Government acts to protect off-the-plan buyers against sunset clawbacks

Off-the-plan property buyers are to receive a whole new set of consumer protections against developers who trigger the sunset clause on their contracts and often receive a windfall by reselling for higher prices.

A Domain campaign on sunset clawbacks highlighted numerous apartment-buyers who’ve had their contracts cancelled ? quite legally under the current provisions ? and seen their units subsequently put back up for sale and sold for up to 50 per cent more.

As a result the government called an emergency meeting on Friday to hammer out a solution.

Developers will now only be allowed to rescind contracts under the sunset provision under carefully prescribed grounds and will be obliged to serve a notice on buyers outlining their reasons. If the purchaser does not consent to the rescission, the developer will have to obtain a court order at their own cost.

NSW Minister for Innovation and Better Regulation Victor Dominello was reportedly determined to see change pushed through after calling the roundtable with property professionals from all quarters of the industry, including the Urban Development Institute of Australia (UDIA), the Property Council of Australia, the Australian Bankers’ Association, the Owners Corporation Network, the Law Society of NSW (Property Law Committee), the Australian Institute of Conveyancers NSW Division, the Real Estate Institute of NSW and the Estate Agents Co-Operative.

However, the changes will be too late for the latest victims.

Primary school teacher Monica Lee believed she was starting a whole new life when she put down a deposit on her $500,000 dream home, a new, two-bedroom apartment close to her family home in Sydney’s west.

While the building was being constructed she travelled overseas, planning to return just as it finished, ready for her to move in.

She even started buying furniture, storing it in a garage in preparation for the big day.

And then the bombshell: a lawyers’ letter from developer saying they were now rescinding the 2012 off-the-plan contract as construction hadn’t finished by the due date, in yet another sunset clause clawback.

Lee, 34, says it’s destroyed her life. “I come from a traditional Korean background and I can’t move out from my parents until I have my own place,” she explains. “Now I have to live back with my parents, and my plans are in ruins.

“The apartment is now worth $750,000 and the market has gone up so much in the past three years, I can’t afford to buy another place. I’m angry and distressed and so stressed about everything.”

Lee is now planning a class action with others affected, but her plight is emerging as the tip of a very large iceberg, with developers rescinding contracts at a number of projects in Wolli Creek, as well as at 40-44 John Street in Lidcombe (being run by the family of Auburn deputy mayor Salim Mehajer, where apartment sizes were changed), and even up on the Central Coast at The Entrance.

“It’s a situation that’s getting worse and worse,” says NSW MLC Ernest Wong. “And with the market still improving, with developers able to make a lot more profit if they resell apartments later, then we’re going to see a lot more of this happening.”

It is quite legal for developers to rescind contracts once building works have gone past the sunset clause deadline. But many buyers who’ve been affected claim some developers are deliberately delaying works so they can refund deposits and sell off the units for much higher 2015 prices. Such allegations can be difficult to prove, however.

Lee’s developer has a listed phone number that is no longer connected. One local real estate agent, who sold a few of the units at the development says he hasn’t been able to get in touch with the developer for a year and a half.

The developer’s lawyer says he passed on Domain’s messages, but “My client declines your request,” he reported.

Meanwhile, the buyers of all 40 apartments in the nine-level project have had their contracts rescinded, and Lee is leading a class action against the developer, also lodging an injunction to prevent the units being on-sold for much higher prices.

Another of those affected is Tony Limin Xu, who bought two apartments ? one at $490,000 for himself, his girlfriend and six-year-old son, and the other at $410,000 for his parents. He also paid the Australian government $120,000 to be allowed to bring his parents out from China, so they could all start a new life together.

“Now it’s all gone wrong, it’s really awful,” says Xu, 30, who works as a plasterer.

“My parents supported me while I studied and I wanted to do something for them. I wanted to make them proud of me.

“But I now find out I have made a very bad choice in buying from this development. I wanted to build a new life for them in a new country, but instead and we are all having to live together in my rented unit and the only work they can find is working 12-hour days, from 6am to 6.30pm or 7pm, on a construction site. It’s really tough.”

Lawyer John Bui is acting for a number of the rescinded buyers and says a lot of people have lost a lot of money on sunset clawbacks. “Many people are effectively losing their life savings,” he says. “Mum and dad investors, or young people wanting a place to live, are putting down their deposits in good faith and have now ended up with nothing, and are unable to buy anything else.

“It’s now becoming more and more common. A lot of developers are now trying to rescind as it can be much more profitable for them. The government says they’ll introduce legislation to stop this happening in the future, but it’ll be too late for these people. It won’t be retrospective.”

SMH/ October 23, 2015