Lease Incentives, Transfer Documents and Contract Documents

Sentinel Citilink Pty Ltd v PS Citilink Pty Ltd [2018] QSC 239

The Facts

The parties entered into a Contract on 20 December 2017 for the purchase of a commercial property in Brisbane.

The Contract recorded a purchase price of $81.2 million with a deposit of $4.06 million payable on the date of the Contract and “the balance of the purchase price” payable on the Settlement Date.

The Property was subject to a number of pre-existing leases which were disclosed in the Contract.  The Buyer was aware that there were incentive arrangements affecting the Leases, including rental concessions.  The Contract contained a special condition which provided that at Settlement, the Seller must pay the Buyer by way of an adjustment to “the balance Purchase Price payable on Settlement” an amount equivalent to the value of any outstanding incentives. The value of the adjustment on the Settlement Date was calculated as $2,003,050.67.

The Dispute

The Contract did not settle on the Settlement Date.  Although the Buyer had sufficient funds to effect Settlement (and payment of duty on the adjusted purchase price) and there was no dispute between the parties as to the amount of the adjustment, the Buyer and the Seller disagreed whether the “consideration” on the Land Title Transfer Documents should be:

1. $81,200,00.00 being the original purchase price (Seller’s preference); or
2. $79,196,949.34 being the purchase price less the adjustment (Buyer’s preference).

The Seller was concerned that the lower consideration value would misrepresent the true purchase price of the Property and refused to sign the Transfer Documents as prepared by the Buyer.  The Buyer on the other hand acknowledged the need not to misrepresent however considered the purchase price to be the lower amount as the value of the incentives in the Contract meant that it would never be paying the full purchase price.  The Buyer was also concerned that the unadjusted purchase price would result in additional duty being paid by the Buyer. The Buyer did not have sufficient funds for both Settlement and the higher duty payment, however did have sufficient funds for Settlement and the lower duty payment.

Following the parties failure to effect Settlement, the Seller terminated the Contract for the Buyer’s failure to tender the purchase price, forfeited the deposit and reserved its rights for damages.  The Buyer disputed the termination, lodged a caveat over the Property and wanted to have the Contract performed.

The Decision

The Court determined that on proper construction of the Contract (the special condition provided that the adjustment on account of the rental incentives would be “by way of an adjustment to the balance Purchase Price”), the Buyer was only required to pay the reduced amount.  Accordingly, the Transfer Documents should reflect the lower amount and the Seller wrongfully terminated the Contract.  The Court also noted that the Form 20 Enlarged Panel could accompany the Transfer Documents and set out the calculation of the purchase price so as to not misrepresent the purchase price.

Summary

We recommend that anyone purchasing property, particularly commercial property, contact our office prior to entering into a contract.  For purchasers, the careful drafting of lease incentive adjustment special conditions may minimise duty and transfer fees payable on the purchase.