowner in the proceedings described in this article.
Court finds in favour of landowner
In Rosengreen v Saadie Group Pty Ltd [2018] NSWSC 1068, the court ruled in favour of the landowner, 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, Saadie Group Pty Ltd, 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 to obtain development approval within six months of the contract being entered into.
The court found that for the developer’s argument to be successful, it would have to find that the contract was not time bound. The court determined it was clear from the evidence that this was not the case and that the landowner had an expectation 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, it could not be ready, willing and able to perform the contract.
Option agreements should clearly specify 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.