Special conditions are commonly included in Queensland property contracts to address matters that are not adequately covered by the standard contractual terms.
These conditions may deal with development approvals, access arrangements, due diligence requirements or other obligations specific to the property.
Although special conditions are intended to protect the interests of the parties, their interpretation can become a source of dispute when the obligations are not clearly understood.
The Queensland Court of Appeal decision in Eleven 17 Ocean Street Pty Ltd v Evangelista Pty Ltd; Eleven 17 Ocean Street Pty Ltd v TWM (Qld) Pty Ltd [2023] QCA 170 demonstrates the potentially significant financial consequences of relying on a special condition to terminate a property contract.
Background to the Dispute
In June 2022, Eleven 17 Ocean Street Pty Ltd entered into two contracts to purchase adjoining commercial properties in Maroochydore, Queensland.
Each property had a purchase price of $9.25 million, with a deposit of $462,500 payable under each contract.
The contracts were interdependent, meaning that the termination of one could also affect the other.
One of the properties relied on an existing licence arrangement with the Sunshine Coast Regional Council to provide pedestrian and vehicle access through adjoining council-owned land.
To address this arrangement, special condition 5 of the relevant contract required the purchaser to enter into a Deed of Covenant with the Council on or before settlement. The deed was to be prepared by the sellers’ solicitors.
Settlement was ultimately scheduled for 29 July 2022.
On the evening before settlement, the purchaser’s solicitors raised concerns about the outstanding deed.
The sellers’ solicitors prepared and provided the deed on the morning of settlement. The purchaser subsequently executed the document but maintained that the Council was also required to sign it before settlement could proceed.
The sellers disagreed, maintaining that the special condition did not require the Council’s execution before settlement.
At 4:37pm on 29 July 2022, the purchaser purported to terminate the contract on the basis that the sellers had failed to comply with special condition 5.
The central question was therefore whether special condition 5 required the Council to execute the deed before settlement, or whether the purchaser’s own execution and delivery of the deed was sufficient.
The sellers subsequently terminated both contracts following the purchaser’s failure to settle and sought to forfeit the deposits.
What Did the Court Decide?
The Supreme Court of Queensland found that the purchaser was not entitled to terminate the contracts.
The purchaser appealed, but the Queensland Court of Appeal dismissed both appeals on 25 August 2023.
The Court considered the wording and commercial purpose of special condition 5.
Importantly, the condition principally imposed an obligation on the purchaser to enter into a deed recognising the existing licence obligations. It did not expressly require the Council to execute the deed before settlement.
The Court also explained that the benefit of the existing access covenant was capable of passing to the purchaser with ownership of the property. Accordingly, execution of the new deed by the Council was not necessary to secure the purchaser’s benefit of those access rights.
Although the sellers’ solicitors had not prepared the deed until the day of settlement, the purchaser had been able to execute it.
The Court further found that the sellers had waived any right to insist upon further compliance with special condition 5 before settlement. It was therefore unnecessary for the Court to determine whether the purchaser’s execution and delivery of the deed alone satisfied the condition.
The purchaser’s purported termination was unsuccessful, and the sellers’ entitlement to forfeit the deposits was upheld.
The combined deposits totalled $925,000.
What Does This Mean for Queensland Property Contracts?
The decision highlights the importance of understanding the precise obligations created by special conditions.
A condition requiring a party to enter into a deed is not necessarily equivalent to a condition requiring every party to that deed to execute it before settlement.
If the parties intend for a particular document to be fully executed by a specified deadline, the contract should clearly identify that requirement.
The case also demonstrates that special conditions must be considered in the context of the contract as a whole.
A purchaser may regard an outstanding obligation as commercially important. However, that does not necessarily mean that a failure to perform the obligation provides a contractual right to terminate.
Where a special condition involves third-party documents or approvals, the parties should establish responsibility for obtaining them well before settlement.
The Risks of Terminating a Property Contract
Terminating a property contract without a valid contractual basis can expose a party to significant financial consequences.
Where a purchaser wrongly refuses to complete settlement, the seller may have rights to terminate the contract and forfeit the deposit, depending on the contractual terms and circumstances.
In Eleven 17 Ocean Street, the purchaser’s unsuccessful reliance on a special condition ultimately resulted in the forfeiture of deposits totalling $925,000.
The decision reinforces the importance of obtaining legal advice before exercising a purported right of termination.
How Vojdani Lawyers Can Assist
At Vojdani Lawyers, we advise clients on residential and commercial property transactions throughout Queensland.
Our property lawyers assist with reviewing and negotiating contracts, preparing special conditions and advising on contractual obligations before settlement.
Whether purchasing an investment property or acquiring a development site, carefully drafted special conditions can help protect your interests and minimise the risk of costly disputes.
Contact Vojdani Lawyers to discuss your property transaction.