On 4 May 2012 the New South Wales Court of Appeal handed down its decision in the case of Foster v Hall. The case provides useful guidance in relation to important issues that can arise in “off-the-plan” contracts for sale of land, particularly given that the purchasers were awarded damages of over $1.6 million (plus costs) in relation to a contract to purchase a block of land for $510,000.
In this case the parties entered into a contract for sale of land of a lot in a proposed subdivision of the vendors’ land. The contract was conditional on registration of a plan of subdivision within 12 months of the date of the contract and the vendors agreed to use best reasonable endeavours to satisfy this condition.
The proposed subdivision required development consent from the local council. Although the application for development consent was lodged with the Council by the vendors’ planning consultants shortly before contracts were exchanged, development consent was not granted until almost 6 months after the date of the contract.
A condition of the development consent required the construction of an all-weather accessway suitable for fully loaded fire appliances from the road to the house on the lot being sold. The vendors believed that this condition was impossible to comply with having regard to the topography of the site. Accordingly, shortly before the 12 month deadline was due to expire, the vendors’ planning consultant lodged an application to modify this condition, noting that, due to the physical restrictions of the site, the maximum grade required by the New South Wales Fire Brigade could not be achieved. This application had not been dealt with by the Council when the 12 month deadline for registration of the plan of subdivision under the contract for sale expired.
The judge at first instance found that:
“As a consequence of the non-rescission and subsequent conduct, the contract should be taken to have been affirmed and thereafter it continued in force on the basis that it was conditional on registration of the plan within a reasonable time after [the 12 month deadline].”
Almost two months after the 12 month deadline had expired the Council issued a modified development consent. The condition regarding the fire accessway was essentially the same as under the original development consent. On several occasions the following year the Council informed the vendors and their planning consultants that, if they wished to delete the fire accessway condition from the consent, they should apply for another amended development consent.
The development consent lapsed two years after it was granted as development had not commenced. No attempt was made by the vendors to extend the development consent (even though the Council advised them of the availability of this option) or to apply for a new development consent. A year later, after having abandoned their attempts to register the plan of subdivision, the vendors purported to rescind the contract. The purchasers elected to accept the vendors’ notice of rescission as a repudiation of the contract, terminate the contract and sue for damages.
The Court of Appeal noted that:
The exercise of reasonable endeavours, or in this case "best reasonable endeavours", does not always require a party to seek amendment of a Development Consent where the relevant contract is directly or indirectly conditional on compliance with the Consent and there is a problem with compliance…whether a failure to seek amendment represents a breach of the obligation to use "best endeavours" will depend upon the circumstances of the case… "reasonable endeavours may require action that is not assured of success".
In this case, the Court of Appeal held that, due to the facts of this case, the exercise of “best reasonable endeavours” required the vendors to seek an amendment to the modified development consent. Accordingly, the vendors were not entitled to rescind the contract due to the failure to register the plan of subdivision.
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