The Facts

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The purchaser then commenced proceedings in the Supreme Court of NSW, seeking a declaration that he had validly rescinded the contract and an order that the deposit be returned to him.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.

CASE A

The case for the sellers

CASE B

The case for the buyer
  • 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.
  • 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

Anneka Frayne
Conveyancing
Stacks Law Firm