Dodgy Developers and Sunset Clauses!!

Developers trying to terminate off the plan contracts to get more money!

Date:

24-Feb-2017

Category:

Buying

Tags:

Author:

David Garwood

Dodgy Developers and Sunset Clauses!!

Developers trying to terminate off the plan contracts to get more money!

We have not yet seen this as a problem in Qld, but with a strong market it is not out of the question, that developers will selectively terminate contracts where they can sell the property for more money. In a weaker market I have seen the reverse, where the developer seeks to lock the buyer in.

The New South Wales law provides that a developer cannot terminate under a sunset clause in an off-the-plan contract unless the Court grants them permission to do so.

Property values have soared over the last few years. Developers who entered off-the-plan contracts to sell a property for, say, $400,000.00 in 2014, which by 2016 is worth $550,000.00, may feel unhappy at having to sell the property for less than its’ current market value. Some unscrupulous developers began using the sunset clause in the contract to terminate it by intentionally delaying the completion of projects until the sunset date arrived. At that point they were terminating the off-the-plan contracts, quickly completing the projects and then selling the properties.

In response the New South Wales law now protects buyers from developers looking to take advantage of the sunset clause in off-the-plan contracts by forcing developers to get Court approval before terminating the contract.

That legislation was tested recently in a case involving a developer and a purchaser.

The Court will consider the developer’s reasons for the delay in creating the Lot, whether the reasons for the delay are reasonable, whether the developer has acted in bad faith, what effect the termination will have on the purchaser and whether it is fair and equitable that the developer be allowed to terminate.

In the recent case of Jobema Developments Pty Limited v Zhu & Ors the developer selectively extended the sunset dates on some contracts in the development and not others, and offered no explanation as to why some contracts were extended where others weren’t. It will come as no surprise that the Court refused the developer’s application.

It will be interesting to see how this protection is extended or redacted as more cases under these laws are brought before the Courts.
With thanks to Bennett Carroll Solicitors

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