Court orders specific performance of off the plan contract

A recent decision of the Queensland District Court saw an order for specific performance made against the guarantors of a contract for sale of an off the plan unit in Canberra, despite the probability that their alleged impecunity would not allow them to complete the contract: Bowman Development Corporation Pty Ltd v Young Forever Property Pty Ltd [2020] QDC 73; Bowman Development Corporation Pty Ltd v Young Forever Property Pty Ltd (No 2) [2020] QDC 77

Background

In August 2016, Bowman Development Corporation Pty Ltd (Bowman), entered into a contract of sale with a buyer, Young Forever Property (the buyer), for the purchase of a unit in a proposed development in Canberra. The buyer paid a deposit of $35,925 for the property, which was held by Bowman's agent. The contract was to be settled 14 days after Bowman gave notice that the unit title had been issued, the unit plan registered, and all necessary approvals had been obtained.

On 12 December 2018, Bowman gave the buyer notice that the unit title had been issued and nominated settlement to occur on 21 December 2018. When it came time to complete the contract, the buyer failed to settle. Bowman gave the buyer a notice to complete on a further two occasions, and on both occasions the buyer did not settle.

On each occasion that the buyer failed to settle, Bowman affirmed the contract.

The February 2020 Order

Bowman commenced proceedings against the buyer in the Queensland District Court, seeking an order for specific performance of the contract by the buyer, and specific performance of the contract by its guarantors, Mr Young and Ms Almirante (the guarantors), who were the second and third defendants in the matter.

The guarantee provided that Bowman may require the guarantors to perform the obligations of the buyer under the contract. Alternatively, Bowman also claimed equitable damages in the amount of $505,900, being the whole contract price.

Bowman argued that specific performance (or equitable damages) was necessary because the unit in question was one of a number of units that had failed to sell. If Bowman had to sell the unit at a discount to make up some of its losses, it would affect the sale value of the other apartments. Judge Barlow QC accepted this argument, noting that 31 of the 74 units had still not been sold and the unit market in Canberra was already oversupplied.

Bowman also argued that an order for specific performance should be made against the guarantors, as it contended that it was highly likely that the buyer would not be able to comply with an order (despite no evidence proving this assertion).

The buyer did not oppose the granting of specific performance against it. Counsel for the defendants, however, opposed an order for specific performance against the guarantors. They asserted that an order against the guarantors would be premature until the buyer failed to specifically perform the contract, and that it would result in two inconsistent orders if both the buyer and the guarantors were ordered to specifically perform the contract.

Bowman argued that it would be pointless to only grant specific performance of the buyer, as the buyer allegedly did not have the financial means to perform the contract. Bowman was unable to provide sufficient evidence to prove this assertion, so this submission was not accepted by the Court.

Judge Barlow QC considered whether he could make an order for specific performance against the guarantors that would only take effect if/when the buyer failed to perform the contract. His Honour concluded that such an order would create even more complications.

Ultimately, His Honour ordered specific performance against the buyer, giving it 60 days to perform its obligations. The claim against the guarantors was adjourned to a later date.

SEE ALSO: WHEN OFF THE PLAN GOES 'OFF PLAN'

The May 2020 Order

Following the order for specific performance in February 2020, the buyer failed to complete the contract. Bowman once again sought an order for specific performance against the guarantors, pursuant to their obligations under the guarantee. The guarantors opposed the order on the basis that they did not have the financial resources to perform the contract and, like the order against the buyer, such an order would be futile. They also opposed the order on the basis that damages would be an adequate remedy.

The guarantors relied upon the affidavit of Mr Young, the second defendant, in which he stated he had made several applications to a bank already in order to raise funds to complete the contract on behalf of the buyer. He also attempted to give evidence as to his ownership of some properties and other assets and of the fact that he owed money to various lenders and was being sued for $1,000,000 by the liquidator of a company for which he was previously a director.

The Court was not willing to accept that the affidavit of Mr Young adequately demonstrated an inability to perform the contract, finding that he was vague in his descriptions of the guarantors' assets and liabilities, and that the affidavit was generally devoid of substance.

The Court stated that a buyer resisting specific performance on the basis of an inability to pay the price bears the burden of establishing that state of affairs. The Court found the guarantors had failed to prove there was a 'very substantial possibility' they would not be able to complete the contract.

Accepting the fact that it was somewhat likely the guarantors would be unable to pay the contract price and that an order for damages and termination of the contract may be necessary in the future, the Court nonetheless made an order for specific performance of the contract against the guarantors.

Conclusion

As this case demonstrates, the Courts are prepared to order buyers and guarantors to perform their contractual obligations in respect of off the plan contracts. Agents selling off the plan properties should strongly encourage all prospective buyers to seek appropriate professional advice before entering into a contract to ensure that they have the ability to complete the contract.

 

Check out more useful property sales articles here.