In brief - Buyers aggrieved after purchase contracts terminated under sunset date right

The current calls from apartment buyers for legislation to be introduced allowing only purchasers to terminate an off-the-plan contract if completion of a building is delayed are symptomatic of an overheated property market.

Court upholds developer's right to terminate off-the-plan sale contracts

In Wang v Kaymet Corporation Pty Ltd [2015] NSWSC 1459, the court upheld the developer's right to terminate 34 off-the-plan sale contracts on the basis that the vendor had failed to deliver a registered strata building to the purchasers by a "sunset date" as defined in the contract.

The first sale contract was entered into in November 2009. The last contract to be terminated was rescinded in April 2014.

Developer used reasonable endeavours to complete development before sunset date

The purchasers were understandably upset because, as reported in the newspapers, the market value of the apartments had appreciated considerably between 2009 and 2014. In court, they argued that the developer had unjustly enriched itself at their expense, and therefore should not have been entitled exercise its contract right to terminate the contract.

This argument was not accepted by the court, which found on the basis of the (very substantial) evidence presented that the developer had not deliberately delayed the project in order to take advantage of the sunset date right; and in fact had used reasonable endeavours to complete the development before the sunset date.

Off-the-plan purchasers lobbying for changes in law

Using this and other recent similar instances as their basis of argument, disaffected purchasers have made calls through the media to "reform" the law by introducing legislation such as allowing only purchasers to terminate an off-the-plan sale contract if completion of a building is delayed; and requiring a developer who terminates a sale under a sunset date right and then resells the same apartment to pay the first purchaser damages equal to any increase in contract price.

We would hope that the government not proceed with such legislation for the following reasons.

Buyer approach to termination of contracts fluctuates with market highs and lows

The complaints now being reported are very much the product of an overheated Sydney property market. The injustice cited is that developers are getting a profit margin that the disappointed purchasers want, being a profit margin that neither party anticipated when the contract was entered into.

If (as will happen one day) the market falls, the current crop of disappointed purchaser stories will be replaced with stories of purchasers looking for any possible technicality to escape their purchase contracts.

Legislation which brands one party to a contract as the only person who could ever act unfairly and the other party as the only person who could ever be victimised should never be passed without long and serious debate.

Should government introduce legislation denying developers right to terminate in these circumstances?

When Sydney last had a seriously overheated property market, the same purchaser complaints abounded and the same type of court cases were fought out. In those cases, the courts consistently denied developers the right to terminate contracts for failure to complete by a sunset date if, on the evidence, it could be shown that the developers had deliberately delayed completion in order to seek to take advantage of this right.

This fundamental principle again underlies the court's decision in Wang v Kaymet. Why is this principle now not sufficient to protect consumers against developers acting unfairly?

Disputes between developers and buyers could be heard in a cheaper forum

If the government's concern is that it is unfair to force purchasers to bear the cost of having to take a developer to court to challenge the reasonableness of exercise of a termination right, isn't the answer simply to transfer the hearing of such disputes to a cheaper forum - perhaps such as the administrative tribunals already set up in each state to hear and determine consumer complaints against businesses?

The opinions expressed in this article are those of the author.

This article has been published by Colin Biggers & Paisley for information and education purposes only and is a general summary of the topic(s) presented. This article is not specific legal or financial advice. Please seek your own legal or financial advice for any questions you may have. All information contained in this article is subject to change. Colin Biggers & Paisley cannot be held responsible for any liability whatsoever, or for any loss howsoever arising from any reliance upon the contents of this article.​

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