Strata termination sunset changes to brings safeguards for OTP buyers

Monday 16 Nov 2015

Apartment developers who delay construction works to invoke the sunset clause, cancelling the contract with their off the plan buyers, and then reselling at higher prices have recently undermined confidence in buying off the plan.

But soon buyers will have greater protections under changes proposed by the Minister for Innovation and Better Regulation Victor Dominello.

The long suffering purchasers will have to give their consent to the contract termination, or otherwise the developer will be required to give good reason to the Supreme Court. 

“The NSW Government is putting developers on notice that from this day forward if they use a sunset clause for no other reason than to reap a windfall profit at the expense of the purchaser – then they do so at their own peril,” Mr Dominello said earlier this month noting the legislation will apply to existing off the plan contracts which have not yet reached the sunset clause date.

The legislation is intended to provide developers with legitimate reasons, such as planning permission or unavoidable building delays, a get out clause.

“The overwhelming majority of developers are reputable and do the right thing,” Mr Dominello. 

According to property research and investment firm Aviate Group managing director Neil Smoli there are two kinds of developers that operate in this disappointing fashion - those greedy and happy to forgo reputation and longevity in the industry for a quick profit or those inept and inexperienced operators who have miscalculated their financial projections.

I think UDIA NSW chief executive Stephen Albin was right when he said the issue was occurring on the fringes of the industry, but I also sense the dramatic price spurt of the past few years has tempted more of these fringe developers than ever to try it on.

There has also been the odd case where a big Chinese developer has gone to market without any development approval for their project in their haste to secure sales, and then had to restart the sales given council approvals were not forthcoming.

The strata process typically begins with development approvals, then sales, financing and construction, then settlement. The NSW LPI typically approves around 120 new strata plans a month, with a record 158 lodged in July. 

The Owners Corporation Network of Australia noted off-the-plan purchasers have long borne the brunt of an off-the-plan purchase system weighted heavily against them. 

Thick, complex contracts which favour the developer. Forget buyers putting a caveat to protect their purchase. That's banned.

Currently dispossessed buyers rarely mount the costly court case, as they typically end up being out of pocket and also out of home.

I sat in on the recent court case involving a Wolli Creek project that buyers claimed was beset with nine specified issues of delays but the judge ruled only one, the piles installation had failed to have reasonable endeavours made. And that contributed six weeks only, so the developer won the case. There was an interesting adjudication that the developers’ failure to construct the building in accordance with the original development consent did not necessarily constitute a breach of their obligations.

As much as the termination of contract is a huge issue, I'd suggest substantial changes to apartment floorplans are occurring more regularly with distraught buyers left with little choice but to cop it.

 

http://www.propertyobserver.com.au/forward-planning/advice-and-hot-topics/47989-strata-termination-sunset-changes-to-brings-safeguards-for-otp-buyers.html

- Jonathan Chancellor, Property Observer