Rescinding ‘off the plan’ contracts - the Rule in Flight v Booth

Date: Sep 14, 2014
Document Type: Article

Purchasing a property before it is built, also known as purchasing ‘off the plan’, can be a rewarding yet risky enterprise, especially if the finished product isn’t the same as what you contracted to buy. The contract may provide for certain limited circumstances which allow you to rescind (revoke) the contract. There is, however, also some legal rules which may be able to help. One such rule is called ‘the rule in Flight v Booth’. The NSW case of Kannane and Ors v Demian Developments P/L [2005] NSWSC 1193 sets out when the rule in Flight v Booth will apply.

What is the rule in Flight v Booth?

The rule in Flight v Booth allows you to revoke a contract which contains a misdescription so substantial that what you have ended up with something that is materially different to what you contracted for. In other words, the end product was so different to what was originally contracted for, it can reasonably be supposed that but for the misdescription, you would never have entered into the contract.

Facts in Kannane v Demian Developments

A number of people purchased off the plan units in the same development. It became apparent that the floor space of the units as described in the plan in their contracts, was materially less than the plan which was later registered. The purchasers purported to rescind under terms of the contract which allowed for rescission if there were variations of the plans which substantially affected the property. This didn’t include minor changes, such as variations to the area of the property of less than 5%. Alternatively, they relied on the rule in Flight v Booth. The vendor claimed that the rescission was invalid and that he was entitled to terminate the contracts and retain the deposits.

Decision

Evidence showed that the difference in floor space was simply due to different methods of surveying. The initial plans had been measured including wall space, whereas the registered plans excluded the wall space. The actual area of the units hadn’t changed. Therefore, the Court found this didn’t amount to an amendment or variation of the plan, let alone one not of a minor nature. Even if it had been a substantial amendment, the purchasers had failed to exercise their option to rescind in time, in accordance with the contract.

The court also considered whether the rule in Flight v Booth could operate when the nature of the purported amendment had been specifically dealt with by contractual terms, but decided it was unnecessary to resolve the issue. However, the Court decided that even if Flight v Booth could operate, the purchasers had not demonstrated that the alleged misdescription in the plan went to the essence of the contract so as to materially alter its substance such that they would not have entered into the contract otherwise.

Therefore, there was no basis on which the purchasers could rescind the contract and the vendor was entitled to terminate and forfeit the purchaser’s deposits.

Significance

Although this case raises the important question of whether there is room for the rule in Flight v Booth to operate when the issue is dealt with by express contractual terms, unfortunately, it provides no answer. However, it does demonstrate the fundamental and serious nature of a misdescription required before the rule can be invoked to allow purchasers to rescind ‘off the plan’ contracts.

If you have or are considering purchasing property ‘off the plan’ it is important to be vigilant about what you’ve contracted for and what you’re receiving. The rule in Flight v Booth should only be regarded as a last-resort safety net. It is important to ensure you have a watertight contract and are across the circumstances in which you can rescind the contract and what processes you need to follow.

If you require any assistance with off the plan contracts, please do not hesitate to contract us.

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