Background

In the recent case of Sentinel Citilink Pty Ltd v PS Citilink Pty Ltd,[1] the Supreme Court of Queensland handed down an order in favour of Prime Super in relation to a dispute with Sentinel Property Group over a purchase contract for an $81 million office tower in Brisbane.

The parties had entered into a contract on 20 December 2017 whereby Prime Super agreed to purchase the office tower from Sentinel Property Group for a purchase price of $81,200,000 to be adjusted between the parties.

The property being sold was subject to various pre-existing leases which would continue to exist throughout and after the sale of the property. These lease agreements contained incentive arrangements whereby the owner of the property gave various rent concessions to the lessees. To account for the outstanding incentives, a special condition in the contract provided that the seller was to pay the value of any outstanding incentives to the buyer at settlement or allow a deduction by the buyer for that amount.

At the agreed date of settlement, the adjusted purchase price was $79,196,949.34 to account for value of the outstanding incentives, being $2,003,050,67. Sentinel refused to execute transfer documents indicating that the consideration was $79,196,949.34 on the basis that it was concerned that executing such forms would misrepresent the true purchase price to statutory authorities. The parties were unable to reach an agreement in respect of the completion of the transfer documents and settlement did not occur on the settlement date.

Sentinel claimed breach of contract for failing to tender the balance purchase price. Prime Super counter claimed that the delay in the settlement of the contract was due to Sentinel refusing to execute transfer forms which reflected the adjusted purchase price.

Decision

The properly construed purchase price

The Court held that Prime Super was entitled to prepare the transfer documents with the updated purchase price of $79,196.949.34. Bond J stated that “on the proper construction of the contract entered into, the maximum amount which could be payable by the buyer was not $81,200,000 … [r]ather it was $81,200,000 less the rental incentive deduction”.[2] Nothing in the standard REIQ commercial property contract obliged the buyer to pay the “Purchase Price” of $81,200,000 to the seller. Rather, the buyer’s obligation under the standard contract was to pay:

  1. the “Deposit” as at the date the buyer signed the contract (clause 3.1); and
  2. the “balance of the Purchase Price” on the settlement date (clause 4.1)

Bond J stated that the adjustment could be distinguished from the usual apportionments for rates and outgoings contemplated in clauses 14 and 15 of the standard contract.[5] Unlike the payments contemplated in clauses 14 and 15, the special condition contemplating the adjustment “did not simply oblige the seller to pay the amount of the outstanding incentives or to indemnify the buyer in respect of them”, it specifically referred to “the balance Purchase Price payable on settlement”.[6]

Bond J held that the “balance of the Purchase Price” should be construed with reference to all clauses in the contract which the parties contemplated would affect the calculation of the balance.[3] One of these clauses was the special condition providing for the deduction of the value of any outstanding lease incentives upon the date of settlement.[4]

Forms 1 and 24

On the basis of the properly construed consideration, the Court held that Sentinel could not insist upon transfer forms indicating that the consideration was the initially agreed upon Purchase Price of $81,200,000. Bond J relied upon the Land Title Practice Manual to come to this conclusion.

Land Title Practice Manual paragraph 1-2040 provides that “the consideration is the full amount paid or the terms agreed by the transferee and the transferor for the transfer of the interest” but “where a sale price comprises an adjustment due to a price reduction, rebate, discount or cash back on settlement the amount shown in this item must be the net amount after adjustment”.[7] Bond J held that there was “no view of reality in which $81,200,000 was the full amount paid by the buyer for the transfer of the interest”.[8]

Similarly, Land Title Practice Manual paragraph 24-4050 states that “‘details of sale price’ refers to the actual terms of the transfer of the property” and “the field ‘Cash’ refers to the exchanging of money for the property”.[9] Bond J considered that with reference to ‘Cash’ there “was never going to be $81,200,000 paid for the property”.[10]

The Court noted that Sentinel could have dealt with its concerns about misleading the proper authorities by “filling out forms in such a way as to provide further detail about the manner of calculation of consideration payable under the contract”.[11] It was noted that such additional explanation be included by way of a Form 20 Schedule.

Implications

This decision has implications both for lawyers and future buyers.

When drafting special conditions dealing with outstanding lease incentives lawyers should be mindful of the method the Court used to determine which adjustments are to be encompassed in the “balance of the Purchase Price” and the subsequent implications in respect of transfer documents.

For buyers, this decision offers an opportunity to minimise Queensland transfer duty and land title fees. Whilst the Court did not have to make a decision on the dutiable value of the transaction, it was suggested that the Buyer must pay stamp duty on the higher purchase price and seek a refund after settlement on the lower, adjusted purchase price.[12]   Further, a lower purchase price reduced by the type of adjustment mentioned above will consequently attract a lower Queensland land title fee.

Summary of important points

  • A special condition specifically purporting to adjust the “balance of the Purchase Price ” to take account of outstanding lease incentives between a buyer and a seller will have the effect of adjusting the consideration value on the settlement date where the special condition is “on all fours” with the clause in the Sentinel Citilink case.[13]
  • The adjusted consideration value is the value to be entered into the relevant Queensland transfer forms (Form 1 and 24) and not the agreed upon pre-adjustment Purchase Price value.[14]
  • Any explanation necessary in relation to this adjusted value can be included by way of a Form 20 Schedule.[15]
  • Although it was not necessary to consider transfer duty implication, it was suggested that the Buyer pay transfer duty on the higher purchase price and seek a refund after settlement on the lower adjusted purchase price.[16]

Co-authored by Michael Mayes, Senior Associate and Morgan Healey, Graduate.  

[1] [2018] QSC 239.

[2] Sentinel Citilink Pty Ltd v PS Citilink Pty Ltd [2018] QSC 239, 22.

[3] Sentinel Citilink Pty Ltd v PS Citilink Pty Ltd [2018] QSC 239, 76.

[4] Ibid 77-78.

[5] Ibid 80.

[6] Ibid.

[7] Land Title Practice Manual para 1-2040.

[8] Sentinel Citilink Pty Ltd v PS Citilink Pty Ltd [2018] QSC 239, 95.

[9] Land Title Practice Manual para 24-4050.

[10] Sentinel Citilink Pty Ltd v PS Citilink Pty Ltd [2018] QSC 239, 95.

[11] Sentinel Citilink Pty Ltd v PS Citilink Pty Ltd [2018] QSC 239, 95.

[12] Ibid 28.

[13] Sentinel Citilink Pty Ltd v PS Citilink Pty Ltd [2018] QSC 239, 80.

[14] Ibid 95.

[15] Ibid.

[16] Ibid 28.

This information is intended to provide a general summary only and should not be relied on as a substitute for legal advice.

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