Date of termination confirmed as the date for assessing damages for breach of contract for sale of land

The general rule is that damages for a breach of a contract for the sale of land are assessed at the date of the breach.  The task is usually to compare the contract price with the value of the land a the time of the breach. If the value is greater than the contract price, the vendor has suffered no loss. But if the value is less than the contract price, it may be inferred that the discrepancy is an element of the vendor’s loss (Vitek v Estate Homes Pty Ltd [2010] NSWSC 237 at [179]).

In Ng vFilmlock Pty Ltd [2014] NSWCA 389 the NSW Court of Appeal heard an appeal by a purchaser of land from a judgment where the trial judge had assessed the vendor’s loss as being the difference between the contract price and the price obtained on a resale. The contract restricted the use of the resale price as an element in the quantification of loss to a resale within 12 months of termination but otherwise the vendor was entitled to damages for breach of contract.  The resale took place more than 12 months after termination and therefore the general law applied.  The land had declined significantly in value by the time of the resale.

The vendor argued that there was no available market as at the date of the breach of contract.  The argument was based on a proposition said to be derived from the decision of the English Court of Appeal in Hooper v Oates [2014] Ch 287: the correct date for assessment of damages for breach of contract is the date of breach only where there is an immediately available market for the subject matter of the sale.

Emmett JA, after noting that the English Court of Appeal did not explain what was meant by an “immediately available market”, said at [26]:

“While a sale of land might take longer than the sale of other types of assets, it does not follow that there should be a departure from the general rule, which focuses on the value of the land as at the date of termination of the contract. There is good reason for that approach where the damages sought by the innocent seller are loss of bargain damages. The critical date is when the bargain was lost.”

While the appeal was successful the court accepted that in an appropriate case the interests of justice may require that “the date of breach” rule should not apply and damages may be assessed by reference to a later date, such as the contract price on resale.  See: Johnson v Perez (1988) 166 CLR 351 at 367.

Gleeson JA said at [58]:

“….whether a market value may be assessed in the case of land as at “the date of breach” is ultimately a question of fact. Of necessity, the sale of land will generally require a period to elapse for proper marketing. Unsuccessful attempts by a vendor to resell the property are not determinative as to whether there is no market for the land. Much will depend on the usual method of sale for the land in question having regard to its location, particular characteristics, the range of likely interested purchasers, and the time usually required for proper marketing of land of that type. Expert valuation evidence is likely to have a significant role.”

And at [59]:

“It needs to be emphasised that that departure from the general rule is not a matter of discretion: Clark v Macourt [2013] HCA 56 at [109] (Keane J). A vendor claiming damages assessed at a date later than “the date of breach” must demonstrate that there are particular reasons on the facts which would make it unjust to apply the prima face or “usual” measure of damages.

Implied term that vendor must act in a reasonable manner when selling land pursuant to liquidated damages clause

What duties does a vendor have in selling land pursuant to a liquidated damages clause in the sale contract following a default by the purchaser?

There are three possibilities:

(a)  if a vendor acts unreasonably in failing to minimise loss arising from a purchaser’s breach, any damages will be reduced to the extent that the vendor’s loss would have been reduced had the vendor acted reasonably;

(b)  the duty imposed on a vendor is similar to that imposed on a mortgagee exercising a power of sale granted under a security, the duty being to act in good faith;

(c)  there is an implied term in the contract for the sale of duty that a vendor will exercise the power of resale in a reasonable manner.

In Portbury Development Co Pty Ltd v Ottedin Investments Pty Ltd [2014] VSC 57 Garde J rejected the first two possibilities and held that there was an implied term in the contract that the vendor would act reasonably in the exercise of its power of resale and that this implied term extended to all aspects of the resale. The contractual provision considered by the court was general condition 28.4 of the general conditions which provides:

“If the contract ends by a default notice given by the vendor:

1. the deposit up to 10% of the price is forfeited to the vendor as the vendor’s absolute property, whether the deposit has been paid or not; and
2. the vendor is entitled to possession of the property; and
3. in addition to any other remedy, the vendor may within one year of the contract ending either:
4. retain the property and sue for damages for breach of contract; or
5. resell the property in any manner and recover any deficiency in the price on the resale and any         resulting expenses by way of liquidated damages; and
6. the vendor may retain any part of the price paid until the vendor’s damages have been determined and may apply that money towards those damages; and any determination of the vendor’s damages must take into account the amount forfeited to the vendor.”

His Honour held that the implied duty to act in a reasonable manner in exercising the power of resale did not mean that a vendor had to put the interests of the defaulting purchaser ahead of his own. At [175] His Honour said:

“Where the interests of a vendor and the purchaser in breach are in conflict, for example as to the urgency or method of the resale, the vendor is entitled to prefer his own interests to those of the purchaser in breach, provided that in so doing the vendor acts in a reasonable manner. The obligation on the vendor to act in a reasonable manner has been held to apply to price, time of resale and conduct in the form or method of resale. It would also extend to the terms of resale to be offered by the vendor.”

Author: Robert Hays Barrister subject to copyright under DMCA.

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Section 32 statements should disclose leases

Please note for members of the public or practitioners in the legal profession where English is your second language a translation key in all languages of the world is available on this blog to assist you. The plain English blog without translation facilities is located at http://roberthaypropertybarrister.wordpress.com

It has long been a vexed question whether a vendor of land needs to include details of a lease affecting the land in the vendor statement provided to a purchaser pursuant to s.32 of the Sale of Land Act 1962.  Section 32 requires the disclosure of, among other things,  mortgages and charges affecting the land but does not expressly require disclosure of a lease. The vendor is required to include in the statement  a “a description of any easement, covenant or other similar restriction affecting the land (whether registered or unregistered) and particulars of any existing failure to comply with the terms of that easement, covenant or restriction”. See: s.32(2)(b). It is established that s.32 should not be given a “narrow, restrictive construction having regard to the evident reformatory object of the leglislation”. See: for example, Vouzas v Bleake House Pty Ltd [2013] VSC 534 at [49].  In Krakowski v Eurolynx Properties Ltd (1992) V ConvR 54-436 ( BC9200732) O’Bryan J did not consider that s.32(2)(b) required a vendor to disclose the existence of a lease affecting the land. However, in IGA Distribution Pty Ltd v King [2002] VSC 440 at [252] Nettle J (as he then was) doubted that O’Bryan J was correct but did not specifically decide the issue. In Vouzas the vendor had disclosed the existence of the lease but had not disclosed that the tenant had entered into a conditional agreement to assign the lease. Macaulay J had to decide whether s.32(2)(b) required the vendor to disclose  that the tenant of the land being sold had entered into the conditional agreement to assign the lease.   The vendor knew about the conditional agreement to assign the lease. Macaulay J expressed the view that “the doubts expressed by Nettle J in the IGA case" concerning whether a lease need be disclosed were "well founded". However,  his Honour held that the vendor had not breached s.32(2)(b)  because that section did not oblige a vendor to disclose a conditional agreement to assign a lease. His Honour also said that “he was not convinced that an assignment of lease would need to be disclosed under s.32(2)(b").

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Author: Robert Hays Barrister subject to copyright under DMCA.