In brief - Buyer successfully appeals decision on validity of seller's exercise of put option
The Queensland Court of Appeal has overturned the decision of the Supreme Court and has held that a seller of property invalidly exercised the put option by delivering copies of the tenth edition of the REIQ/Queensland Law Society Houses and Residential Land contract instead of the eighth edition as specified in the terms of the agreement. This case is a reminder for buyers and sellers to strictly observe the terms of the agreement.
Houses and residential land contract edition changes from when buyer enters put option agreement and seller exercises option
The buyer entered into a put option agreement to purchase property in Goodna from the seller in February 2012 (the agreement). The agreement provided that upon the seller validly exercising the put option, a binding contract would come into existence between the parties, and that the buyer would be compelled to purchase the property from the seller on the terms of the contract. Commercial terms such as the purchase price and settlement timeframe had been previously agreed and were not in dispute.
The agreement required the seller to sign and deliver an option exercise notice together with two copies of the 8th edition REIQ/Queensland Law Society Houses and Residential Land contract to the buyer when exercising the put option.
The seller exercised the put option in December 2014, by which time the current industry version was the 10th edition of the REIQ/Queensland Law Society Houses and Residential Land contract. When exercising the put option, the seller delivered the 10th edition contract to the buyer.
The 10th edition contract incorporated relatively minor changes to the standard terms of contract, including a new clause which suspends time being of the essence in relation to natural disasters and changes to the clauses in relation to payments and adjustments of the purchase price.
In first instance, seller of property held to have validly exercised put option despite delivering different version of contract required
The buyer argued that the put option had not been validly exercised because the contract delivered to the buyer by the seller was not the same version required to be delivered by the terms of the agreement.
In the first instance, the Supreme Court of Queensland held in Matos v JLF Corporation Pty Ltd  QSC 32
that notwithstanding the seller had delivered to the buyer the 10th edition contract instead of the 8th edition contract required by the agreement, the seller had validly exercised the put option, and that the buyer was compelled to purchase the property.
Court of Appeal holds that seller had not validly exercised put option, buyer awarded costs
The Court of Appeal in JLF Corporation Pty Ltd v Matos  QCA 355
overturned the original decision and held that the seller had not validly exercised the put option because:
- the agreement clearly required use of the 8th edition contract
- delivery of the 8th edition contract was an essential requirement for exercise of the put option, and
- the seller's purported exercise of the put option did not comply with the contractually agreed requirements for effective exercise of the put option
The buyer was not compelled to purchase the property from the seller, and was awarded costs.
Comply with terms of agreement when exercising option
It is not uncommon for versions of industry standard contracts and laws to change during the course of a property transaction. To ensure that an option is validly exercised, strict compliance with the terms of the agreement must be observed.
To the extent that strict compliance with the terms of the agreement is not consistent with laws or industry practices in place at the time the option is exercised, the parties should consider formally varying the terms of the agreement to deal with those matters prior to exercising the option.
This article has been published by Colin Biggers & Paisley for information and education purposes only and is a general summary of the topic(s) presented. This article is not specific legal or financial advice. Please seek your own legal or financial advice for any questions you may have. All information contained in this article is subject to change. Colin Biggers & Paisley cannot be held responsible for any liability whatsoever, or for any loss howsoever arising from any reliance upon the contents of this article.