#17081 - Sale Of Land On Conditional Contract - Property Law

Sale of Land on Conditional Contract

• Conditional Contracts

• Allows party to get out of contract if a certain condition occurs (condition subsequent) e.g. purchaser can exit if builder’s report comes back too negative, vendor can exit if they don’t sell the house, one the parties needs consent from a third party.

• Question raised - does equitable interest pass with signing of conditional contract?

• Bevin v Smith

• Facts

• Bevin selling his land to Smith

• A paper road (legally recognised but undeveloped) went through Bevin’s land - Bevin had license to occupy

• Smith was unaware of this road

• Signed a contract that was conditional on Smith getting consent of the Land Valuation Tribunal

• After contract had been signed, Bevin bought the paper road and became registered owner - refused to sell it to Smith

• Issue

• Had Smith gained equitable interest under this conditional contract? (which would impose duties on B and allow S to protect interest)

• If Bevin owed fiduciary duties, they would extend to not taking advantage of the fact he has acquired the paper road

• Judgement

• NZ authority - equitable interest only passes if there was availability for specific performance (which only occurs under unconditional contracts)

• Not directly relevant NZ cases to support equitable title passing

• Australia becoming looser on this rule

• Nicolson v Fowler (1981 NZ case) - if a purchaser could waive the condition (because it was solely for their benefit) they would be able to seek specific performance - and therefore they would get equitable title (but facts not the same as this case)

• English authorities stated that conditional contracts did transfer equitable interest where vendor had placed fulfilment of contract outside their control i.e. required consent of third party

• Policy Considerations - equitable interest no passing is unsatisfactory for a number of reasons (B’s behaviour wrong and law should be fair)

1. Many NZ contracts are already conditional upon consent of statutory board, and even unconditional contracts are technically conditional on purchaser paying money - would be absurd this didn’t transfer equitable interest

2. This situation very similar to an option to purchase were purchaser acquires an immediate equitable interest capable of supporting a caveat (shouldn’t present facts give the same rights?)

3. It would be unsatisfactory in a purchaser in the position of the Smiths could not protect their position by way of a caveat and instead had to rely on the injunction procedure

• Therefore, Smiths did have sufficient interest in the land to support a caveat and to impose fiduciary obligations on the vendor continuing in possession

• Caveat of the Judgement

• The issue of whether equitable interest has passed must always depend on the terms of the contract itself

• Equity must consider the nature of the contract and the practical conditions of the parties

• So there will be certain difference factual situations where equitable interest does not pass under a conditional contract

• Equitable interest will not pass on contracts with condition precedent

• After Bevin v Smith ruling

• Need to determine the borderline between contracts that simply remain contracts, and those which create property right (which bind third parties and allow person to caveat property)

• This can be done by examining the express terms and nature of contract

• A condition that required consent of third part is enough (Bevin)

• A condition that could be waived by purchaser (because it is for their benefit) is also enough (Nicolson v Fowler)

• If the contract is subject to condition precedent, it is not enough

• Option to Purchase

• An agreement that if purchaser calls upon vendor on or before a certain date, vendor will transfer the specified property of specified terms

• Usually there is a specified time period

• Does create an immediate equitable interest - because P has all the control

• Right of Pre-emption/Right of First Refusal

• An agreement that if one party decides to sell a specified property that they own, they must first offer it to the other party

• Usually there is a time limit for acceptance

• Sometimes a method for determining price

• Does NOT create an immediate equitable interest - but does become one if the right is triggered (Motor Works v Westminster Autos)

• Events that trigger ROFR (Motor Works v Westminster Autos)

• Vendor deciding sell land and offering it to holder of the right

• Vendor offering land to someone else

• Condition Subsequent

• The contract is binding, but a certain condition can end the contract (contract already exists, only ends if a condition is met)

• This does pass equitable title because the contact already exists

• Condition Precedent

• No agreement yet, but contact comes into existence and is binding when some condition is fulfilled (if condition not fulfilled, contract never comes into being)

• Problem

• How can you have a condition enforceable on something that doesn’t exist yet?

• Appears to merely be a condition enforceable in an obligation

• At best, this could be an agreement to agree, which is not enforceable

• Standard form Contact (solution to issue with condition precedent)

• Section 9

• If the agreement is subject to a condition, then it is always a condition subsequent

• This suggests that all conditional standard form contracts pass equitable interest

• However, this is only useful if the parties use this contract or make a similar clause in their own one

• Palm Gardens Consolidated Pty Ltd v PG Properties Pty Ltd

• Facts

• PG Property sold a retirement village to Palm Gardens.

• It also entered an option to purchase with Palm Gardens over 16 units on an adjoining site which were then under construction

• The agreement said that if all of those units were completed and they were all occupied, then either party could require the other to complete a sale and transfer of those units too

• PG Properties completed the units, and licensed 2 to retirees, but then decided that it was uneconomic

• PG Properties proceeded to develop and market them as ordinary dwelling units

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