A
former Barfoot & Thompson real estate agent was ordered to pay net damages
of nearly $194,000 after defaulting on a speculative $5.5 million purchase of
an Auckland seaside property. This after
the Court of Appeal ruled he was entitled to credit for the $360,000 gain made
on resale when vendors dealt with his breach of contract by finding another
buyer fourteen months later.
Real estate agent Paul Dempsey
took a bold punt in March 2010 when he signed up to buy 28 Ronaki Road, Mission
Bay in Auckland’s eastern suburbs. He
was promising to pay $5.5 million.
Settlement was to be in 12 months time.
Mr Dempsey had plans to build three premium apartments on the 2.3
hectare site. He had an agreement in
principle with a building company that it would join him in a joint venture for
the project. In the end, the project
fell through and Mr Dempsey defaulted on his purchase.
The High Court was told that
Ronaki Road’s owners, a family trust called the Roidon Trust, elected not to
cancel the contract when Mr Dempsey defaulted.
The contract was left running, with penalty interest at 12.5 per cent
accumulating at $1,746 per day, while both Mr Dempsey and the Trust actively
searched for a new buyer. One year on,
Mr Dempsey had an Asian buyer interested at $5.85 million but this was
conditional on the Trust releasing him from liability under his earlier
contract. The Trust refused and this
deal fell through. Two months later, the
Trust sold to a different Asian buyer for $5.86 million. Litigation followed between the Trust and Mr
Dempsey to determine damages payable for his breach of contract.
The High Court said the Trust
could keep the deposit paid by Mr Dempsey and recover interest for his failing
to settle: a total of $258,100.
In the Court of Appeal, Mr
Dempsey was held entitled to a credit for the $360,000 gain made by the Trust
on resale. Their contract had never been
brought to an end; it had just run on.
This meant Mr Dempsey still had an entitlement to Ronaki Road unless and
until the Trust had formally demanded a final settlement and this had been
ignored. The value of his entitlement
was the gain made on resale. But
deducted from this were costs of the second sale, amounting (in round figures)
to $295,600: being agents commission ($141,500); property maintenance costs
($30,600); legal costs ($47,100) and demolition costs ($76,400). It was agreed that demolishing the existing
house did improve prospects of a resale.
The house was badly run down.
Dempsey
v. Howe – Court of Appeal (5.03.15), High Court (5.09.13)
15.013