Conditional Contracts for Sale of Land
The recent decision of the Court of Appeal in Mana v Fleming received considerable media attention earlier this year because it highlighted one of the many pitfalls in property transactions.
Briefly, the facts are these:
- The Tania Mana Family Trust (“Mana”) entered into an agreement to sell Mana’s property to the Flemings in 2004. The agreement was on the standard REI-ADLS form.
- The agreement was conditional on the Flemings selling their existing property on terms and conditions acceptable to them by 31 November 2004.
- After beginning with a relatively standard marketing programme for their property, the Flemings became concerned that advertising the sale too prominently might affect the intended sale of their lawn-mowing business. They therefore pursued a “covert” marketing programme without traditional advertising. This was unsuccessful and the Flemings were unable to satisfy the condition in relation to the sale of their home.
- In April 2005, Mana cancelled the agreement by reselling the property to a third party. This sale was for a lesser amount than the Flemings’ contract price.
- Mana sued Fleming for:
(a) The shortfall on the sale; and
(b) Interest on the full amount of the purchase price.
The case ultimately found its way to the Court of Appeal. The case makes clear what some lawyers have long suspected – that the operation of conditions in land contracts is not always very well understood by the public.
It is clear law that a person who has the benefit of a condition in a contract must “do all things reasonably necessary” to fulfil the condition. The case makes it clear that the consequences for breach of that obligation can be severe.
Therefore, parties to contracts must be aware that they cannot simply use conditions as excuses to get out of contracts, for reasons unrelated on the condition. It is sometimes suggested “just say you couldn’t get finance”. This case makes it clear that this is not a legitimate strategy.