Can you on-sell your off-the-plan purchase before your own settlement?

NSW case challenges contract restrictions.

In a recent New South Wales case of Fuentes v Bondi Beachside Pty Ltd, Fuentes purchased a unit ‘off the plan’.

A Special Condition in the Contract stated that the purchaser cannot assign, novate or otherwise dispose of its interest in the contract or the property before completion. Any assignment, novation or disposition could only occur if the Vendor’s prior written consent had been obtained. The written consent was subject to various conditions including the new purchaser entering into an agreement with the Vendor.

Fuentes on-sold without obtaining consent. The Vendor claimed that this was a breach of the contract and terminated the contract notwithstanding Fuentes was ready, willing and able to settle, as was the sub-purchaser from Fuentes.

While the court found that there was a breach of contract, it held that Fuentes was still entitled to specific performance of the contract and thus could force the Vendor to settle.
For breach of contract, the Vendor was entitled to damages. No damages were evident and as such damages of $20 were awarded.

Perhaps a major issue was that Fuentes was ordered to pay costs of the proceedings as Fuentes was in breach of the contract.

Many ‘off the plan’ contracts contain restrictions on assignments, nominations or further sales. The payment of costs ordered against Fuentes was no doubt substantial. However, the Court did allow the original sale to proceed notwithstanding that the Special Condition in the contract had not been complied with.

This was a NSW Case. It will no doubt be argued similarly in Victorian courts if the need arises.