Attorney-General Shane Rattenbury is working on a swift legislative response to the increasing practice of bailing out of off-the-plan contracts and putting properties back on the market at higher prices.
The practice is not new, but it appears to have become more prevalent in Canberra’s hot housing market.
Up to 15 buyers of properties being developed by 3 Property Group recently received a letter advising them that the company was rescinding their contracts due to approval delays and being prevented from proceeding with building works for more than 90 days due to circumstances beyond their control.
There are no laws in the ACT preventing a developer from doing this.
Most buyers are from the Allegro development in Throsby, but some have bought into Debut in Wright and another development in Coombs.
In July, there were media reports of the same thing happening to people who had bought into 3 Property Group’s Vivace development in Throsby.
At the time, the company said it had been hit by a series of unfortunate events, including a significant dispute with the original builder.
Sheridan Burnett and her partner from O’Connor put down a 5 per cent deposit in February on a $650,000 three-bedroom townhouse in Allegro.
Their letter came out of the blue in September and they engaged a lawyer.
Ms Burnett told Region Media the townhouse was the only one of its kind in the development, and she had since seen similar plans advertised for $150,000 to $200,000 more.
She said the company has refused to engage with her lawyer and until the matter is resolved, they won’t be getting their deposit back.
Others she has been in contact with have had no choice but to accept the situation to retrieve their deposit, and some believe they can negotiate a way to retain their purchase.While she welcomes Mr Rattenbury’s intervention, Ms Burnett said the issue goes back as far as 2016 when 3 Property Group’s predecessor, Tiger Property, was taken to the ACT Civil and Administrative Tribunal, which recommended regulatory change.
There have also been reports of buyers being asked to pay $100,000 to keep the property or have the contract rescinded.
Ms Burnett, a former consumer protection lawyer, believes the rescission clauses are unfair.
“I think they are a breach of the Competition and Consumer Act because they are unfair contract terms,” she said.
“Sunset clauses protect both the developer and purchaser, but the clauses they’re exercising to rescind our contract do not protect the purchaser, they are wholly to protect the developer.”
Mr Rattenbury said it was a complex situation, but he did not want it to become a trend or a new way of doing business in the ACT.
“We’re looking at it very urgently,” he said. “Many people in the community would consider this to be unconscionable conduct.
“I have heard reports of buyers who’ve had their contract rescinded and the property remarketed at a significantly inflated price.
“If that is the case, I think most people would consider that pretty unconscionable.”
Mr Rattenbury said the Justice and Community Safety Directorate was looking at models in NSW and Victoria where such clauses were regulated.
“From what we understand, the NSW and Victorian provisions apply a degree of oversight and scrutiny to ensure that the developer can’t simply pull out of a contract because they think they can get a better deal,” he said.
“It restricts it to the more traditional use of these clauses, which is where, for example, a developer doesn’t get approval for the development or a range of other valid reasons.”
Mr Rattenbury said the clauses had been around for some time to mitigate risk for both parties, and the expectation in the ACT had been that they be used for that purpose, not for the reasons that they appear to be used now.
He was also concerned about the impact the actions of one developer were having on the market and the construction sector.
“I think it has the potential to reflect poorly on the whole construction sector,” Mr Rattenbury said.
“So many developers rely on off-the-plan sales and pre-sales for getting their finance organised that if this becomes a risk in the community, developers will find they have a serious reputational problem.”
Mr Rattenbury could not say when the legislation would be ready, but “we’re working as fast as we can on this because I am concerned about it setting a new standard”.
It is understood the Office of Fair Trading is also investigating.
For Ms Burnett, even if she recovers her deposit, she and her partner will need to save even more to find a similar property in the current market, a situation others now find themselves in as well.
Ms Burnett and her partner had also registered for the HomeBuilder grant.
Law firm Adero is investigating the merits of a class action without naming any company and wants to hear from people who have had developers tear up their contracts.
Solicitor Connie Park from Baker Deane and Nutt said buyers would always carry a degree of risk because nothing in the contract is going to provide certainty.
“The contracts are vague and provide a lot of discretionary power to the developers to be able to walk away,” she said.
Ms Park said none of the contract terms require the developer to provide proof of their claims about delays.
She said that unless there were significant reforms, such as those in NSW, it may continue to occur.
In NSW a developer can only rescind contracts under sunset provisions if they have either an agreement between them and the purchaser in writing or if the vendor obtains an order from the Supreme Court.
3 Property Group was approached for comment.