“The house I was buying suffered extensive fire damage, so I’m entitled to rescind the contract.” Which case won?
Buyer and sellers enter into contract for sale of land
On 11 July 2003, a buyer of property and its sellers entered into a contract for sale of land, for a property on Sydney’s lower north shore.
The purchase price was $1.4 million, with a deposit payable of $140,000.
A two-bedroom house was constructed on the property around 1946. Though it was habitable, it was showing signs of its age.
Shortly after entering into the contract, the buyer obtained the owners’ consent to lodge plans with the local council to develop the property.
House damaged in fire and buyer seeks to back out of contract
The original contract settlement date was 11 July 2004, which was extended by agreement to 11 July 2005.
Unfortunately, on 27 April 2005, prior to completion, the house was damaged by a fire.
The vendors undertook repairs, which were completed in time for the 11 July 2005 completion date.
However, on 13 May 2005, the buyer gave the sellers written notice that he was rescinding the contract on the basis that the damage to the house had rendered the land materially different from what he had contracted to buy.
This rescission, if valid, would effectively undo the contract, putting each of the parties into the position that they were in before the contract was entered into. The buyer would then be entitled to the return of the deposit.
Sellers treat buyer’s actions as repudiation of contract and retain deposit
The sellers wrote back to the buyer, disputing his entitlement to rescind the contract and demanding that settlement occur.
When there was no response from the buyer, the sellers wrote to him again, indicating that they were treating his purported rescission as a repudiation of the contract (ie an indication of his refusal to be bound by the contract, without lawful excuse).
The sellers also informed the buyer that they had accepted his repudiation, thus bringing the contract to an end.
However, unlike rescission, which undoes the contract from the start, when a contract is terminated for repudiation, any rights already given to the parties remain valid. This meant the vendors kept the deposit.
Purchaser commences proceedings in Supreme Court
The purchaser then commenced proceedings in the Supreme Court of NSW, seeking a declaration that he had validly rescinded the contract and an order that the deposit be returned to him.
In response, the vendors sought a declaration from the court that the contract had been terminated by their acceptance of the buyer’s repudiation of it and that they were therefore entitled to retain the deposit.