Which case won?

The case for the sellers
  • The fire did not render the land materially different to what the buyer contracted to buy.
  • After the fire, we made an insurance claim to the NRMA and we carried out the necessary repair work prior to the settlement date. We scrubbed down the walls ourselves with solution and sponges. We also used a pressure cleaner and engaged the help of some professional cleaners. We did repairs to the kitchen, painted the interior and laid new carpets. We also had an engineer confirm that there was no structural damage to the house.
  • In any event, the house was quite old and the buyer was planning to redevelop the land. Presumably those plans would have included the house.
  • The court should therefore find that the contract was terminated when we accepted the purchaser’s repudiation, and that we are entitled to retain the deposit.
The case for the buyer
  • Given the substantial damage caused by the fire, and notwithstanding any repairs that the vendors undertook, the property is now materially different to what I agreed to buy.
  • The fire caused significant smoke damage, including charred paint on the walls. The carpets were burnt. Almost all of the windows were shattered and two ceilings sagged as a result of water from the fire truck. There was also damage to the outside of the house, to the front gutter below the roof, and smoke marks under the eaves above the windows on the front of the house. One of the vendors even describes in her evidence how she was shocked at the sight of the property.
  • The court should therefore declare that I validly rescinded the contract and order the return of my deposit.

So, which case won?

Cast your judgment below to find out
Case A Case B

Case A won. You were right!

How people voted
case a63%
case b37%

Expert commentary on the court's decision

“Before rescinding a contract, always assess your circumstances and weigh up all the options. Seeking an agreement between parties to contracts for sale of land is always the safest and most cost-effective way to resolve a dispute. This will help to avoid expensive and stressful litigation.”
Supreme Court finds in favour of sellers

In Bakhos v Fenner & Anor [2007] NSWSC 641, the Supreme Court found in favour of the sellers, Regula Fenner and Rolf Fenner, concluding that the rescission by the purchaser, Tony Bakhos, was invalid.

The court recognised the effectiveness of the Fenners’ acceptance of the repudiation of the contract by Mr Bakhos and declared that they were entitled to retain the deposit.

Buyer’s attempts to claim “substantial damage” to property

Mr Bakhos sought to rely on section 66L of the NSW Conveyancing Act 1919 which states:

where land is substantially damaged after the making of a contract for the sale of the land and before the risk in respect of the damage passes to the purchaser, the purchaser may rescind the contract by notice in writing served on the vendor before the completion of the sale. 

Section 66K of the Act provides that the passing of risk in respect of the damage remains with the vendor until the time of settlement of the contract, hence in this case the risk had not yet passed to Mr Bakhos.  

Section 66J(2) of the Act states that land is “substantially damaged” when the damage “renders the land materially different from that which the purchaser contracted to buy”. 

Buyer’s attempt to rescind contract found to be invalid

The court found no substantial damage, rejecting Mr Bakhos’s assertion that the land was materially different from what he had contracted to buy.

The court considered that the damage was put right within a few weeks of the fire and before the date on which Mr Bakhos had the right to call for completion.

Further, although the court acknowledged that there was considerable damage to the furniture and carpets, it said that this was not its concern.

Rather, its concern was with the structure of the property itself, and as to this, it accepted the expertise of the Fenners’ engineer.

In reaching its conclusion of no substantial damage, the court also had regard to the nature of the property and the amount of the purchase price it made up.

The court noted that the house itself was a two-bedroom brick and tile house which was well over 50 years old and showing signs of its age. The court took the view that the structure could only have been a minor factor in appraising what was of economic significance in a purchase of $1.4 million.

The court also referred to Mr Bakhos’s plans for redevelopment. It said that although there was no evidence as to what these plans were, it was in no way surprising that he would have plans to develop the property and it was extremely improbable that the house was material in the valuation of the property or his decision to buy the property.

As the land was not substantially damaged within the meaning of section 66 of the Act, Mr Bakhos’s purported rescission of the contract was invalid.

Contract terminated by valid acceptance of repudiation

The court said that irrespective of whether the land was substantially damaged, Mr Bakhos’s 13 May 2005 notice of rescission made it quite clear that he was unwilling to complete the contract.

Because he was not entitled to rescind under section 66 of the Act, his notice of rescission instead constituted an anticipatory breach of his obligation to settle on 11 July 2005.

This was a repudiation of the contract, which the Fenners accepted.

Consequently, the contract was terminated and the Fenners were entitled to keep the deposit.

Carefully assess the situation before rescinding a contract for sale of land

Before taking any action to rescind a contract for the sale of land, it is very important to know whether you are entitled to do so.

If you are unsure, always obtain advice from a lawyer who specialises in property and litigation.

If a property you have sold or bought is damaged by a fire, an unpreventable natural disaster, or by any other means, you must be sure that the damage is substantial, and that this damage renders the land materially different to the land that was purchased, taking into consideration all of the circumstances of the case.

Before rescinding a contract, always assess your circumstances and weigh up all the options. Seeking an agreement between parties to contracts for sale of land is always the safest and most cost-effective way to resolve a dispute. This will help to avoid expensive and stressful litigation.

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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