When Can a Buyer Terminate an Off-the-plan Contract?

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When a buyer enters into an off-the-plan contract to purchase a particular lot in a community title scheme, years may pass before the development is completed, title created and able to be transferred into the buyer’s name.  During this time, market conditions may change, building schedules may be extended, or it may become apparent that the finished product will be something quite different from what a buyer had originally contracted for.  Generally it has proven very difficult for buyers who have changed their mind to get out of these contracts.

However, there are limited grounds upon which a buyer may be able to terminate an off-the-plan contract namely:

  • Misleading and deceptive conduct;
  • Failure to disclose;
  • Changes / Variations to the disclosure statements; and
  • Developers failing to complete construction before the sunset date.

When a buyer desires to terminate an off-the-plan contract, they should promptly seek legal advice as to their options.

Misleading and Deceptive Conduct

A buyer may be able to rely on the Australian Consumer Law and terminate a contract if they were induced to enter the Contract as a result of misleading or deceptive conduct on the part of the Seller. The difficulty for buyers in alleging such behaviour is that the situation can often turn into a “he said, she said” argument.

Nevertheless, it is not impossible for a buyer to be successful in terminating a contract on such grounds as seen in the case of Nifsan Developments Pty Ltd v Buskey.[1] The Buyers in this case had communicated to the developer’s agent that they were seeking to purchase a Gold Coast apartment with unrestricted views. The Buyers subsequently entered into a contract to purchase a penthouse apartment from the developer after its agent confirmed that the views from the penthouse would be uninterrupted. However, the Buyers later found out that the developer had sought approval to develop a separate building in close proximity to their apartment which would limit the Buyer’s view. Relying on s 52 and 53A of the Trade Practices Act 1974 (Cth) (since superseded by the Competition and Consumer Act 2010 (Cth)), the Buyers were successful in having the contract declared void and obtaining a refund of their deposit.

The court formed the view that the misleading representations made by the sales agent induced the Buyers to enter into a contract with they otherwise would not have entered. It is worth noting that this case seemed to turn on the issue of credibility, with the judge viewing the buyer’s recollections as “generally reliable” as opposed to those of the sales agent whose evidence was viewed as “not convincing”.

Failure to Disclose

A buyer has the right to terminate an off-the-plan contract prior to settlement (within certain prescribed time limits), if the seller has not provided the buyer with a disclosure statement in the prescribed form.

If a substantially complete disclosure statement is provided, a buyer may still be able to terminate the contract prior to Settlement if it is later revealed that the statement contains inaccuracies. In such circumstances the Body Corporate and Community Management Act 1997 (Qld) allows a buyer to terminate if they would be “materially prejudiced if compelled to complete the contract, given the extent to which the disclosure statement was, or has become, inaccurate”. Additionally, any buyer purporting to terminate must do so in writing, within the requisite time period.

When considering whether a “material prejudice” exists, the courts will consider the buyer’s specific circumstances from an objective point of view. In Gough v South Sky Investments Pty Ltd,[2] a group of buyers had each contracted to purchase a luxury Gold Coast apartment in a ‘residential tower’ called ‘The Oracle’. The contracts were entered into in 2005-2006, after which the value of luxury apartments in the area began to decline. In 2010, SSI advised the buyers that the ‘residential tower’ in which lots had been purchased would in fact function as a hotel/resort, and would be branded as ‘Peppers Broadbeach’. As a result, some buyers claimed that they would suffer material prejudice if they were forced to complete their contracts for a myriad of reasons, including:

  • That their lots would decrease in value because of the Peppers branding and the operation of a hotel/resort by Peppers;
  • That it would be more difficult for them to rent their lots, or appoint an off-site letting agent because of the hotel/resort being operated;
  • That the operation of a hotel/resort that focused upon short-stay tenants was likely to accelerate the deterioration of common property.

Ultimately, the court found that the buyers did not provide evidence to prove that the branding of the tower as ‘Peppers Broadbeach’ had an adverse effect upon the value of their apartments.  As a result, they were unable to prove that they would be materially prejudiced if forced to complete the Contract.

Sunset Dates

The sunset date in an off-the-plan contract is a date in the future (usually between 12 and 36 months from the date of contract) within which the Developer must complete the construction of the property and have the Community Titles Scheme established (and title to the lot to be purchased created).

Section 217B of the Body Corporate and Community Management Act 1997 (Qld) also provides buyer’s with a right to terminate an off the plan contract if the Seller does not settle the contract by the statutory sunset date. When a contract does not specify a sunset date, the seller must settle the contract within 3.5 years after the day the contract was entered into by the buyer (unless otherwise agreed by the parties). Importantly, a buyer will only be able to terminate after the expiry of the sunset period if they are not in default under the Contract. This means for example, that where a vendor is ready, willing and able to provide a registrable instrument of transfer, a buyer cannot simply refuse to attend at settlement, wait for the sunset period to expire, and then terminate their contract without consequence.

[1] [2011] QSC 314.

[2] Gough v South Sky Investments Pty Ltd (recs and mgrs apptd) (in liq) [2011] QSC 361

Article written by Andrew Lind (Director).