3 December 2021

New laws shut door on developers tearing up off-the-plan contracts without justification

| Ian Bushnell
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Fencing around 'Vivace' residential construction site in Throsby

3 Property Group’s ‘Vivace’ development in Throsby is one of several projects in which the company rescinded off-the-plan contracts. Photo: Michelle Kroll.

Off-the-plan homebuyers will be better protected from developers walking away from contracts with new ACT laws limiting the use of rescission clauses.

The ACT Legislative Assembly has agreed to the government’s Civil Law (Sale of Residential Property) Amendment Bill 2021, which aims to protect homebuyers from sunset and development delay clauses in illegitimate and unjustifiable circumstances.

The need for legislation similar to that in other Australian jurisdictions was highlighted by Canberra developer 3 Property Group tearing up multiple contracts without giving sufficient reasons, according to customers.

The developer is facing legal action from buyers who claim it has used the rescission clauses to take advantage of Canberra’s rising housing market and sell previously sold properties at higher prices.

ACT Attorney-General Shane Rattenbury said the new laws would increase confidence for all parties involved in off-the-plan contracts.

“The recent trend of developers rescinding contracts has led to great personal distress for some buyers, as well as undermining confidence in the off-the-plan property purchase market,” he said.

“The housing market is already stressful for buyers, and it is often first-home buyers who are looking at off-the-plan purchases. It was important to act swiftly to address these concerns and protect consumers from rescissions occurring in bad faith.”

Under the legislation, developers will only be able to use sunset and development delay clauses to rescind a contract if the buyer consents, or if they’re permitted by an order of the ACT Supreme Court.

A developer wanting to rescind a contract must provide 28 days written notice to the buyer, setting out the reasoning behind the proposed rescission under the clause.

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“If the buyer does not agree, the developer may seek an order from the Supreme Court permitting the rescission,” said Mr Rattenbury. “However, the developer must satisfy the court that the order is just and equitable in the circumstances.”

The ACT Supreme Court must consider a range of factors, including the impact of rescission on both the buyer and seller.

If a developer wants to pursue the matter in the Supreme Court, it will be liable to pay the costs of the buyer unless they are able to establish that the purchaser has unreasonably withheld their consent.

The new laws are taken to have been in effect since they were introduced into the ACT Legislative Assembly on 9 November, 2021.

“Commencing the reforms from the bill’s introduction was necessary to protect buyers and prevent opportunistic rescissions under these clauses from occurring during the time between introduction and passing of the amendments in the Legislative Assembly,” said Mr Rattenbury.

The 3 Property Group said it had been hit by rising costs and supply chain issues that had affected the commercial viability of projects.

Master Builders ACT had also warned against possible unintended consequences of the legislation, including higher prices.

The organisation’s CEO, Michael Hopkins, said unprecedented building material cost increases, labour shortages and time delays caused by COVID-19 lockdowns had made many projects planned pre-pandemic unviable.

He said no developers would proceed with unviable projects so it was often preferable to rescind a contract and then go back to the drawing board rather than starting a project and then going broke mid-construction.

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The ACT government is culpable for this situation. If the developers couldn’t get $200k more for these properties they would not be reselling. If there was price stability due to competition, sensible regulation and adequate supply, off-the-plan purchasers wouldn’t be so up in arms, they could just take their cash and go elsewhere. The government acts quickly to punish developers, and hopes no one notices they are responsible for the bigger problem of a poor affordability, a supply squeeze and lack of competition. The developers caught out here by a public backlash from buyers are an easy target for a government seeking to capitalise by casting blame elsewhere for price rises that are in fact the result of their own policies.

here we go again….another rise in the cost of housing due to meddling by the government.

As a victim of this conduct, the only people trying to increase prices are greedy developers. The townhouse I bought in February 2021 is being sold for about $250k more than we paid… and still no valid reason for the rescission. There are developers that are doing the right thing, this just stops predatory and unfair behaviour.

Yes, we should remove all regulation because it costs money. That should be the key factor when making decisions in an industry which is purely profit driven. No disasters waiting there.

warnings of higher prices. titters.
I know a young couple now with a child who lost their package just a few weeks ago..they made the contractual committment a year ago.
They’ve been trying to complete, they knew it was coming, were even prepared to pay more not to lose the land, but they could do nothing about it.
It was all about what spurious reason the builder would use after dragging their feet purposely to delay works, because they’d rather take a few hundred thousand off somebody else. If these people had any decency or morality, we would not need laws.

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