Sunday, 30 August 2020

When will a hand-written licence to occupy premises in a contract of sale of real estate be enforceable?

1.     In CAG Company P/L v Cheruku and anor [2020] VCC 13, the County Court (Marks J) considered the interpretation of a handwritten clause in a contract of sale of real estate allowing the purchaser to take possession of the property being sold 5 and 1/2 months before settlement.


2.     The plaintiff agreed to sell its Coburg North property to the defendants in February 2019, for $1.37 million, with settlement to take place some seven months later, on 1 September 2019. The contract of sale included a handwritten clause, which was added by the plaintiff’s real estate agent and initialled by the defendants when they signed the contract of sale on 9 February 2019.


3.     The precise wording of the hand-written clause was:

The Vendor allows the purchaser to take possession of the property

under lease LICENCE agreement on the March 20th March [sic] 2019 at $700 per week until Settlement.


4.     Settlement eventually occurred on 2 September 2019 and the defendants moved in. They did not take possession before settlement.


5.     The dispute (the value of which was $16,500) was over whether the defendants were obliged to pay the licence fee or not.


6.     The plaintiff vendor submitted that the clause was ambiguous. It said that it could mean that the $700 per week payment it sets out was mandatory (payable regardless of whether the defendants took possession before settlement) – or that it was permissive (only payable if the defendants took possession before settlement).


7.     The plaintiff then argued that where a clause is ambiguous and there is a constructional choice as to how it is interpreted, that ambiguity may be resolved by considering pre-contractual negotiations in order to establish the parties’ objective intentions. Finally, the plaintiff submitted that the pre-contractual negotiations established that the parties’ objective intentions were that payment was mandatory. The fact the defendants did not take possession is irrelevant: the fee provided for by the clause was payable in any event as a fee for the opportunity to take possession.


8.     The defendants, on the other hand, argued the handwritten clause was not ambiguous. It permitted the defendants to enter the property under a licence agreement but it did not compel them to do so, nor did it create a liability to pay if they had not entered the property before settlement.


9.     The lawyers for the vendor must have realised that there was a problem with the clause as drafted by the estate agent, and after the contract of sale was signed proceeded on the basis that the defendants were required to sign a further agreement, described as a ‘Licence Agreement’ which included extensive terms not provided for in the contract of sale.


10.  At paragraph 31, of the judgment Her Honour noted:

… the plaintiff did not offer the defendants possession of the property on or from 20 March 2019 based on the handwritten clause. On the contrary, they issued proceedings seeking to force the defendants to sign the Licence Agreement.


11.  It was not until trial that the plaintiff claimed that $16,500 was due to it as a debt because of the handwritten clause.


12.  This allowed the judge to conclude that the parties had not reached agreement. She found (at paragraphs 34 to 35):


… it is for the plaintiff to show, on the balance of probabilities, that it

has established the precondition to the debt claim it now pursues.


35 It has not. On its construction of the handwritten clause, in order to succeed on its claim it needs to establish that after the contract of sale was executed it offered the defendants possession based on that clause. It needs to show it was ready, willing and able to offer possession – without requiring as a further condition of possession that the defendants agree to further conditions not contemplated in the contract of sale. It did not show that.


13.  Her honour went on to explain the meaning of the hand written clause. She noted at paragraph 36 that the clause was “unambiguous". The word allows is clearly permissive.


14.  Following on from that construction, Judge Marks concluded (at paragraph 38, emphasis added):

The proper construction of the clause is that the plaintiff is giving the defendants the opportunity to take possession of the property under licence from 20 March 2019, at the cost of $700 per week until settlement if they take possession.



15.  With all due respect to real estate agents in Victoria, they should be leaving the drafting of unusual terms in Contracts for the Sale of real Estate to lawyers.


16.  The ambiguity in the licence clause shows that it is imperative that the drafting of such a clause is clear, as well as concise.


17.  The vendor’s lawyers clearly recognised that the hand written clause was inadequate, which led to their attempt to renegotiate the clause and its effect by drafting a more detailed licence agreement. Unfortunately, the evidence showed that no agreement could be reached about the terms of the proposed licence agreement, and so it seems that the vendor ‘jumped the gun’ in seeking to enforce the licence agreement, leading to unnecessary (and ultimately unsuccessful) litigation.

WG Stark

Hayden Starke Chambers

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