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the heart-wrenching stories from four families about their devastation on having their contracts in the same building rescinded at the eleventh hour, and calls by lawyers to have the law tightened.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

buyer agent

NSW Office of Fair Trading Property Industry Reforms

Property Industry Reforms set to rule out understated property prices

Agents will have clearer requirements to adhere to as a result of underquoting reforms as part of the proposed property industry reforms. The proposed laws announced by the Minister responsible for Fair Trading seek to prevent prospective buyers wasting time and money on inspections because a property price has been underquoted.

The reforms will restrict agents from advertising or communicating (in writing or verbally) any price for a marketed property that is less than their evidence-based estimated selling price recorded in the agency agreement.

About the requirements

Under the new laws, agents will be required to:

  • include their estimate of a property’s likely selling price in the agency agreement
  • record the evidence that informed their estimate and provide the vendor with this evidence in writing
  • ensure a price range is no greater than 10% of the bottom figure (eg. $500,000-$550,000)
  • ensure advertising does not include any imprecise or unclear statements such as ‘offers over’ or ‘offers above’ or $XXX,000+. Importantly, an agent must never include any price in an advertisement that is less than the estimated selling price in the agency agreement
  • record all quotes provided while a property is marketed
  • notify the vendor if the original estimated selling price is revised. The agent will be required to provide the vendor with evidence (eg. market feedback) for their revised estimate and amend the agency agreement. Agents will also need to update any marketing for the property as soon as possible to ensure that no price is communicated that is lower than the new estimated selling price for the property.

Together, the requirements provide a level playing field for agents in a competitive market. They also preserve the vendor’s opportunity to work with the agent to gain the best price possible for their property. Fundamentally, they will enable true competition between buyers whose interest in a property is not solicited on the basis of an agent’s understated price assessment.

Next steps

The reforms to the Property Stock and Business Agents Act 2002 will be before Parliament in the coming weeks. They are expected to commence in early 2016. In developing the reforms, NSW Fair Trading assessed comparable laws in other jurisdictions and consulted with key representatives from the real estate sector.

To help address questions you may have about the reforms, we have included further details on our Underquoting reforms page. You should also refer to the Agents – questions and answers section on this page to gain a deeper understanding of the changes and how to comply.

We will be providing additional information to support agents and consumers in understanding the new requirements closer to when the reforms will commence.

You can read more about these reforms by visiting the Fair  Trading website – click here.

Underquoting Real Estate

Written by Sean Nicholls for the Sydney Morning Herald on 4 September 2015

In moves to stop underquoting real estate, agents will be forced to nominate a property’s estimated sale price and adhere to that figure in advertising or face losing up to tens of thousands of dollars in fees and commissions.

The estimated selling price will be set in a formal agreement between the seller and the agent as part of a NSW government crackdown on the practice of under-quoting.

Advertisements containing the phrases “offers over” or “offers above” or any similar phrase will also be prohibited, and a hotline will be established for complaints.

The new rules are contained in amendments to the Property Stock and Business Agents Act due to be introduced to parliament next week as the spring property market gets under way.

underquoting real estate

The Minister for Better Regulation, Victor Dominello, said the new laws – which fulfil an election promise – would provide “clarity” for agents, sellers and buyers and strengthen consumer protection. “Under-quoting is illegal and misleads potential buyers looking for their dream home,” he said. “This legislation will help NSW Fair Trading identify and catch the rats in the ranks.”

 

The Department of Fair Trading defines under-quoting as making “a statement in the course of advertising a residential property for sale that is less than the agent’s true estimated selling price as recorded on the agency agreement”.

Fines of up to $22,000 already apply to agents who deliberately “falsely understate the estimated selling price” of a property. Only one under-quoting prosecution is now under way, against Bresic Whitney in Darlinghurst. There have been no successful prosecutions under the current act.

Data released by Mr Dominello’s office shows 263 complaints about under-quoting were lodged against agents in the past two financial years.

The most complained about areas were Castle Hill with 18 complaints, Epping with 14 and Neutral Bay with 13.

The small numbers are believed to be a consequence of consumers not being aware of what constitutes under-quoting and therefore not contacting Fair Trading.
Malcolm Gunning, president of the Real Estate Institute of NSW, said the government had consulted the industry to ensure the new rules would be “clear and, we think, effective”.

Written by Sean Nicholls for the Sydney Morning Herald on 4 September 2015