Contracts for the sale of real property frequently contain special conditions which give a buyer the right to terminate if not satisfied about certain matters. Where the property is development land, these matters are frequently the outcome of development applications.
In Brades Property Agnes Water Pty Ltd v Skyrock Sun Pty Ltd as trustee for the Skyrock Sun Trust [2026] QCA 141, the Court considered and dismissed an appeal from a decision to declare that a buyer had validly terminated a contract where it was not satisfied about the terms of a development approval lodged for 15 lots and was entitled to a refund of a $220,000.00 deposit.
Development Application
The seller’s agent had communicated and represented to the buyer’s directors that the land was subject to a development application (DA) for subdivision into 15 lots and provided a copy of the DA, engineering reports, estimated development costs, and developed lot sale pricing.
Special Conditions
The contract signed contained a special condition as follows:
A. The Contract is conditional upon the Buyer being satisfied that the conditions of the DA are:
1. consistent with the representations of the Seller.
2. conditions typically imposed on similar developments.
3. do not include any provision which reduces the number of lots below 15.
B. if Development Approval is not issued by the relevant authority within 90 days of the Contract Date, either party may terminate this Contract and the Deposit refunded to the Buyer”[2].
Terms of the deemed Approval
The Council “deemed approval” contained special conditions, which subsequently were clarified by Council when it wrote:
“ … Special Condition 1 serves as a precursor to Special Condition 2 … Council is of the view that compliance with Special Condition 2 may potentially lead to a change in the layout of the proposed development. The amendment of the detention strategy may subsequently impact on the number and design of lots proposed.”
The Buyer purported to terminate the contract relying upon the Council’s special conditions to the DA and demanded repayment of the deposit.
The seller refused asserting the contract had been unlawfully terminated and that it was entitled to retain the deposit.
The buyer sued to recover its deposit and was successful in the first instance.
In dismissing the seller’s appeal, the Court of Appeal, per Kelly J set out some general rules for interpreting such contracts:
“ The terms of a commercial contract are to be understood objectively by what a reasonable businessperson would have understood them to mean. The reasonable businessperson is someone placed in the position of the parties at the time of the contract. It is from that person’s perspective that the court considers the language used by the parties, the surrounding circumstances known to them and the commercial purpose and objects of the contract. A court is entitled to approach the task of giving a commercial contract a business like interpretation on the assumption “that the parties … intended to produce a commercial result” Usually, the process of construction occurs by reference to the contractual text and contextual notice provided by that text. However, it is always legitimate to look to context apparent from, or provided by, the contractual language. Recourse to events, circumstances and things external to the contract may be necessary to identify the commercial purpose or objects of the contract where that task is facilitated by an understanding of the genesis of the transaction, the background and the context in which the parties operated.”
Honest and reasonable satisfaction?
As to the “buyer’s satisfaction” he said:
“The content of that stipulation is to be discerned by construing the contractual language.
In Service Station Association Ltd v Berg Bennett & Associates Pty Ltd,Gummow J observed:
“Where one party has an express power the exercise of which will significantly affect the interests of the other party (eg by cancellation of their supply contract) if the holder of the power is satisfied that a certain state of affairs exists, the words of the contract are fairly readily construed (and the more so when the parties have given such a power to a third party) as requiring a reasonable as well as honest state of satisfaction. But this is a result arrived at by a process of construction of the express terms in the setting of the contract as a whole. It is best not seen at all as the implication of a further term.”
He drew a distinction between the terms of this contract and a specific term incorporating an “absolute discretion” which excluded an obligation to act reasonably.
“In that respect, the language of special condition A may be contrasted with, by way of example, the clause of the sale agreement considered in Eastbound Estate Pty Ltd v DC Consolidated Investments Pty Ltd, which clause entitled a vendor to terminate that agreement if a responsible authority imposed a requirement that was “in the opinion of the Vendor (in its absolute discretion) … too onerous for the Vendor to perform”. In Questband Pty Ltd v Macquarie Bank Ltd, Fraser JA referred to a statement of principle that the “conferral of an absolute discretion on a party to a contract excludes an obligation to act reasonably in the exercise of the discretion.” Special condition A does not speak in terms of an absolute discretion.”
In this matter, the Appeal Court agreed that the Buyer had been “honest and reasonable” in terms of the decision to terminate the contract.
Take-away-drafting
One suspects that if the special conditions to the contract had set out the buyer’s discretion was “absolute” the case might not have commenced.
The decision highlights the need for careful drafting in terms of a party’s discretion to terminate a contract. Is it to be a discretion to be exercised “reasonably and honestly” OR in their “absolute “discretion? The distinction may be critical and an expensive exercise to explore in a court.
Need Advice on Contract Drafting or Property Transactions?
Precise contractual drafting is essential to protect your interests and avoid costly litigation. For further advice and assistance on any matters dealt with in this article, contact Michael Sing or the experienced commercial and property team at RC Lawyers today to ensure your contracts and special conditions give you the certainty and protection you need.
Disclaimer: This publication is intended to provide general information only and does not constitute legal advice. Specific legal advice should be obtained based on your individual circumstances.
