The recent Queensland Supreme Court decision in Malligan v Chevron Apartments Pty Ltd; Cantavenera v Chevron Apartments Pty Ltd is a timely reminder that a single word in an off-the-plan contract can have enormous consequences.
At the centre of the dispute was a sunset clause imposing the following obligation on the developer:
“must establish the Scheme, register the Plan and effect Settlement under this Contract by the Sunset Date”.
When the project was not completed by the sunset date, the developer attempted to terminate the contracts and walk away. Justice Freeburn disagreed, finding that a reasonable businessperson would understand the word “must” as creating a binding obligation to establish the Scheme, register the Plan and effect Settlement by the Sunset Date, rather than simply requiring the developer to use reasonable or best endeavours to do so.
The Court found the clause was clear and unambiguous. Because the developer had promised it must achieve registration and settlement by the sunset date, it could not later rely on its own failure to do so as a basis for terminating the contracts.
The lesson for developers is straightforward.
Many sunset clauses are intended to provide a termination mechanism if a project is delayed. However, as more and more cases are starting to come forward, greater scrutiny is required on the drafting of these clauses. Recent sunset clause cases show courts are willing to find in favour of buyers. As a result, developers may lose the flexibility they thought they had under their termination clauses and face significant litigation risk.
This case highlights the importance of reviewing:
- sunset clauses;
- registration obligations;
- settlement provisions;
- viability and termination rights; and
- the use of words such as “must”, “will”, “reasonable endeavours” and “may”.
In a market where construction delays, funding challenges and approval issues remain common, developers should not assume their existing precedents adequately protect them.
A single word can change the commercial outcome of an entire project.
Now is a good time to review your off-the-plan contract suite before the next dispute does it for you.
