What a Court considers a reasonable time for completion of a subdivision might be longer than you think!

For example, it might be perfectly reasonable for a developer to defer applying for a resource consent until zoning issues are resolved.

Making time of the essence for the performance of an obligation is a tool for use to ultimately cancel a contract, but if that notice is premature, or does not allow a reasonable time, then it will be invalid.

 If you want particular obligations performed by particular dates, include timeframes in the contract.

A recent Court of Appeal case is of interest to developers, their funders and purchasers. Mr Parsot owned 1.84ha at Pukekohe.  He agreed to sell that to Greig Developments Limited in October 2004.  The contract required Greig to subdivide the land and transfer a lot back to Parsot of not less than 2500m2.

The subdivison had not been completed by 4 November 2005.   At that date a resource consent had not been applied for by Greig and there was no progress other than advice being obtained from a planner.  An Environment Court decision that affected the zoning of the land to be subdivided was awaited.  Greig wanted to wait for that decision before lodging his resource consent application.  The Court viewed that as a reasonable position.

The contract did not require that the subdivision be completed by a particular date.  However, Mr Parsot, frustrated at the delay, issued a notice on 4 November 2005 purporting to make time for completion of the subdivision of the essence.  That notice required Greig to:

  1. apply to the Council for subdivision consent no later than 28 November 2005;
  2. achieve subdivision consent by 27 January 2006;
  3. transfer title to the lot to Mr Parsot by 28 February 2006.

If Greig failed, Mr Parsot intended to cancel the agreement. 

There was some backwards and forwards between solicitors, Greig disputing the notice and giving an update as to progress and Mr Parsot maintaining his position.  On 26 May 2006 Mr Parsot gave notice to cancel the contract, relying upon the failure to complete the subdivision and transfer title to him within the time specified in his notice. 

The Court of Appeal and High Court agreed that the notice making time of the essence was premature, that a reasonable time had not been allowed for completion of the subdivision and that Mr Parsot was in the wrong. 

The Court confirmed that the notice itself, issued 4 November 2005 was invalid.  It was not reasonable to demand completion at that point.  Greig’s obligation was to provide Mr Parsot with a title to Lot 1 of the indicated area and in the indicated position.  There was no obligation to complete specific steps by particular dates.  This could have been included in the contract, with an appropriate timeline.  All that was required was for the title to be obtained within a reasonable time of the contract becoming unconditional.

The Court looked closely at the contract and what might be a reasonable time for performance of the obligation to subdivide.  Mr Parsot accepted the timeframe for transfer of the lot to him was unreasonably short, but argued the other timeframes were reasonable. 

The Court disagreed.  Greig was entitled to wait until the Environment Court had spoken before applying for resource consent. The contract was conditional upon rezoning.  This condition had been included for Greig’s sole benefit, albeit subsequently waived by Greig.  Mr Parsot had already run the risk that this situation could develop by agreeing that the zoning condition was for Greig’s benefit only.

In any event, allowing just 3 weeks from the date of the notice for a resource consent application to be made was too short.  even for a simple two lot subdivision this would not be a reasonable time.  Here the contract implied there would be a multi-lot subdivision done by Greig so it was definitely not a reasonable time. 

Even if the notice was good, the Court made clear that failure does not automatically give rise to a right for Mr Parsot to cancel.  This is more of interest to the lawyers.  In providing an adequate explanation and showing an intention to complete, there was no repudiation.  The Court noted Greig was just as keen as Mr Parsot to complete, having paid the full purchase price and carrying the holding costs. 

Greig had actually proceeded to complete the subdivision and transfer title to Mr Parsot by the date of the hearing in the Court of Appeal, 23 March 2009.

As an aside, you are no doubt wondering about section 225 of the Resource Management Act. This was not applicable here, as it was a purchaser subdividing land for a vendor.  The Court did say, that even if those time periods applied, that they were significantly longer than the time periods allowed by Mr Parsot.  Section 225 implies into contracts a right for a purchaser to cancel where there is not reasonable progress being made towards submitting or depositing a survey plan “2 years after the date of granting resource consent or one year after the date of the agreement, whichever is later”. 

A reasonable time for completion of a subdivision is likely longer than you think.  If timescales matter, make these express.