When buying land, it is important for both parties to understand what will be included and what will be excluded. The recent Queensland case of Tonge v Living Gems Pty Ltd shows what can happen when the parties to a contract disagree about what the seller can lawfully remove from the property.
The Plaintiff entered into a standard REIQ contract with the Defendant on 28 November 2014 to purchase land at Beaudesert. There was approximately 10,000 cubic metres of rock situated on the land when the contract was signed. The contract contained several special conditions, including the following:
“The Buyer warrants that it has had the opportunity to fully inspect the property and satisfy itself in relation to the property, improvements and the permitted use of the property before entering into this Contract, the Property is sold in an ‘as is where is condition’ with all faults and defects whether or not they are apparent by inspection and subject to any contamination, requisition, infestation or dilapidation.”
When the Plaintiff’s solicitors were requesting an extension of settlement date from 28 November 2015 to 29 January 2016, they enquired as to the Defendant’s intentions to remove the rock. The Defendant’s solicitors granted the requested extension on the condition that, amongst other things, their client would remove the rock prior to settlement. The Plaintiff agreed to the conditions without objecting to the removal of the rocks.
On 14 January 2016, the Defendant’s solicitor advised the Plaintiff’s solicitor that the rocks had been removed from the property. The Plaintiff’s solicitors responded by requesting a further extension but again making no objection to the removal of the rocks.
On 29 January 2016, the Plaintiff failed to effect settlement and subsequently advised the Defendant’s solicitor this was because his lender required further collateral for his loan. Since the Plaintiff failed to effect settlement, the Defendant elected to terminate the contract on 8 March 2016 and the deposit was forfeited.
The Plaintiff rejected the Defendant’s termination of the contract and lodged a caveat over the property. The Plaintiff commenced proceedings against the Defendant seeking specific performance of the contract and a declaration that it holds an interest in the land as purchaser under the contract. The Defendant filed for summary judgment on the basis that the Plaintiff had no reasonable prospect of demonstrating that the rocks were purchased as part of the contract.
The Plaintiff’s argument
The Plaintiff’s argument was that the Defendant’s removal of the rocks amounted to substantial breach of the contract and as such, the Defendant was not entitled to terminate the contract. In light of the above special condition, the Plaintiff argued that the Defendant was obligated to provide the Plaintiff with the property in the condition it was in when the contract was signed, which included the rocks. The Plaintiff claimed that contrary to what his solicitor inferred in initial correspondence, he did not want the rocks removed but instead planned to use them to construct retaining walls for his subdivision.
The Court ultimately held that the rocks were not included in the contract since the contract did not list any included chattels and the rocks did not meet the definition of improvements (defined to mean “fixed structures”). And because the rocks were not included in the land, they were not covered by the special condition referring to the land being sold in an “as is where is condition”.
Furthermore, the Court concluded that, since the rocks were stockpiled on the land for storage by human intervention rather than by nature, the rocks did not form part of the land and the Defendant was not in breach of the contract by removing them. This finding was contrasted with a previous case involving stones that fell from cliffs becoming embedded in soil over a long period of time.
Accordingly, the Court ordered that the Defendant was entitled to summary judgment and that the caveat should be removed. The Court dismissed the Plaintiff’s application and ordered he pay the Defendant’s legal costs on an indemnity basis pursuant to the terms of the contract.
Implications for buyers and sellers
Relevant to the Court’s decision in this case was the “common intention” of the parties since the Court could not find any satisfactory evidence that the parties intended the rocks to form part of the land to be sold. If the Plaintiff had wanted the rocks to be included in the contract, he should have ensured they were included either as an included chattel or specifically addressed as a special condition. At the very least, the initial correspondence between the parties should have clearly addressed the matter.
The obvious lesson for buyers (as well as sellers) is to ensure that their intentions are sufficiently covered by the terms of the contract. If there is any doubt about whether a particular item is included as part of the land or building, it is safer to specifically address the matter in a special condition rather than assume the other party has the same understanding of the arrangement.
If you would like further advice about contracts or other matters relating to buying or selling property in Queensland, please contact us and one of our experienced property lawyers will be able to assist.