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"And / Or Nominee"

Most standard forms of contracts of sale of land give the purchasers the option to nominate a third party to take the transfer of title. Generally, purchasers have a right to nominate a third party provided they meet the requirements set out in the contract. A common nomination clause will generally read as:

"The purchaser may nominate a substitute or additional purchaser, but the named purchaser remains personally liable for the due performance of all the purchaser's obligations under this contract".

The concept that a nomination will not usually create a contractual relationship between a vendor and nominee purchaser is not new and is often forgotten in many land transactions. Whether you are buying or selling land, the issue of nomination is an important concept and ought to be properly considered.

Recent Case Law

The case of 428 Little Bourke Street Pty Ltd v Lonsdale Street Cafe Pty Ltd [2009] VSC 133 highlights the issues that may arise when a nominee purchaser attempts to enforce a contract of sale it was not originally a party to.

The Facts:

The original purchaser nominated a company under the nominee clause as a substitute purchaser. The nominated company became the registered proprietor of the property and subsequently alleged that prior to the date of contract; the vendor misrepresented the lettable area of the property. The nominated purchaser sought damages for the misrepresentations.

Held:

Judd J struck out the proceedings issued by the nominee purchaser on the basis that the nominee purchaser had no cause of action against the vendor as it was not a party to the contract of sale. His Honour stated that the nominee did not have the ability to enforce a contract that it was not a party to.

Consequences:

From the Court's decision, it is evident that the vendor will not owe any contractual obligations to any nominee purchaser and similarly a nominee purchaser will not owe any contractual obligations to the vendor.

This clearly works against normal practice given it is sufficient to assume, in most transactions, that the mind of the original purchaser is the same as that of the nominee purchaser. That is, it is not absurd to imagine that an original purchaser passes on the same misrepresentation it received from the vendor to the nominee purchaser.

Comments

"Is it safe for an original purchaser to nominate a third party, bearing in mind that the nominee will have no cause of action against the vendor if something happens?"

It is typical for an original purchaser to already intend to nominate a third party at the time of signing the contract and one of the main reasons is simply because the named purchaser was undecided on whether to buy in one name or in a few names. These are reasons not uncommon to the ordinary buyers.

In light of the Court's decision, it is clear that a contractual relationship needs to be created between the vendor and the nominee purchaser before the nominee purchaser will have any legal standing under the contract. An obvious way to overcome any potential problem would be to properly consider the name one wishes to purchase land in prior to entering into any contract of sale.

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