Changing minds: off-the-plan contracts aren't as certain as you might think

The same developer won again in court when an off-the-plan buyer, also of an apartment in “Tennyson Reach”, tried to back out because the balconies would be smaller than originally promised.

Mirvac also went to court over another million-dollar-plus sale, again in the same development, after a buyer claimed to be “materially prejudiced” by the inadvertent omission of a closed circuit television security system from a Disclosure Statement’s assets list. Although the system would be installed, the court decided for the buyer.

This month (December 2010) Maris Dunworth, wife of well-know Rugby Union test-player David Dunworth, badly lost her case against Mirvac. After unsuccessfully alleged misleading and deceptive conduct, she was ordered to complete her $2.16millionTennyson Reach contract, pay interest of more than half a million dollars and indemnity costs which may come to almost a hundred thousand dollars.

By the same token, developers have also lost contracts (and court cases) when buyers successfully terminated on the basis of salespersons’ unfounded and misleading promises about future values. A Gold Coast investor won on this ground by producing two witnesses who had been told the saleslady’s same porkies.

Occasionally a buyer escapes an unwanted contract in reliance on a hitherto untested technicality. When this happens, and there are wider implications across the property industry, governments may quickly legislate to close the loop-hole -except for existing contracts where the issue has been legally raised. Recent radical amendments to Queensland’s Property Agents and Motor Dealers Act, the contract killers’ favourite “book of incantations” (as one Supreme Court Judge described it) clearly resulted from real estate and property industry pressure.

A few years ago, after the Queensland Court of Appeal ruled that a developer’s off-the-plan contract was validly terminated because the wording of one clause did not comply strictly with a statutory consumer-protective formula, all hell broke loose at the big end of town. An army of developers, aware that their unsettled contracts contained similar defective clauses, successfully lobbied the Government to change the law retrospectively.

Much the same developer-friendly, property-industry-and-revenue-protective, retrospective result occurred in Victoria when a Tribunal ruled that developer Mirvac (again!) could not enforce its standard contract because deposit clauses breached the law. Most of the State’s off-the-plan contracts would have been similarly at risk without the urgent legislative relief the Government helpfully provided.

Sometimes unhappy buyers settle their contracts then go to court. One such buyer successfully sued, post-settlement, the estate agent who mislead him about waterfront-access to the multi-million-dollar Sydney Harbour home of actors Paul and Linda Hogan.

Some years after sales of units in the upgraded Canberra International Hotel settled, disgruntled buyers sued the marketing agent and developer for rescission of their contracts and for damages. These investors failed to convince the ACT Supreme Court that anything in the project’s promotional brochure constituted misleading conduct.

Finally, I must confess my own contract killing role over the past ten years. Most, if not all, of my terminations of clients’ recently-entered-into contracts have been successful with none ever going to court. Invariably the folk I act for are novice property investors who find themselves cold-called then stitched-up by marketeers, before being bound to over-priced off-the-plan apartments and town house contracts or to over-priced house-land packages. Usually I have given only preliminary advice to the sort of investors described earlier who wanted out of long-done deals at the eleventh hour - before passing them onto colleagues who need to be more litigious contract killers.