Rent roll sale gone awry - Decision appealed

We recently discussed the Queensland District Court decision of realT Properties Pty Ltd v Arete Real Estate Pty Ltd & Anor [2024] QDC 180, in which the District Court considered a contractual dispute in relation to the sale of a rent roll.

In July 2025, the Court of Appeal division of the Supreme Court of Queensland handed down its decision on an appeal by Arete Real Estate Pty Ltd and Karen Leanne McDonald, sole director (first appellant and second appellant; together, appellants) in Arete Real Estate Pty Ltd v realT Properties Pty Ltd [2025] QCA 133.

We explore the appeal decision below.

Background

On 15 May 2023, realT Properties Pty Ltd (respondent) entered into a contract to sell the rent roll (consisting of 46 properties) to the first appellant for an amount of $278,574.04. The second appellant guaranteed the first appellant’s obligations.

The contract of sale was subject to, and conditional on, the first appellant being satisfied with its due diligence enquiries as to the rent roll within 30 days of the contract date. In addition, the contract included a retention clause, which allowed for price adjustments of up to 10% of the purchase price if properties left the rent roll during the 180-day retention period.

The respondent became aware that the owners of 11 properties had given notice of termination of its appointment on 6 and 7 June 2023, with termination to occur after completion. On 14 June 2023, the respondent informed the first appellant about this development.

On 15 June 2023, the first appellant purported to terminate the contract on the basis that there had been an anticipatory breach of the contract in circumstances where the respondent could no longer complete the contract as it could no longer transfer all 46 properties as originally contemplated by the parties.

The respondent rejected the notice of termination of the contract and on 30 June 2023, it attempted to effect settlement of the contract, however; the appellants did not attend settlement or pay any further money under the contract.

The respondent sought specific performance of the contract or, alternatively, damages arising from the alleged unlawful termination of the contract. The appellants made a counterclaim for the return of the deposit on the basis that the termination of the contract was lawful.

The District Court found in favour of the respondent and awarded it $230,059.23 in damages for breach of contract, being the outstanding purchase price of $230,059.23 (but not the retention amount of $28,757.40) less an adjustment to account for the income derived by the respondent since 30 June 2023.

Grounds of appeal

The appellants appealed the decision, on the below grounds:

1. The trial judge erred in law by finding that:

(a) the first appellant did not lawfully terminate the contract on 15 June 2023;
(b) the 46 appointments as property agent under the Property Occupations Act 2014 (Qld) that were subject to the contract of sale were validly assigned by the respondent to the first appellant; and
(c) the respondent performed all of its obligations under the contract and completion was effected;
(d) the appellants were indebted to the respondent as the contract completed on 30 June 2023 and the balance purchase price became due and owing as a debt;
(e) the respondent would succeed in its pleaded breach of contract claim as the respondent was “ready, willing and able to settle” the contract.

2. The trial judge erred in law by not dealing with the counterclaim.

Court of Appeal Decision

During the course of the appeal, the respondent conceded points 1(b), (c) and (d). However, the respondent asserted that it remained the case that the respondent had sought to, and did perform, all its obligations under the contract and that as such, the contract had not been lawfully terminated by the first appellant and it remained entitled to damages.

The Court of Appeal analysed key clauses of the contract. Of note:

• Under clause 1 of the contract, the respondent agreed to sell and the first appellant agreed to purchase the respondent’s rent roll for the purchase price of $287,574.04. The parties were agreed that the one page document that identified the 46 appointments and calculated the purchase price by applying a multiplier of 2.9 to the annual return from the fees generated from each appointment constituted Annexure A.

• Clause 2 of the contract provided for completion of the purchase to be effected on 1 July 2023 or otherwise as mutually agreed. It was common ground that the parties changed the completion date to 30 June 2023. The purchase price was to be paid in accordance with clause 3 of the contract by the deposit of 10 per cent, by 80 per cent of the purchase price being paid on the date for completion, and with the remaining 10 per cent to be paid on completion to the solicitor for the respondent.That remaining 10 per cent was to be held in trust pending any adjustment made in accordance with the terms of the contract on the date that was 180 days after completion (which was calculated to be 27 December 2023 on the basis of a completion date of 30 June 2023). The remaining 10 per cent was referred to as “the final payment”

• Clause 4 of the contract specified that the rights and obligations attaching to the rent roll would pass to the first appellant upon completion. A period for due diligence was provided for in clause 5.

• Clause 6 provided for the adjustment of income and expenses at the completion date.

• Clause 7 required the first appellant within 14 days of the date of the contract to draft new rental management agreements for each of the owners and submit them to the respondent, so that the respondent could arrange for the agreements to be signed by the owners with such notice of the sale only to be provided to the owners once the contract became unconditional.

• Under clause 8, the respondent was required immediately following the exchange of contracts with the first appellant to notify the owners under the 46 appointments of the respondent’s intention to sell the rent roll to the first appellant and, following such notice, submit the new rental management agreements received from the first appellant.

• Clause 10 of the contract which was referred to as the retention clause provided:

“On the day 180 days after completion an accounting will be taken to determine whether all properties the subject of the sale are still managed by the buyer. If some properties are no longer managed by the buyer due to no fault/error on the part of the buyer then, unless they have been replaced by other property of the same lessor, an adjustment of the final payment will be made to reflect the consequential reduction in the income to the buyer used to calculate the price. The adjustment shall never exceed the final payment and shall be calculated by deducting from the final payment the quantum of the reduction in income times two, less any income received by the buyer prior to loss of the management. The adjustment shall constitute a deemed reduction in the purchase price.”

• Consistent with the potential for the adjustment to the purchase price under the retention clause, clause 11 contained a covenant by the first appellant that from and after the date of completion “to faithfully and conscientiously perform and observe the obligations and responsibilities of a managing agent in respect of the properties” having regard to standard practices.

Did the trial judge err by finding the first appellant did not lawfully terminate the contract of 15 June 2023?

The appellants’ submission on ground 1(a) requires the contract to be interpreted to read that the transfer of the 46 appointments was an essential term of the contract which gave rise to a right to terminate when the respondent could not assign 11 of the appointments on the completion date. Alternatively, if the obligation to assign the 46 appointments was not essential, it was a sufficiently serious breach of a non-essential term which also gave rise to a right to terminate. 

For both submissions the appellants argued that the respondent was in breach of the contract when the owners of the properties for 11 of the 46 appointments had given notice on either 6 or 7 June 2023 revoking those appointments.

As noted by the trial judge in the District Court, the contract was a commercial contract between parties who were experienced in real estate and the nature of the appointments meant that it was in the contemplation of the parties at the time of entry into the contract that there was a possibility that any of the owners of the residential properties may exercise their right of revocation of the appointment. 

Both parties risked ‘losing out’, whether by the respondent having more appointments by the time of assignment (favourable to the first appellant) or by the respondent losing its appointments (unfavourable to the first appellant). The Court of Appeal noted that the parties addressed that risk by the terms of the contract, by:

1) providing for a due diligence period that expired less than 30 days before the completion date;
 
2) providing for the final payment to be held by the respondent’s solicitor pending any adjustment under the retention clause as a result of the assignment of any of the appointments taking effect before 27 December 2023, provided the adjustment did not exceed the final payment; and

3) inserting clause 11, which was designated to minimise the revocations of the appointments before the date for adjustment of the final payment under clause 10. 

The Court of Appeal pointed out that the appellants’ assertion that all 46 appointments needed to remain in place was an assertion inconsistent with the contract, which had clearly been drafted with that risk in mind.

Further, as the revocations did not take effect until after the due date for completion and the 11 appointments would remain in force for six or seven days after that date, they were able to be assigned from the respondent to the first appellant and would remain operative for that period after the date for completion. 

The appellants had no right to terminate the contract on 15 June 2023, when they became aware that the assignment of 11 of the appointments would take effect after the completion date. The appellants could not therefore succeed on ground 1(a). There was no error in the trial judge’s finding that the first appellant did not lawfully terminate the contract on 15 June 2023. It follows that the appellants also cannot succeed on ground 1(e) or 2. The appellants breached the contract in failing to complete on 30 June 2023 and the respondent is entitled to damages for breach of contract.

What date is more appropriate for assessing the damages?

The Court of Appeal considered the dates put forward by the parties for the purposes of calculating damages, including:

• 30 June 2023 (date for completion);

• 8 July 2023 (the day after the revocation of the 11 appointments would have come into effect);

• 27 December 2023 (the date under clause 10 of the contract (if it had been completed) for the adjustment of the final payment and at which the expert accountant had valued the rent roll); and
 
• 26 August 2024 (the first day of the trial).

When the first appellant failed to complete the purchase of the rent roll on 30 June 2023, the respondent elected to pursue the relief of specific performance or, in the alternative, damages for breach of contract. It was not unreasonable for the respondent in the first instance to pursue the claim for specific performance and the proceeding in the District Court was commenced in a relatively timely way. 

As such, the date of 26 August 2024, which is closer to the date on which the respondent, in effect, elected to forego the claim for specific performance and pursue a debt claim, was more appropriate for assessing the damages for breach of contract. 

On that basis, the Court of Appeal determined that the appellants must pay the respondent damages for breach of contract, assessed as at 26 August 2024 in the sum of $104,678.

Conclusion

This decision solidifies that clear contractual terms are key when negotiating a contract for the sale of a rent roll. Commercial risk can arise at any time in a transaction, and the Courts will take into account an agent’s experience when interpreting the contract. 

Agents should seek legal advice before taking unequivocal steps, such as terminating a contract.

Browse our suite of property management articles.