How Not to Novate A Contract for An Option to Buy Land: Kai Ling (Australia) Pty Ltd V Rosengreen (2019)

The recent decision in Kai Ling v Rosengreen considered whether an option to purchase land had been successfully novated in favour of a substituted grantee.

In 2015, Mr Rosengreen granted to the Saadie Group, by deed, an option to purchase certain land. A few days later Mr Saadie presented to Mr Rosengreen a single sheet of paper in the same form as the deed, except that the grantee was named as Kai Ling (Australia) Pty Ltd instead of Saadie Group. The sheet already bore the signatures of two persons on behalf of Kai Ling. Mr Saadie, who was not an officer of Kai Ling, asked Mr Rosengreen to sign the sheet (which he did) saying "we may need to change the name of the grantee, but it does not change anything".

At trial, Kai Ling contested that there had been a novation of the deed of option in place of the Saadie Group. The primary judge held that novation had not taken place and that accordingly, Kai Ling had no interest in Mr Rosengreen’s land. Kai Ling appealed, but the Court of Appeal dismissed the appeal.

This case demonstrates that novation of an option to purchase land is a formal process that needs to be enacted carefully. The option needs to be exercised in the right manner and on time, or it risks being lost.

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