Bahr v Nicolay (No 1)

The case of *Bahr v Nicolay (No 1)* concerned a dispute between the registered proprietor of land, Nicolay, and a purchaser, Bahr. Bahr had entered into a contract to purchase land from Nicolay, with a clause in the contract stating that Nicolay would lease the land back to Bahr for a period of three years, after which Bahr would have the option to purchase the land. Nicolay subsequently sold the land to a third party, who was aware of the terms of the original contract with Bahr. Bahr sought to enforce his rights under the contract against Nicolay and the new purchaser.

The central legal issue before the court was whether the new purchaser, having notice of Bahr's contractual rights, was bound by those rights despite not being a party to the original agreement. Specifically, the court had to determine if Bahr's interest in the land, arising from the contract for sale and the subsequent lease-back and option to purchase, constituted an equitable interest that could be enforced against a third-party purchaser who had actual knowledge of this interest.

Toohey J reasoned that the contract created an equitable interest in the land in favour of Bahr. This equitable interest was not extinguished by the subsequent sale to the third party because the purchaser had actual notice of Bahr's rights. The principle applied was that a purchaser of land who has notice of a prior equitable interest takes the land subject to that interest. The court found that the purchaser's knowledge of the contract, including the lease-back and option provisions, meant they could not claim to be a bona fide purchaser for value without notice, and therefore were bound by Bahr's equitable estate.