Allens

Real Estate

Client Update: Property developer succeeds in Oracle appeals

20 June 2012

In brief: A recent Queensland Court of Appeal decision has upheld a developer's entitlement to enforce off-the-plan contracts even where the on-site manager's signage effectively rebrands the development. Partner Tracey Harrip (view CV) and Lawyer Kris Byrne report on a case that has implications Australia-wide.

The Gough case

In our Focus of December 2011, we reported on the decision of the Queensland Supreme Court in Gough and Ors v South Sky Investments Pty Ltd (Receivers and Managers Appointed) [2011] QSC 361 upholding the enforceability of off-the-plan contracts for the purchase of apartments in The Oracle development at Broadbeach on the Gold Coast.

The Gough matter involved eight sets of purchasers who had contracted to purchase residential apartments 'off the plan' in The Oracle development. In mid-2010, each of the buyers was notified that Peppers Retreats, Resorts and Hotels (Peppers) had acquired the on-site letting rights. Peppers erected dominant signage at The Oracle's two residential towers, including 'hero' signs at the top of each tower, but The Oracle branding remained throughout the development. Peppers also introduced various 'hotel-like' services. The buyers claimed that the developer repudiated the contracts when it evinced an intention to no longer provide them with apartments in a residential tower called 'The Oracle' but rather sought to provide them with rooms in a 'hotel' or 'resort' branded 'Peppers Broadbeach'.

Justice Applegarth found that none of the eight buyers had established any departure by the developer from promised contractual obligations in respect of the appointment of Peppers as on-site letting agent, nor had it been established that the branding of the towers as 'Peppers Broadbeach' had an adverse impact on the market value of any of the apartments that the buyers had contracted to purchase.

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The Court of Appeal decision

The purchasers contended on appeal that the repeated use of the development's name in the contracts and the disclosure documents reflected its centrality to the parties' agreement. Not only was the name essential for the parties, it was itself a 'brand' and how the development was 'branded' was essential to their agreement. According to the purchasers, a change from 'The Oracle' to 'Peppers Broadbeach' denoted a change from an independently recognisable apartment tower to a hotel/resort in a chain of hotel/resorts.

The Court of Appeal found that numerous clauses in the contract detracted from the level of importance placed by the parties on the name. For example, the parties had expressly agreed the developer was permitted to change the name of the community titles scheme and the caretaker/letting agent could conduct its letting business in the development under any name it chose and erect signage. Without an express promise that the name of the development would continue to be used and maintained, the court was unable to elevate its use in the contracts beyond simply assisting in the identification of the physical property to be sold and purchased.

The words in the contract stating that the residential component would be known as 'The Oracle' were held not to be promissory in nature.

In what will provide significant confidence for developers and financiers, the court concluded that 'the mere fact that a development is given a name and that name is used in promotional and contractual documentation says little, if anything, about whether there is to be found in the contract an implied promise that the name will be used in respect of the completed building.'

The purchasers were ordered to pay the developer's costs on a full indemnity basis.

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