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Priest McCarron News
Many people buy property "off the plan". In other words they agree to buy something which can't be legally created until a plan is registered by the vendor developer.
Potential problems arise from contracts prepared with provisions requiring the vendor to use their best reasonable endeavours to register the plan of subdivision.
Registration of a plan of subdivision usually requires the vendor to obtain development consent from the local Council. Problems arise when this consent is refused or the vendor feels the requirements for development consent are unreasonable or impossible to meet.
The question to consider here is what is the vendor actually required to do to meet the obligation under the contract to use "their best reasonable endeavours".
This obligation was recently considered in the NSW Court of Appeal case Foster v Hall. In this case contracts were exchanged with the vendors to use "their best reasonable endeavours" to have the proposed plan of subdivision registered within 12 months of the date of the contract. The Council issued to the vendor a conditional development consent whereby the vendor was required to construct an access way for fire fighting vehicles. The vendors believed the Council's requirements were impossible to meet. They did not build the access way, did not register the plan and purported to rescind the contract.
In Foster v Hall it was noted that while the vendor believed the Council's requirements for the access way were impossible and pointless Council had indicated to the vendor on more than one occasion that it would be prepared to consider amending the condition in the development consent. The vendor did not take advantage of this opportunity and as a result the court found they had not used their "best reasonable endeavours" to fulfull their contractual obligations and the court determined that the vendors had unlawfully terminated the contract. The court awarded the purchasers an amount of damages to compensate them for the vendor's wrongful rescission of the contract.
The result of the above case reinforces the need for developers to look carefully at the likely cost and extent of Council's subdivision requirements before entering contracts to sell land subject to registration of a plan.