Off-the-plan Townhouse Development Delayed

Tim O’Dwyer

OPINION
by Tim O’Dwyer M.A., LL.B
Solicitor
Consumer Advocate
watchdog@argonautlegal.com.au

Should you rely on what developers’ and their estate agents promise? A novice property buyer finds the answer to this question.

In October 2009 an agent’s sign appeared on a large block near where George Jones was renting.  For sale by Kyora Properties Pty. Ltd. were eighteen townhouses with construction commencing “early in 2010”  and completion “anticipated” later that year.  Prospective buyers were invited to  “Buy Now At Pre-Sale Prices and Settle Later 2010”.

George, a real estate novice in his early twenties, excitedly purchased one of these yet-to-be-built townhouses for $425,000 and paid a $28,000 deposit.

Buying off the Plan?

The first page of this 85-page off-the-plan “cash” (not subject to finance) contract was a government-prescribed “Warning Statement” which detailed cooling-off rights and clearly warned:  “DO NOT sign the attached contract without reading and understanding this warning…You should obtain independent legal advice before signing…”

George did not see a solicitor.

Kyora’s solicitors sent him the fully-signed contract with a letter directing  attention to the Warning Statement and enclosing an acknowledgement that he had received the contract and direction.  George signed and returned this.

In May, 2011 George came to see me.

He still wanted to proceed although the development had not completed.  In fact construction had not commenced.

I advised George that, despite what the sign had promised, nothing in the contract specified when construction must begin.  But a “sunset clause” permitted cancellation by either party if the project did not complete by October 2012.

After I asked solicitors when construction would commence, they replied:   “Our client is currently finalizing the construction plan and will provide an estimate of the construction commencement within 14 days.”

This letter later arrived:  “Without prejudice to our client’s permissible contract time frame, there has been a delay in commencement of construction due to factors beyond its control.  As a result of the recent global financial crisis, the previously-engaged builder was wound up.   This necessitated a new builder engaged and a new building program, contract, schedules and quality surveyor reports.  Our client’s financier is currently considering the new project documentation.   Construction should commence imminently upon finance approval which is expected within 28 days.”

I told George it was not unusual for developers to require construction funding.  It was not uncommon, I added, for builders to go broke.

By October 2011, with no word from Kyora’s solicitors, George emailed that he was “really concerned” after paying rent of $400 per week for the past two years.  Nothing had happened at the site where the unchanged sign remained. “If I don’t proceed”, he asked, “will I lose my deposit?”

Before I could reply he emailed again that he had “suffered through different kinds of stresses and lost opportunity to capitalize on the property because it was not built in time.”  He continued:  “I am also losing $14,000 government new home assistance.  Therefore I want to terminate and get my deposit returned.”

I advised George how any question of misrepresentation could be legally problematic and was best raised at this time.  So I then informed Kyora’s solicitors of George’s concerns, how he was being “financially prejudiced” by the delay and asked whether, in the circumstances, he might be “released from the contract”.

No reply come until January 2012 when the solicitors wrote that Kyora was in “the process of finalizing its finance application”.  But a pre-condition of finance approval was that Kyora procure sunset date extensions to six months after the practical completion date.  Because this date was expected to be October 2013,  Kyora requested a sunset date extension to March 2014.

The letter concluded:  “If your client agrees to this, our client may consider agreeing to a price reduction.”

George’s reaction was:  “I don’t want any new date or price.  I want out so I can start looking for a house.”  No deal, I told Kyora’s solicitors.

In the meantime, I advised George that he might be able to validly terminate for “anticipatory breach” if the point was  reached where Kyora could not possibly commence and complete the project by the original sunset date.

In March 2012 Kyora’s solicitors belatedly informed me that Kyora had accepted George’s request for “mutual termination of the contract”.

George was deliriously happy, got his deposit back and soon purchased a home.   Settlement occurred in May 2012 – about when construction finally commenced on Kyora’s townhouses.

(A version of this article first ran in Australian Property Investor magazine.)