In brief – Purchaser successful in claim against seller
of shopping centre
Recently the Federal Court of Australia found that a seller had
misled and deceived a shopping centre buyer as to the terms of the
lease of an anchor tenant.
Variation to Kmart's lease terms registered on title
The case Merost
Pty Ltd v CPT Custodian Pty Ltd  FCA 97 concerned a
shopping centre two kilometres from the CBD in Launceston,
Tasmania. A lease to retailer Kmart at the centre accounted for
approximately 60% of rental revenue for the centre. This lease
commenced in 1999.
The lease was amended, with a variation document registered on
title, in 2010. The lease referred to a figure important to a
turnover rent calculation as approximately $21 million. The
variation revised that figure to approximately $24 million.
Information memorandum in electronic data room gives wrong
turnover rent figure
As is common for transactions of this scale, in mid-2011 the
seller had a data room and information memorandum prepared for the
sale of the centre. The memorandum referred to the lower turnover
rent figure. A copy of the variation was not placed into the data
room until after the buyer's contract had become
Price offered by buyer for centre was based on lower turnover
A rent review calculation document, referring to the higher
turnover rent figure, was placed into the data room and accessed by
the buyer. The court seemed to accept the buyers' contention
that the document was a proposal only and not a reference to what
was in the lease.
While the buyer had also seen a letter from Kmart in 2010 that
referred to the correct turnover rent figure, the court found that
the letter did not correct the error in the information memorandum,
which was confirmed by the terms of the lease in the electronic
Buyer's solicitor instructed not to assist with leases or
The buyer instructed its solicitor to focus on negotiating the
contract of sale and effecting the conveyance. The solicitor asked
the buyer if the solicitor was to assist regarding the centre's
leases or the information memorandum. The buyer's instructions
were that the buyer would look at those issues and no assistance
was required from the solicitor in that regard.
The buyer's solicitor obtained a title search, which noted
the variation (disclosing the higher turnover rent figure) as
registered on title. The solicitor did not forward the search
result to the buyer.
Error in information memorandum not corrected
The court found that the copy of the lease in the data room
confirmed the lower turnover rent figure as set out in the
information memorandum, and that this erroneous statement was not
corrected by the calculation document or the 2010 letter.
Seller found to be liable to buyer for 80% of price
The seller was initially found to be liable for $325,000, being
the difference between the price paid by the buyer and what the
court found to be the market value of the property.
The court reduced this by 20% to $260,000, noting that the buyer
should have coordinated its due diligence process better.
Buyer's solicitor not a concurrent wrongdoer and
seller's liability not reduced
The court also noted that the solicitor was not a concurrent
wrongdoer. This meant that the seller's liability would not be
reduced because the buyer's solicitor had followed the
buyers' instructions to focus on negotiating the contract of
sale and effecting settlement.
The solicitor was not required to forward the title search to
the buyer or advise as to its contents.
Buyers should cross-check contents of dataroom against items
registered on title
This case highlights the need to ensure that when utilising a
dataroom for a significant property sale, care is taken to ensure
that all relevant items (including all items registered on title)
are uploaded to the dataroom. In this instance, had the
seller's solicitor cross-checked the contents of the dataroom
against items registered on title, the oversight relating to the
variation of Kmart's lease (and this resulting litigation)
could have been simply avoided.
Further, although the buyer signed a confidentiality deed before
access to the dataroom was granted, and the deed contained
disclaimers and noted the seller did not make any representations
as to the completeness of the information in the dataroom, the
court found this demonstrated to the buyer that the dataroom was
not a complete repository of all the documents relevant to the
The Council announced planning policies to encourage more inner suburban retirement village and aged care development.
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