Prospective first homeowners on the Gold Coast have been left devastated after a developer cancelled their contracts and stopped the development of their properties. The buyers fear they were taken advantage of and are potentially hundreds of thousands of dollars worse off after a developer used a technicality to cancel their Contract of Sale. Attwood Marshall Lawyers Property and Commercial Lawyer Mieke Elzer explains some issues buyers must be aware of when buying a property off the plan.
Buyer disappointment – Brisbane developer pulls the pin on Gold Coast estate contracts
Multiple buyers of off the plan properties on Pitta Street, Hillview Estate in Maudsland on the Gold Coast signed contracts and paid deposits in 2020 to secure their property. The property prices ranged from $225,000 to $305,000.
Since signing the contracts, the buyers have engaged builders to construct homes on the sites, originally expected to be ready in March 2022. Some buyers have even gone as far as having soil tests conducted, purchased furniture, and engaged pool builders in anticipation of the completion of construction.
However, some homeowners claim that Metacap Developments, based in Brisbane, unfairly terminated their contracts using a sunset clause. The sunset clause puts a time limit on a contract’s validity. The buyer or vendor can legally invoke the clause if the settlement is not reached 18 months after signing the contract.
Based on advice that they had limited legal options to challenge the termination of their contracts, some buyers accepted the return of their deposit. However, others refused to accept the return of their deposits, choosing to contest the termination of their contracts with a desire to proceed with construction.
While legislative amendments in NSW have ensured that sunset clauses are for the benefit of purchasers only, the right for a Vendor to terminate a contract using the sunset clause is not prohibited by Queensland law.
Theodore MP Mark Boothman, whose constituency includes Maudsland, said the situation had “destroyed” Christmas for many families, and called for Queensland legislation to be changed to outlaw the practice.
“… What is needed now are robust laws like those passed in NSW in 2015 as a matter of urgency. These laws have been tested in court. They are proven to protect the interest of buyers and vendors, putting an end to such behaviour.”
The developer’s decision is expected to pay off with Metacap Developments expected to make more money as a result. These same blocks of land are now selling at prices more than $100,000 higher than initially sought. Emails from the developer revealed the sites, initially priced between $280,000 and $305,000, are now advertised for sale at prices ranging from $400,000 and $450,000.
Further, the proposed lots, previously marketed by a Brisbane real estate, are now instead being sold directly by the developer.
Since the story was originally published in mid-December, The Bulletin has also learnt that several more prospective buyers have received letters terminating their contracts.
Buyers said that receiving the letters so close to Christmas had caused them much distress.
Buying off the plan
While there are benefits to purchasing a property off the plan, first home buyers need to understand what considerations need to be given when purchasing property this way.
Purchasing off the plan can be a cost-effective way of getting into the real estate game, but it comes with several variables that purchasing an existing property does not. If you’re buying any property off the plan, you may notice the sunset clause mentioned within the Contract.
Provisions that entitle either party to terminate the Contract if the property has not reached a point of registration of the plan by a specific date are included in off the plan contracts. These sunset dates usually span several years. This can mean that the parties arrive at a sunset date where the property’s value has increased or decreased significantly since the initial date of the Contract.
In a property market in decline, the right to terminate may favour a buyer. On the other hand, however, the seller may benefit from a booming property market, like the one we have been experiencing during the COVID-19 pandemic.
Although market fluctuations can be challenging to foresee, it is crucial to understand how the real estate market and any fluctuations to the value of the property you are buying off the plan may harm your transaction, mainly if the Contract falls through.
What is the sunset clause?
For off the plan contracts, the sunset clause (or sunset period) is the maximum amount of time the developer must complete the project. Two parties can agree to extend the terms of a sunset clause. If the developer does not meet the period for completed construction, set out by the sunset clause in the Contract or the agreed extension date, the purchaser of the property is legally entitled to walk away from the agreement and have their deposit returned in its entirety.
There is no universal period for sunset clauses, as a determination of this period depends upon the property’s size and several other dynamic factors.
Developers in New South Wales and Victoria cannot use sunset clauses for financial gain after the states have changed legislation in recent years and developer that wants to rescind the Contract on the sunset clause must now have the buyer’s permission to do so. In addition, the developers need to explain why they are seeking rescission and specify why they cannot complete the project as per the sunset clause. If the buyer disagrees with the developer’s reasons, the developer must obtain an order from the Supreme Court to rescind the Contract. Queensland is one step behind and is yet to review the relevant legislation.
Risks involved when buying off the plan and what needs to be considered
As with anything relating to purchasing property, there are risks associated with buying off the plan. In past instances, developers have intentionally activated a sunset clause by going overtime with their construction to re-sell the property in a more substantial market at a higher price. This issue is two-fold for the purchaser. First, a developer who employs these tactics will likely have noticed a spike in the market to their advantage. Not only will the buyer lose the property they had their heart set on, but the market may have moved beyond the buyer’s means by the time they get their deposit back, making it difficult for the purchaser to secure another property. There is also potential to have wasted a significant amount of time in the property market without having anything to show for it and missing out on substantial capital growth, which can be incredibly frustrating.
Buyers must do their research before entering into a Contract of Sale. While it’s rare to have a developer default on the sunset clause, buyers should have the final timeline for completion in the back of their minds so they can track the progress of the build.
It helps to ensure the developer has a good track record at completing similar jobs on time and is well known within the industry. Doing your homework upfront on the developer can save buyers a lot of stress and heartache down the track.
Laws are in place to protect buyers from dodgy development company tactics, including the right to request a notice from the builder outlining why the property was incomplete at the sunset date. However, legislative review in Queensland is called for to protect against those circumstances that have arisen for purchasers of lots in the Hillview Estate in Maudsland.
Other common issues associated with buying property off the plan can include:
1. Plans not being finalised
One should not assume that the plans and blueprints of the property are final at the time you enter the contract. Sometimes, the designer, builder, or appropriate council may not approve these plans. While there are usually conditions in off the plan contracts which constrain the variations that can be made to these plans, the final design may still end up being not to your satisfaction.
Plans and specifications will demonstrate the developer’s intentions of the property’s appearance. But until construction is complete, several factors may influence the property’s overall look, such as a change in council laws and legislation to budget restraints.
2. Fluctuating house prices
Like any property purchase, buyers should consider that their house may drastically reduce in value. In addition, house prices fluctuate all the time. Buyers must prepare for these fluctuations.
If only a few properties have sold in the estate, the wait time between a party entering a Contract of Sale and the completion of the property can be significant. Some developers will not commence construction on a property until a certain number of lots have sold.
If a buyer waits nearly two years for property completion, the price could drop or increase significantly for reasons such as environmental factors or changes in the area’s desirability. Preparation is necessary if a buyer thinks about selling or leasing the property upon its completion and if a fluctuating real estate market may impact their plans and potential income.
3. Unknown finish date
Although not a guarantee, the Contract of Sale should state the estimated duration for the developer to complete the property, usually, the developer will attempt to negotiate flexibility in the Contract to adjust time frames for completion of the property and to allow for any unforeseen circumstances that may delay construction.
4. Review all conditions of the Contract
A buyer must thoroughly review all inclusions and warranties of the Contract. Buying a property is a significant commitment, so buyers must have a comprehensive understanding of what they are agreeing to.
Off the plan Contracts are notorious for being extremely lengthy, difficult to interpret, and full of hidden clauses. For this reason, anyone entering an off the plan Contract should always have it reviewed independently by a property lawyer to ensure that they have a complete understanding of their rights and obligations under the agreement.
On occasion, a contract could give a developer the right to alter the finishes and materials of the property, cutting costs on building a house without the knowledge of the buyers, resulting in a new home that is not to the same standards the buyer initially had in mind.
Enlisting the services of an experienced property lawyer can safeguard buyers against any adverse changes to the property. In addition, a property lawyer can review the Contract of Sale in detail and ensure buyers are aware of any potential risks.
5. Position of the house
Developers advise purchasers exactly where the new property will be situated, such as if the property will be in a court, crescent, or street. The exact location of the property on an estate plan can significantly affect the building’s aesthetics.
A house near a busy area such as a freeway or train station means residents will have to contend with noise pollution. In addition, there are many negative factors buyers may not be aware of if they don’t look over the plan of their new house in detail.
If a property is one of the last sold on an estate, there is likely to be a good reason why other buyers did not purchase it.
6. Location, location, location!
It is beneficial to consider the suburb of your new home. The developer may guarantee a high rental yield, but such a promise is not realistic because a lot can change from the time you enter the Contract and building completion.
Your suburb will need to have steady growth to continue increasing in value. Good facilities and infrastructure usually indicate that the suburb’s average house price will continue to rise.
7. Off the plan exemptions and concessions
Potential buyers may consider buying property off the plan as a good investment opportunity. They see new subsidies introduced by the government to encourage new home buyers and stimulate the housing economy.
While these subsidies can help, stringent laws and conditions still determine who can take advantage of them.
8. Insurance cover
Buyers must ensure they obtain home warranty insurance before signing a Contract of Sale. This is especially important when buying property off the plan.
Home warranty insurance covers a buyer when:
- Building work hasn’t commenced – an insurer should reimburse the buyer the initial deposit paid to the contractor.
- Additional costs are incurred for any defective work resulting from initial construction.
- Before completion, contract termination by the builder results in additional compensation to pay for the remainder of the construction.
Attwood Marshall Lawyers – leading property law firm taking the stress out of buying and selling property
If you’re serious about buying property off the plan, don’t rush headfirst into this type of purchase without considering all the potential risks.
Buyers should not hesitate to seek professional advice from a property lawyer who can help ensure that no stone is left unturned and check every box before entering such a significant arrangement with a developer. Buying and selling property can get emotions running high. It is essential to have a proper understanding of a Contract of Sale before signing anything. Our team can help buyers, sellers, and developers understand their rights and obligations when entering Contracts.
Attwood Marshall Lawyers is a leading property law firm that has helped buyers and sellers achieve successful property transactions for over 75 years. For legal help with a conveyance or general property law advice, contact Property and Commercial Department Manager Jessica Kimpton on 07 5506 8214 or email firstname.lastname@example.org or call our 24/7 phone line 1800 621 071 today.
We also have a dedicated commercial litigation team that handle property disputes and building and construction disputes. Our team is well-versed in alternative dispute resolution strategies to help anyone involved in a building dispute resolve their matter quickly and cost-effectively.
Equipped with a Law Society Dispute Resolution Accredited Specialist, we have an enviable track record of assisting our clients throughout Queensland and New South Wales to achieve satisfactory resolutions without having to embark upon an expensive, lengthy, and uncertain court process.
If you are involved in a commercial dispute, don’t hesitate to contact our Department Manager, Amanda Heather, on direct line: 07 5506 8245 | email: email@example.com | free call 1800 621 071 to find out where you stand.