Chandos Developments Pty Ltd v Mulkearns

Chandos Developments Pty Ltd (the vendor) and Mulkearns (the purchaser) were parties to a contract for the sale of a property that was subject to a tenancy. The vendor was obliged under the tenancy agreement to maintain the roof of the property. The sale agreement stipulated that the vendor was obliged to comply with its obligations to the tenant that were to be complied with prior to completion. The roof required replacement, and the dispute concerned whether this obligation fell within the vendor's pre-completion obligations under the sale agreement, and consequently, whether the vendor could issue a notice to complete and subsequently terminate the contract for the purchaser's failure to complete. The matter was heard in the Court of Appeal of New South Wales.

The primary legal issues before the Court of Appeal were: first, whether the vendor's obligation to maintain the roof under the tenancy agreement, which necessitated replacement, constituted an obligation to be complied with prior to completion under the sale agreement; second, whether the vendor was entitled to issue a notice to complete and terminate the contract if it believed it was not obliged to replace the roof; and third, the construction and effect of provisions within the sale agreement concerning the retention of a licence fee by the vendor in the event of termination.

The Court of Appeal held that the vendor's obligation to maintain the roof extended to replacing it, and therefore, this was an obligation to be complied with prior to completion under the sale agreement. However, the Court found that the vendor was not in breach of this obligation at the time it issued the notice to complete, as it had not yet failed to perform it. The Court further determined that the vendor's obligation to replace the roof was not an essential term of the contract, meaning that a failure to perform it prior to completion would not automatically entitle the purchaser to terminate. Consequently, the vendor was entitled to issue the notice to complete and to terminate the contract for the purchaser's failure to complete. Regarding the licence fee, the Court construed the relevant provisions as security for the vendor's losses, and the purchaser was entitled to recover most of the licence fee paid.

The appeal and cross-appeal were each dismissed with costs.