Victor Donminello announces plans to tackle off the plan 'sunset clawbacks'

Sunset clawbacks under scrutiny

Purchasers of off-the-plan apartments who’ve been left high and dry by developers rescinding their contracts and reselling the near-finished properties for much higher prices (sunset clawbacks) are to be given fresh consumer protection.

At the moment developers can, quite legally, enact ‘sunset clawbacks’ when their building works run over a year behind schedule, in legislation which was originally introduced to safeguard purchasers having to wait an indeterminate time before completion.

But after a series of stories by Domain about buyers, just before settlement, losing their apartments in the new Surry Hills block East Central, NSW Minister for Innovation and Better Regulation Victor Dominello has announced he will be introducing new legislation to ensure this is never allowed to happen again.

“I hope no one has to face this kind of heartache in the future.”
Suzy Seale

“This is obviously a serious issue and my job is to protect the consumer,” he said. “Obviously, these contracts were intended to protect buyers but it’s too open to exploitation at the moment [by developers].

sunset clawbacks

“We need to find a way of protecting people in this situation. That will be part of a suite of reforms to help prevent these problems.”

Mr Dominello decided to act after the heart-wrenching stories from four families about their devastation on having their contracts in the same building rescinded at the eleventh hour, and calls by lawyers to have the law tightened.

East Central developer Ash Samadi of the Samadi Group said delays in construction were caused by problems with council assents to plans, a blowout in building costs and a loss of guaranteed tenants. The builder, SX Projects, also took a case against Samadi to the NSW Supreme Court over unpaid costs. The recissions (unwinding of contracts) were “collateral damage”, Samadi said.

But for those enduring the collateral damage, the price has been high. Mum-of-two and migration consultant Tara Ende had bought a two-bedroom apartment off the plan in East Central in June 2013 for $890,000. But a few days before settling, and excited to notice another two-bed in the same 42-unit complex was now selling for $1.39 million, she was told the developer had cancelled her contract and was going to refund her deposit.

Similarly, Suzy Seale, 65, and her husband John, 74, bought two apartments, one to live in and the other as an investment. They returned to Australia from China where they’d been working as expats, to discover they no longer had either.

Another buyer who asked not to be named also bought – and lost – a two-bedroom apartment as one of the seven contracts that were rescinded. Reviewing the paperwork led to the discovery that those seven apartments were transferred to a third company the day before the contracts were rescinded, making it extremely difficult for a caveat to be lodged.

A fourth buyer Khek Mow Tan was also told of the recission of her two-bedroom apartment – an estimated two hours before it was resold at a considerably higher price. “Like Tara, we will not buy another property off the plan again, although we had done that a few times before,” she said.

The contract provisions allow a developer, legally, to rescind contracts when completion is delayed and triggers the sunset clause.

But now the group have congratulated Mr Dominello on his move. “I’m very happy to hear that he’s going to protect people in the future against this,” said Ms Ende. “That’s brilliant news and that’s a good reason for going public over this.

“It obviously doesn’t help us, but we’re happy it won’t happen again. We’re now meeting together with a lawyer to consider our options.”

Ms Seale agreed. “I really wouldn’t want this to happen to anyone else,” she said. We acted in good faith, we did our checks and everything seemed right. But then to lose the apartment – especially after waiting two and a half years.

“Because we were effectively out of the market for that time, we are now unable to afford to buy a two-bedroom apartment in the inner city as prices have gone up so much in the interim. It means we’ve been shut out of the market. We’ll have to buy a one-bed, or go to a different area.

“But I hope no one has to face this kind of heartache in the future.”

Written by Sue Williams for SMH Domain on 9 September 2015

A professional buyer’s agent should find out as much as possible about a property and it’s surrounds for their clients before their client exchanges contracts to purchase. An important part of the due diligence process is investigating whether there are any issues with the local council.

The purchaser’s solicitor or conveyancer will examine the Contract of Sale, and review the 149 Certificate that is issued by the local council. However from my experience many solicitors and conveyancers do not have the time or inclination to thoroughly check all of the issues with the local council, and therefore it is incumbent upon buyers’ agents to do those extra checks.

As buyers’ agents, we should independently call the local council and speak to the Duty Planner or Duty Surveyor to enquire whether there are any past or current Development Applications (DA’s) on the property to be purchased, and also for the surrounding properties. Information received may have a negative impact on the property of interest and may affect whether your client is still comfortable to proceed with the purchase.

Previously rejected DA’s may contradict what a selling agent has advised on what is possible with renovating or extending a property. Other issues that may be disclosed are: unauthorised building works, Construction and Occupation Certificates not issued, and also demolition orders.

Many council websites have a DA Tracker section, where you can see a history of Development Applications on any property within the area of that council.

Some recent examples of issues that I have uncovered from local council checks have been:

A federation house was in a Roseville street that the Kuringai Council had recently re-zoned to Residential 2(d3), allowing multi-storey developments. My enquiries through council disclosed that a large new six-storey development would be built behind this house. The client still proceeded with the purchase but the sale price allowed for this issue.
A house in Fairlight was affected by road widening. The client’s conveyancer ran a check through the RTA that stated that there were no road widening issues for this property. However my enquiries through Manly Council revealed that there was a Road Widening order on this property, that had been issued by the council independently of the RTA. The land resumed would have taken half of the lawn and garden space of the house. Our client decided not to proceed with this purchase.
A Maroubra unit, with open views to the city, was to lose those views due to a new development directly in front of this building. We checked the plans of the new development, and the client then decided not to proceed with the purchase.
In summary, it is very important that council checks are done on prospective properties as part of a buyers’ agent’s professional due diligence. Failure to do so could potentially expose you to litigation and liability with clients if adverse issues are uncovered following their purchase.

By Henry Wilkinson – Principal, Homesearch Solutions, for the NSW Real Estate Institute 2011

If you want to buy a home, land or investment property you’ll have to sign a sale contract. The legal work involved in preparing the sale contract, mortgage and other related documents, is called conveyancing. It’s possible to do your own conveyancing, however, most people get a licensed conveyancer or solicitor to do the work for them.

Exchanging contracts and paying a deposit

Exchanging sale contracts is the legal part of buying a home. Before exchange, the agreement is usually just verbal and not binding. Up until you exchange contracts either you or the vendor have the right to change your minds.

After you have discussed the contract with your solicitor or licensed conveyancer and all the proper inquiries have been made, you will be ready to exchange contracts. There will be two copies of the sale contract: one for you and one for the vendor. You each sign one copy before they are swapped or ‘exchanged’. This can be done by hand or post and is usually arranged by your solicitor, conveyancer or the agent. If the agent is handling the exchange, you must expressly authorise them to do so.

At the time of the exchange you will be required to pay a deposit, usually 10% of the purchase price. Following exchange, you have a financial interest in the property so it’s wise to get it insured.

Note: A contract has not been made and is not legally binding before the exchange of contracts and the payment of a 10% deposit.

Cooling-off period

When you buy a property in NSW there is a five business-day cooling-off period after you exchange contracts. During this period you have the option to get out of the contract as long as you give written notice. The cooling-off period starts as soon as you exchange and ends at 5pm on the fifth business day.

A cooling-off period does not apply if you buy a property at auction or exchange contracts on the same day as the auction after it is passed in.

You can waive the cooling-off period by giving the seller a ‘66W certificate’. This is a certificate that complies with Section 66W of the Conveyancing Act 1919. The certificate needs to be signed by your solicitor or conveyancer.

If you use your cooling-off rights and withdraw from the contract during the five business-day period, you will have to pay the seller 0.25% of the purchase price. This works out to be $250 for every $100,000.

Sometimes, there are more buyers looking for homes than there are properties on the market. This is called a sellers’ market. In this case, you may want to organise a quick contract exchange. This way you can reduce the possibility of someone beating your offer and get your building and pest inspections done during the cooling-off period. You will still be able to back out if there is a problem. However, it is important to have the contract checked by your solicitor or conveyancer before you sign it.

It is possible to waive, reduce or extend the cooling-off period with the consent of the seller. If your solicitor or conveyancer has examined certificates from the appropriate authorities, a pest and building inspection has been done and your finance has been approved, then deciding to waive the cooling-off period could make your offer more attractive to the seller.

Settlement

Settlement usually takes place about six weeks after contracts are exchanged. This is when you become the legal owner of the property. The balance of the purchase price and other adjustments are paid on this date.


From NSW Office of Fair Trading website www.fairtrading.nsw.gov.au

What is a release of deposit clause?

Upon exchanging contracts on a property, the buyer is required to pay a deposit.  This is usually 10% of the agreed sale price.  The deposit is held in a trust account by the real estate agent until settlement takes place, usually 42 days later.  This deposit acts as a form of guarantee that the purchaser will complete the sale and the vendor is entitled to keep this deposit if the purchaser pulls out.  At settlement, the purchaser pays the balance remaining in return for the title for the property.

A release of deposit clause (or Section 27) can be inserted into the sale contract for a property, to enable the deposit paid to be released to the vendor after exchange of contracts (ie before settlement).  This is usually requested by a vendor to enable them to then purchase and place a deposit on their new property but can sometimes be sought for alternative uses.

In the past most purchasers’ solicitors advised against this and sought to delete this clause.  If a purchaser objects to early release of the deposit (and they need to state a reason for the objection), the vendor won’t be able to access the deposit until settlement.

Now days though the release of deposit clause is far more commonly accepted and with the rising property prices it in Sydney is often a necessity.  It is in most cases a perfectly acceptable practice, as long as some safeguards are put in place to reduce risk.  We recommend that you seek guidance from your solicitor or property conveyancer.

 

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