The recent decision of the Western Australia Court of Appeal in Barker v Midstyle Nominees Pty Ltd  WASCA 75 has put property developers on notice that property development contracts executed prior to a developer becoming the registered proprietor of the relevant land are illegal and unenforceable. While arguably unsurprising, this decision is likely to impact upon the way property developers do business. No longer will a property developer be able to execute pre-sale contracts if they are not the registered proprietor of the land and rely on pre-sale contracts to help obtain finance for their development.
A Property Developer’s Predicament
The facts and circumstances of Barker v Midstyle Nominees Pty Ltd would not be unfamiliar or unusual to a property developer.
In essence, the case involved Midstyle Nominees Pty Ltd (Midstyle) executing a contract for the sale of strata lots in a proposed strata lot development of apartments in Mandurah, Western Australia. After the contracts were executed but before the development could be completed, two of the purchasers, Mr and Mrs Barker and Mr Jordan (together, thePurchasers), tried to terminate their contracts. Midstyle then sought to enforce the contracts against the Purchasers in the Supreme Court.
The only thing standing in Midstyle’s way however, was the fact that it had breached section 13(1) of the Sale of Land Act 1970 (WA) (Act). That is, at the time Midstyle executed the contracts with the Purchasers, it was not yet the registered proprietor of the land the subject of the development.
Success in the Supreme Court
At first instance the Supreme Court decided in favour of Midstyle. In the Court’s opinion, the fact that Midstyle was not the registered proprietor of the land at the time it executed the contracts with the Purchasers did not mean the contracts were void. All it meant was that the Purchasers had a right to terminate the contracts, but only for so long as Midstyle was not the registered proprietor of the land.
In the present circumstances therefore, the fact that Midstyle subsequently became the registered proprietor of the land, and the fact that this occurred prior to the Purchasers attempting to terminate their contracts, meant that Midstyle’s contracts were enforceable against the Purchasers.
A Change in the Winds
Midstyle’s success in the Supreme Court was short lived however, as the Purchasers appealed the decision of the Supreme Court to the Court of Appeal. On appeal it was held that, as Midstyle had not been the registered proprietor of the land at the time it executed the contracts with the Purchasers, the contracts were illegal and unenforceable. What is most alarming about this decision is the reasoning of the court. In particular, the Court of Appeal noted that its decision was based on the fact that section 13 of the Act was:
- only about protecting purchasers;
- specifically designed to constrain the business operations of land developers who carry out relatively large subdivision projects; and
- to be read strictly, such that even if a vendor did subsequently become the registered proprietor of the land (such as occurred in this case), a vendor would still not be able to enforce their contract against a purchaser.
In light of this decision, we are encouraging our clients to carefully consider whether their property development contracts are enforceable and whether they need to change their property development practices.