In Bondi Beach Astra Retirement Village Pty Ltd v Gora [2011] NSWCA 396, the Supreme Court of New South Wales Court of Appeal considered:
- the validity of the vendor's exercise of its call option, having regard to both the terms of a contract for sale of land and associated documents (Contract) relating to the purchase of a retirement village unit and the conduct of the parties
- whether the call option was an invalid restraint on alienation of property.
Background information
The retirement village operated as a strata title retirement village. Under the terms of the village contracts and a buyback deed entered into between Bondi Beach Astra Retirement Village Pty Ltd (BBA) and the residents (Village Contracts):
- BBA was granted a call option to acquire units in the village in certain circumstances, including upon the death of the resident
- the resident was granted a put option, entitling the resident to require BBA to purchase the unit in certain circumstances
- the price under the put and call option was to be the original price that the resident paid for the unit, less certain adjustments. The options were drafted so as to also bind successors in title of the resident.
This case relates to a particular unit in the retirement village (Unit), whose owners had died. Following the owners' deaths, their daughters (being the Respondents in this litigation) had a dispute with BBA as to the validity of BBA's purported exercise of its call option right. BBA ultimately commenced proceedings against the Respondents contending that it had validly exercised the option to purchase and seeking a number of declarations (in the alternative), including a declaration that BBA had validly exercised the option for purchase and an order for specific performance of that agreement.
At first instance, in the NSW Supreme Court, Bryson AJ dismissed BBA's proceedings. The matter then went before the NSW Court of Appeal.
Exercise of call option
The Court considered whether BBA had validly exercised its option under the Village Contracts.
The Court held that the Notice did not contain an "unequivocal election to acquire the relevant property upon the terms specified in the option" because the correspondence purporting to exercise the option did not make any mention of the price. The Court held that this was a "fundamental flaw".
Abandonment of contract
The Court held that even if BBA had validly exercised its call option, the contract arising from the exercise of the call option had been abandoned. This was because (among other things):
- the Village Contracts provided that following exercise of the option the parties would have automatically entered into a contract for sale of land, at which time BBA was required to provide the Respondents with a deposit under the Contract and BBA had failed to provide the deposit
- the Village Contracts required the parties to exchange formal written agreements containing the identified terms and conditions of the sale within 14 days following the exercise of BBA's call option and no exchange of agreements had occurred
- despite having purported to exercise its call option, BBA did not (among other things) act in a manner consistent with it having rights under a contract for sale of land (eg BBA did not lodge a caveat to protect its equitable interest under the contract for sale)
- there had been several years of delay by BBA in enforcing its purported rights.
Restraint on alienation
Generally, a contractual restriction on the alienation of property is void as being contrary to public policy. However:
- the restriction must be total or at least sufficiently extensive so as to undermine the public policy in favour of the alienability of private property
- the restriction is not invalid if it is imposed for the protection of a valid collateral purpose.
The Court considered whether the call option contained in the Village Contract was unenforceable by reason of the law concerning restraints on alienation. The Court noted that the circumstances in which BBA had the right to exercise its call option effectively prevented the disposal of any interest in the Unit without the option becoming exercisable.
The Court considered numerous earlier decisions in relation to the law on restraints on alienation and held that:
- at least so far as contractual restraints on alienation are concerned, the basis of the rule against alienation is founded on a public policy in favour of the free alienability of property
- the public policy in favour of free alienability of property might not prevail in circumstances where the public interest in better served by permitting the restraint
- where a contractual restraint is imposed for a valid collateral purpose (eg restraints imposed to assist in the provision and operation of retirement villages) the contractual restraint might be enforceable because the public interest is better served by permitting the restraint
- in the circumstances of the present case, whilst there were significant contractual restraints on the Respondents' ability to deal with the Unit, the Court was not persuaded that public policy required that the Village Contracts be set aside.
Lessons from this case
This case highlights the need to ensure:
- options are exercised strictly in accordance with option exercise conditions
- a party to a contract does not abandon its interest in the contract arising from the exercise of the option through unreasonable delay or acts inconsistent with the exercise of the option
- care is taken when imposing contractual restraints on a purchaser's ability to deal with a property following the sale of the property.
The validity of option rights and equitable relief
In Bondi Beach Astra Retirement Village Pty Ltd v Gora [2011] NSWCA 396, the Supreme Court of New South Wales Court of Appeal considered:
- the validity of the vendor's exercise of its call option, having regard to both the terms of a contract for sale of land and associated documents (Contract) relating to the purchase of a retirement village unit and the conduct of the parties
- whether the call option was an invalid restraint on alienation of property.
Background information
The retirement village operated as a strata title retirement village. Under the terms of the village contracts and a buyback deed entered into between Bondi Beach Astra Retirement Village Pty Ltd (BBA) and the residents (Village Contracts):
- BBA was granted a call option to acquire units in the village in certain circumstances, including upon the death of the resident
- the resident was granted a put option, entitling the resident to require BBA to purchase the unit in certain circumstances
- the price under the put and call option was to be the original price that the resident paid for the unit, less certain adjustments. The options were drafted so as to also bind successors in title of the resident.
This case relates to a particular unit in the retirement village (Unit), whose owners had died. Following the owners' deaths, their daughters (being the Respondents in this litigation) had a dispute with BBA as to the validity of BBA's purported exercise of its call option right. BBA ultimately commenced proceedings against the Respondents contending that it had validly exercised the option to purchase and seeking a number of declarations (in the alternative), including a declaration that BBA had validly exercised the option for purchase and an order for specific performance of that agreement.
At first instance, in the NSW Supreme Court, Bryson AJ dismissed BBA's proceedings. The matter then went before the NSW Court of Appeal.
Exercise of call option
The Court considered whether BBA had validly exercised its option under the Village Contracts.
The Court held that the Notice did not contain an "unequivocal election to acquire the relevant property upon the terms specified in the option" because the correspondence purporting to exercise the option did not make any mention of the price. The Court held that this was a "fundamental flaw".
Abandonment of contract
The Court held that even if BBA had validly exercised its call option, the contract arising from the exercise of the call option had been abandoned. This was because (among other things):
- the Village Contracts provided that following exercise of the option the parties would have automatically entered into a contract for sale of land, at which time BBA was required to provide the Respondents with a deposit under the Contract and BBA had failed to provide the deposit
- the Village Contracts required the parties to exchange formal written agreements containing the identified terms and conditions of the sale within 14 days following the exercise of BBA's call option and no exchange of agreements had occurred
- despite having purported to exercise its call option, BBA did not (among other things) act in a manner consistent with it having rights under a contract for sale of land (eg BBA did not lodge a caveat to protect its equitable interest under the contract for sale)
- there had been several years of delay by BBA in enforcing its purported rights.
Restraint on alienation
Generally, a contractual restriction on the alienation of property is void as being contrary to public policy. However:
- the restriction must be total or at least sufficiently extensive so as to undermine the public policy in favour of the alienability of private property
- the restriction is not invalid if it is imposed for the protection of a valid collateral purpose.
The Court considered whether the call option contained in the Village Contract was unenforceable by reason of the law concerning restraints on alienation. The Court noted that the circumstances in which BBA had the right to exercise its call option effectively prevented the disposal of any interest in the Unit without the option becoming exercisable.
The Court considered numerous earlier decisions in relation to the law on restraints on alienation and held that:
- at least so far as contractual restraints on alienation are concerned, the basis of the rule against alienation is founded on a public policy in favour of the free alienability of property
- the public policy in favour of free alienability of property might not prevail in circumstances where the public interest in better served by permitting the restraint
- where a contractual restraint is imposed for a valid collateral purpose (eg restraints imposed to assist in the provision and operation of retirement villages) the contractual restraint might be enforceable because the public interest is better served by permitting the restraint
- in the circumstances of the present case, whilst there were significant contractual restraints on the Respondents' ability to deal with the Unit, the Court was not persuaded that public policy required that the Village Contracts be set aside.
Lessons from this case
This case highlights the need to ensure:
- options are exercised strictly in accordance with option exercise conditions
- a party to a contract does not abandon its interest in the contract arising from the exercise of the option through unreasonable delay or acts inconsistent with the exercise of the option
- care is taken when imposing contractual restraints on a purchaser's ability to deal with a property following the sale of the property.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
