Danny Arraj, Managing Partner & Veno Panicker, Partner
Thursday 31st May 2018
Essentially a Good Call – Another Win For the Developer!
Hills Central Pty Ltd v Hagerty  NSWSC 789
Blackstone Waterhouse acted for the successful developer Hills Central Pty Ltd, part of the Toplace Group, in obtaining a judgment in the Supreme Court of New South Wales earlier today upholding the validity of the disputed exercise of a call option for the purchase of a property forming part of a major development.
In a decision which should give considerable comfort to developers, his Honour Justice Slattery has provided a detailed judgment which provides salient commentary as to what is essential when exercising a call option for the purchase of property.
A link to the decision is https://www.caselaw.nsw.gov.au/decision/5b0ca484e4b074a7c6e1fa6b
The developer has been vindicated in taking a strong stance in response to an increasingly prevalent form of litigation – another one for the industry!
In the current market, there has been a considerable volume of litigation involving vendors of properties forming part of major development site finding every possible technical argument to dispute the exercise of a call option by a developer for the purchase of their property. This opportunistic form of litigation is aimed at obtaining a significantly increased price for the vendor – with the knowledge the developer will ultimately need to purchase their property for their project.
In these proceedings, the vendors, as Grantors, had entered into a call option with another developer, as Grantee, for the sale of their property which formed part of a major development involving a number of properties on Old Castle Hill Road, Castle Hill.
The developer nominated Hills Central Pty Ltd as its Nominee under the call option.
The vendors disputed the exercise of the call option by Hills Central on the basis that:
- the Nominee failed to insert a Completion Date of 42 days on the front sheet of the sale contract; and/or
- the Nominee’s mistaken request in its cover letter to the exercise documents for a Completion Date of 192 days was a counter offer.
Hills Central’s position was that the insertion of the Completion Date was not essential to the valid exercise of the call option and that the request for a Completion Date of 192 days was a mere request – not a condition of otherwise completing the sale contract in accordance with the call option.
It is a question of construction what constitutes ‘compliance’ – at its crux, the issue being whether or not the words used in a clause make clear a requirement was intended to be essential.
Having regard to the words used in the call option, the Court considered that requirements required to be undertaken by the Nominee under clause 2 of the call option were essential – including as those obligations were expressly required ‘upon the exercise of the call option’.
The obligation to specify the Completion Date on the front page of the sale contract was found in clause 9 of the call option. That clause did not include the words ‘upon the exercise of the call option’. The determination of the Completion Date under clause 9 depended on whether the Grantor had issued a notice to the Grantee. The call option agreement did not provide a mechanism by which the Nominee would receive a Grantor’s notice – or otherwise be informed as to the correct contract date. For a valid sale contract the insertion of the Completion Date was not essential.
The Court found that all parties understood Hills Central intended to exercise the call option. In the circumstances, taking a pragmatic approach, the Court held that Hills Central’s failure to insert a Completion Date was not fatal to its valid exercise of the call option and creation of a binding sale contract.
Finally, the Court found that a mere request for a different Completion Date which was sought by Hills Central in its cover letter to the exercise documents, was merely a request for that different date as opposed to making the exercise conditional on the vendor’s acceptance of that alternative date.
In the era of ‘super lots’, the number of cases relating to disputed call options has been exponentially increasing.
Vendors of sites within major developments are already often paid prices well above market for their properties.
It is hoped the pragmatic approach of the Court in this decision will dissuade similar attempts to find other technical arguments to avoid a contract price which has already been agreed – to try and obtain a significant uplift in price for a site which has importance to larger developments.
The decision highlights the importance of careful drafting when preparing option agreements – and the high risks associated with the exercise of those options.
 Tonitto v Bassal (1992) 28 NSWLR 564
 Comdox No 24 Pty Ltd v Robbins  NSWSC 367
Photo by Erik Eastman