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Real Estate
Considering buying off-the-plan? Purchasers beware.
H & H Lawyers successfully defends a vendor developer against claims brought by the purchaser of an off-the-plan property in the Supreme Court of NSW. While the benefits of buying an off-the-plan property are often highlighted to a purchaser, the decision in Xu v Lindsay Bennelong Developments Pty Limited & Ors [2020] NSWSC 1692 confirmed the importance of having any terms that are “non-negotiable” for the purchaser to be clearly expressed in writing in the contract for sale of land. Facts In this case, the plaintiff was a purchaser of an off-the-plan property. During the handover inspection of the completed property, the purchaser discovered that there was only one car space attached to her property despite the representation being made prior to entering the contract for sale of land that there would be two car spaces. Subsequently, the purchaser brought a claim against the former vendors of the subject property and the substituted vendor, to whom the contract for sale was novated to, after exchange of contracts. Other relevant facts include: 1. prior to purchasing the property, the agent made representations to the purchaser that there would be two car spaces attached to the property; 2. prior to purchasing the property, the purchaser’s solicitor inquired and the former developer confirmed in writing that the property had two car spaces; 3. the front page of the contract of sale of land did not specify how many car spaces were attached to or formed part of the property; 4. the draft floor plan and draft strata plan of the property which were attached to the contract of sale marked that there are two car spaces allocated to the property; 5. there was no other mention of there being two car spaces attached to the property in the special conditions to the contract or anywhere else in the contract; and 6. it was a special condition to the contract for sale that the purchaser acknowledges and agrees that the vender may make alterations, from time to time, and vary the building floor plan or the draft strata plan, as it sees necessary or desirable. The plaintiff claimed that the defendants breached the fundamental term and purposes, or alternatively, an implied term of the contract, by only transferring one car space with the property instead of two car spaces. The plaintiff also claimed that, in doing so, the defendants engaged in misleading and deceptive conduct or false representation under sections 18 and 30(1)(e) of the Australian Consumer Law (“ACL”) and sought specific performance for the defendants to transfer one more car park under sections 237 and 243 of the ACL. The then Chief Judge in Equity, Ward CJ dismissed the plaintiff’s arguments and held that: 1. the contract was for the sale of a unit with a single tandem car space. However transferring two car spaces was neither a fundamental term nor an essential implied term of the contract; and 2. the representations that the plan would include a space for two cars were clearly made. Nonetheless, such representation does not amount to misleading or deceptive conduct in circumstances where the developer had reasonable grounds to make such representation at the time and the plaintiff suffered no loss by relying on the promise. Key takeaways While this case is not to be generally applied to all circumstances in relation to off-the-plan purchases, a purchaser of an off-the-plan property should be mindful of standard special conditions attached to contracts for sale of off-the-plan properties which are designed to allow a vendor developer to make changes (to a degree) to a draft floor plan or draft strata plan. As in this case, even if the court finds that the draft plan which formed part of the contract was varied, such variation may not constitute a breach of a fundamental or essential term of contract. Thus, a purchaser of an off-the-plan property must scrutinise the terms and conditions before entering into the contract for sale. Further, if the purchaser seeks to rely on any representations made by an agent or vendor prior to entering into the contract, such representation should be expressly and unequivocally included in writing in the contract to make sure the vendor makes good on the promise. The purchaser should also be mindful that the contract would generally provide a limited time to seek rescission. A vendor should also consider the litigation risks associated with the sale of off-the-plan properties. Even if the vendor is successful such as in this case, being involved in court proceedings is costly and time-consuming, and may impact its reputation as a developer as well as open the gate for other purchasers to bring a similar claim against the developer. Disclaimer: The contents of this publication are general in nature and do not constitute legal advice. The information may have been obtained from external sources and we do not guarantee the accuracy or currency of the information at the date of publication or in the future. Please obtain legal advice specific to your circumstances before taking any action on matters discussed in this publication.
Real Estate
Can a buyer cancel Real Estate Contract if there is a defect?
Q1: I recently purchased a studio apartment through a real estate agent. It was only recently I found out that a year ago there had been a robbery. Can I cancel the purchase of the property? A1: This is a defect generally referred to in Japan. With regards to defective goods in Australia, there are several laws regarding the Sale of Property. First of all, it is the purchaser’s responsibility to investigate the existence of defects before the purchase of any good (Caveat Emptor). However, when the property is purchased through a real estate agent, there are separate laws which protect buyers of property. For example, under s52 of the Property, Stock and Business Agents Act (NSW) 2002, real estate agents are prohibited from entering into a contract whereby the real estate agent is aware of any ‘defects’ and does not notify the potential buyer. Additionally, there is a similar provision in the Australian Consumer Law (section 18). ‘Defect’ refers to any important criterion considered by a typical purchaser of property. These defects can include ‘Psychological Stigma’ and according to NSW Fair Trading, the situation in which a grave crime has occurred in an apartment can be considered to be “equivalent to a psychological trauma”. If after the purchase of property it is revealed to be a ‘defective good’, in principle it is impossible to cancel the purchase of property and refund the full purchase amount. However, under the Consumer Protection Act, a lawsuit can be filed seeking compensation. Per section 236, the amount of compensation provided differs based on the difference in the market price and purchase price of the good, assuming the purchaser was aware of the past defects. For example, a year ago, in a robbery case, after considering the effects of the ‘psychological trauma’ it was held that ‘the market price of the property is $600,000”. However, as the real estate agent did not notify the purchaser of the defect, in the case in which the purchaser purchased the property for $750,000, they can sue for the difference of $150,000. However, if the purchaser had purchased the property for $600,000, the individual cannot seek compensation. Apart from nullifying the indemnity contract, the real estate agent may be punished if they were aware that robbery had occurred to the former resident of the property and did not inform the purchaser of such incident (per section 52(1) of the abovementioned Act).