The Facts
Land owner and developer enter into put and call option agreement
A land owner owned a large block of land in West Pennant Hills, in Sydney’s north west. The land owner 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 under which the developer can compel the land owner 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, and the developer was responsible for obtaining the development approval.
Land owner seeks to terminate agreement and developer lodges caveat on the land
Significant time had passed, and development approval had not been granted. Due to the time that had elapsed, 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 land owner sought to bring the contract to an end.
The developer refused and lodged a caveat on the land to protect its alleged interest. The land owner 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 land owner
In Rosengreen v Saadie Group Pty Ltd [2018] NSWSC 1068, the court ruled in favour of the land owner, 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 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 that the development approval would be obtained within six months of the contract being entered into.
The court found that for the developer’s argument to be successful, the court would have to find that the contract was not time bound. The court determined that it was clear from the evidence that this was not the case and that the landowner had an expectation that 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, the developer could not be ready, willing and able to perform the contract.
Option agreements should clearly specify an 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.