Umbrella agreements under the microscope

6 September 2023

In Waymark Hotels Properties No 20 Pty Limited & Anor v Prentice Properties Pty Ltd & Ors [2023] QSC 117 Mahoneys secured an important win for the purchasers of a hotel and accommodation business.

The transaction was documented within a suite of agreements including an overarching Umbrella Agreement. The Umbrella Agreement nominated the deposit and purchase price for the business and a parcel of land but left it to the parties to individually apportion that price as between the business contract and land contract.

The sellers refused to complete the transaction, arguing that the business contract and land contract were not binding.

Mahoneys successfully argued that the agreements were enforceable and the sellers were required to complete the transaction.

The dispute

The purchasers maintained throughout that all agreements were enforceable and should be completed.

However, the sellers argued that the agreements were not binding because the purchase price under each individual contract was not agreed. To support this argument the sellers raised that:

  • The business contract and the land contract gave the parties the discretion to apportion the purchase price for the relevant assets. The apportionments could occur without reference to the other party and could mean that the parties allocated different prices to the business and parcel of land, which meant there was no agreement as to the “essential terms”.
  • The absence of objectively ascertainable separate purchase prices for the business contract and land contract gave rise to “uncertainty inherent in the structure of the transaction”.

Separately to the issue of the purchase price, the sellers also referred to various specific clauses throughout the agreements which they said confirmed the agreements were uncertain.

 The decision

Justice Kelly rejected the sellers’ submission that the purchase price was not agreed. The Umbrella Agreement specified the purchase price payable for the business and land (including the deposit payable as part of the purchase price) and contained the essential elements for a binding contract.

Although the agreements allowed the parties to apportion the purchase price and deposit as between the business contract and the land contract, this did not have any effect on the obligations owed by the parties to each other in respect of the purchase of the business and the land pursuant to the Umbrella Agreement.

In relation to the sellers’ argument that other specific clauses were uncertain, Justice Kelly concluded that such clauses were severable. His Honour noted that the severance provisions contained within the agreements provided an objective indication that the parties intended the agreements to take effect notwithstanding the failure of any non-essential clauses.

This case confirmed that Umbrella Agreements remain an appropriate contractual model to frame a broader transaction.