7 December 2022

Off-the-plan buyers fight to hold developer to their contracts

| Ian Bushnell
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Two people outside apartment construction site

Bell Bateman (right) and another Koko Molonglo unit buyer outside the project. Photos: Ian Bushnell.

A court showdown that would have tested the ACT’s new laws protecting off-the-plan property purchasers appears to have been averted for now after a major developer backed away from efforts to seek more money from unit buyers or have them give up their contracts.

Buyers in the Koko Molonglo mixed-use development in Wright baulked at requests from marketing agent LJ Hooker on behalf of John Krnc’s PK Nominees to review their contracts due to escalating costs and financing issues. They have sought help from class action firm Adero Law.

Adero last week requested LJ Hooker stop approaching buyers or the matter would end up in the Supreme Court.

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Late on Tuesday (6 December), LJ Hooker began contacting some buyers saying it was no longer making the requests and Mr Krnc issued a statement to Region saying PK Nominees was reviewing its options. He said there had been no threat to rescind contracts.

“If genuinely there’s no rescissions occurring and no more of these actions undertaken by either sales agents or developers, then that’s great news for the purchasers,” lawyer Damien Mazur said.

As for the new laws, they remain untested and it would now be a matter of if and when a developer wanted to test them in the future, he said.

Bell Bateman, who bought a three-bedroom apartment in Koko for $495,950 in December 2020, said today (7 December) she had yet to be contacted about the change of heart.

Koko Molonglo development in Wright

Stage 1 of the Koko Molonglo development in Wright will also include a supermarket and shops.

Another buyer, who did not wish to be named, said he had been contacted but was concerned that the developer could delay the project until August when a rescission could be possible under the contract.

Ms Bateman told Region on Friday she was contacted by an LJ Hooker representative who said the project was not going that well and the company was investigating whether buyers could pay an extra 10 per cent to ensure it could be completed, citing increased construction costs.

If that wasn’t possible, buyers could relinquish their contracts, get their deposit back and be paid an amount of cash for their trouble.

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Ms Bateman said having to pay an extra $50,000 could put her finance at risk and would have a huge impact on her repayments, given recent interest rate rises.

Mr Markham said other buyers reported the same experience of being advised of a risk to the completion of the project, being offered the same deal and being sent a standard deed.

“The descriptors are always general problems – general building delay, general increased costs, but no actual evidence,” Mr Markham said.

Koko Molonglo development in Wright

Working is continuing on Koko Stage 2 at the rear of Stage 1.

Legislation passed last December protects buyers from sunset and development delay clauses in illegitimate and unjustifiable circumstances.

The new law requires developers to provide 28 days’ notice to buyers if it wishes to rescind a contract and state the reasons for doing so.

If the buyer does not agree, they must seek permission from the Supreme Court and satisfy the Court that an order is just and equitable.

The law was prompted by cases of developers ripping up contracts in Canberra’s white-hot property market.

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Mr Markham acknowledged developers had a right to review and rescind contracts under certain conditions but not without producing specific evidence.

He said it was not enough to back out of a contract simply because it was no longer as profitable.

“If the costs are genuinely out of control, then absolutely, if you can prove that there was a situation where the developer was facing imminent insolvency and that the organisation could not complete the build, then yes, absolutely you could walk away and renegotiate.

“However, there is a difference between this and saying we don’t want the profit margin that we’re going to get. Worse still, we don’t like the fact that these units have gone up hundreds of thousands of dollars in value.”

Mr Krnc said PK Nominees was reviewing options for funding the project’s huge cost escalation that had recently occurred, including proposals for purchasers to review.

“At no stage have PK threatened to rescind contracts, all sales contracts are in place, and any changes can only be varied by mutual agreement between both parties,” he said.

“PK is committed to delivering a high-quality development to all buyers, with work continuing and a completion time as yet to be determined.”

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LJ Hooker Project Marketing ACT Managing Director Andrew Ligdopoulos noted the well-publicised climate of increased costs and delays in the building industry brought on by globally unforeseen circumstances that were impacting the availability of finance.

“What I’ve observed is the developers searching for a solution, as the legislation requires them to attempt, which can avoid that worst-case scenario for the buyers,” Mr Ligdopoulos said.

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devils_advocate11:18 am 09 Dec 22

Developers manage their financing risks by undertaking pre-sales. They should not be able to walk away from contracts unless their are clear contractual provisions which do not render the contract “uncertain” or otherwise leave a key matter to be decided by a party unilaterally.

Buying off plan these days is a huge risk, no way I would be putting my money and trust in any developer.

The developers could just sell them closer to completion.

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