Developer rescinds 34 of its own contracts

Wang v Kaymet Corporation Pty Ltd [2015] NSWSC 1459 (6 October 2015)

This is a case where a developer terminated its own contract for the sale of residential apartments.

The developer developed a site for 94 residential apartments at Wolli Creek New South Wales and had sold the apartments “off the plan”. The off the plan contract contained the typical sunset clause that required the apartments to be completed by a certain date. In this case the sunset clause was 30 months from the date of the contract. If title was not registered by that date then either party could terminate the contract.

Usually, sunset clauses are supposed to protect the buyers should the development not proceed in a timely manner. Buying apartments off the plan has its risks to a buyer who might be stuck if the value of the property plummets from the date of entry into the contract and the date of registration of the title.

However in this case the value of the apartments increased significantly. The average price of a Wolli Creek apartment was $500,000 in 2009/10 but by the time of completion they were estimated to be worth around $900,000. Consequently the developer stood to gain a further $6 million if it could terminate its own contracts and start again with new contracts at the increased value.

The developer did in fact terminate the contract and 34 buyers, mostly Asian, sued the developer. They claimed that the developer did not use “reasonable endeavours” to cause the strata documents to be registered by the date for completion.

The buyers contended that the developer had unreasonably delayed the progress of the development at various stages. Initially the buyers accused the developer of deliberately delaying the development but that proposition was subsequently withdrawn, probably because of a lack of evidence.

The case repeated a well-established principle of contract law “that a party to a contract is not entitled, as against the other party, to rely on an event resulting from the first parties wrongful act; that if the failure by the rescinding party to obtain some relevant consent or registration within the contractual period resulted from any default by him in the performance of express or implied obligations, that party is not entitled to exercise a right of rescission otherwise available; and that causation of the failure to obtain consent or registration by the wrongful act must be proved unless the terms of the contract make obtaining the consent or registration a condition for the exercise of the right of rescission.”

In the result the judge determined that the developer was entitled to terminate the contracts. The buyers were not able to prove that the developer did not use “reasonable endeavours” to complete the project and register title.

Comment: Developer or “off the plan” contracts are in many cases signed without a proper perusal or understanding of the terms of those contracts. The developer will usually have the commercial advantage over a buyer because a buyer may be forced to settle if the value drops. However if the value increases, and provided the developer itself is not in default, the developer could terminate a contract and take advantage of a rising market.

The full text of the court decision can be read here:

http://www.austlii.edu.au/cgi-bin/sinodisp/au/cases/nsw/NSWSC/2015/1459.html?stem=0&synonyms=0&query=kaymet

For more information please contact:

Evan Sarinas of Sarinas Legal.

This release is not intended as legal advice and all liability is disclaimed for reliance on it.

13 Oct 2015

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