Blue Chip investors have been held to agreements for the purchase of
Many investors had not counted on having to front up with any money on completion of the apartments, having been told during sale negotiations that Blue Chip would see them right when construction was complete either by taking the apartment off their hands or by finding tenants to fund mortgage payments. When neither happened, investors have been financially embarrassed.
The court ruled that developers could enforce the agreements to buy. Investors must complete their purchases, having made an unconditional personal promise to buy when signing the agreements. Representations to the contrary made by sales staff were not made on behalf of the property developers, companies not related to Blue Chip.
The complicated chain of legal relationships surrounding Blue Chip investments became clear to some investors far too late. Investors dealt face to face with sales staff. Behind the sales programme was a shifting chain of obligations. Many of the sales staff were acting in a dual capacity: acting for Blue Chip in some respects, the property developer in others.
Evidence was given that Blue Chip entered into “underwriting agreements” with property developers with success fees payable if a certain level of apartment sales were achieved in respect of a particular development. For the developer, a minimum level of unconditional sales off the plan were needed before project finance became available to commence the project.
Investors were sold the dream of a solid investment in central city property. To help them, Blue Chip was offering a complete package with a fully-furnished apartment to be completed in 18 to 24 months and all financing sewn up. The only immediate financial commitment required was a deposit of some ten to fifteen per cent of the final price.
In respect of the apartment purchase, sales staff were acting for the property developer. A written agreement for sale and purchase was signed for a specific apartment as delineated on a plan. The written contract specified that all the relevant purchase terms were in writing, in the agreement. That made it difficult for investors to argue that separate promises were made that the contract would not be enforced.
In respect of financing the purchase, the same sales staff were also acting for Blue Chip offering various Blue Chip financing “packages”. This is not unusual in the commercial world: a car dealer can act on behalf of a franchisee in selling a new car and at the same time act on behalf of a finance house in arranging funding for the purchase.
The financing packages varied. One was an undertaking to re-sell on completion and divide up any capital gain – described within Blue Chip as the chance to sell the same apartment twice-over.
The financing promises were very persuasive. Some Blue Chip sales staff themselves signed up for the deals on offer, tempted in part by Blue Chip promises that part of the underwriting fee payable to Blue Chip on reaching a minimum level of sales would be rebated back to the staff member signing up to buy an apartment.
The Court of Appeal ruled the agreements for sale and purchase were enforceable as they stood. They had not been modified by any collateral or unwritten term making the agreements unenforceable. The court also ruled against a separate legal argument that the agreements were unenforceable because no prospectus was issued as required by securities legislation. The Securities Act 1978 does not apply to sales of land.
Hickman v. Turn & Wave Ltd – Court of Appeal (29.03.11)
04.11.004