Australia: Best reasonable endeavours with respect to subdivision

Last Updated: 30 July 2012
Article by Chris Rumore

In brief - Purchaser validly terminated contract, awarded damages

Foster v Hall involved the subdivision of land in which the contract had a 12 month sunset period.

Ultimately the vendor was held not to have used its best reasonable endeavours (as required by the contract) to have the plan registered prior to expiry of the sunset date and therefore the purchaser validly terminated the contract and was awarded damages in excess of $1.6 million.

Purchaser argues that vendor not entitled to rescind contract

The contract for sale required the parties to use their "best reasonable endeavours" to have the plan of subdivision registered within 12 months from the date of contract.

Registration did not occur within that period and, as a result of this, the vendor purported to rescind the contract. The purchasers maintained the vendor was not entitled to rescind, as it had not used its best reasonable endeavours to have the plan registered, treated the purported rescission by the vendor as a repudiation of the contract and themselves terminated the contract and sought damages.

Fire access conditions of the development consent

The vendor's contention was that a condition of the development consent issued by Wollongong Council with respect to fire access and the gradient of the fire access was such as to be unreasonable and unachievable, and therefore the vendor had complied with his contractual obligations.

The vendor put two options to council to comply with this condition and it was acknowledged by council that due to the excessive gradient, neither option was adequate to meet council's conditions and there did not appear to be other suitable alternatives.

However, the court held that by virtue of discussions with council, there were certainly avenues available to the vendor to seek to have the terms of the development consent modified, but the vendor did not do so.

"Best reasonable endeavours" sets higher standard than "reasonable endeavours"

The court held that the addition of the word "best" to the expression "reasonable endeavours" raised the required standard to a higher level.

Whilst the vendor was not required to undertake the obligation beyond the bounds of reasonableness, he was required to do all that he reasonably could to achieve the contractual objective of having the plan registered.

Vendor did not seek to have the development consent waived or modified

The court held that the vendor, by not seeking to have the development consent condition either waived or modified, had not taken steps which a prudent, determined and reasonable party (acting in his own interests and with a view to achieving the contractual outcome) would have taken.

Even though the undertaking of an application to modify the development consent condition complained of by the vendor was not assured to be a success, the vendor was still required, to satisfy his obligations with respect to reasonable endeavours, to take that action. The vendor was required to do so, particularly when council's response to correspondence indicated that an amendment application may have been successful.

Include right to rescind contract if development consent provision unacceptable

A party undertaking obligations in a contract has to fully appreciate what level of obligation he is undertaking and negotiate in the contract only that level of responsibility which he is prepared to take.

The vendor in this case should have had a provision in the contract indicating that if any development consent provision proved to be unacceptable, then he had a right to rescind the contract, and this would have overcome the difficulties which he ultimately faced.

Chris Rumore
Property acquisition, development and sale
Colin Biggers & Paisley

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.

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Chris Rumore
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