The recent appointment of voluntary administrators to the Bathla Group is a timely reminder of the additional risks involved when purchasing property off-the-plan.
If the developer of your project enters voluntary administration, receivership or liquidation, this does not automatically mean the development will collapse or that you can terminate your contract. Administrators and receivers will usually assess whether the project can be completed, refinanced, sold to another developer or otherwise brought through to settlement.
Every contract and development is different. If your project is affected, the following matters should be reviewed immediately.
1. Confirm Your Deposit Is Protected
Your conveyancer should confirm:
- how much deposit has been paid;
- where the deposit is being held;
- whether it remains in the stakeholder’s trust account;
- whether a deposit bond or bank guarantee was provided; and
- whether any part of the deposit has been released to the developer.
For NSW residential off-the-plan contracts, deposit money must generally be held as trust money or controlled money until settlement in accordance with section 66ZT of the Conveyancing Act 1919.
Do not assume your deposit will be immediately returned simply because the developer has entered voluntary administration.
2. Do Not Assume You Can Cancel the Contract
A developer entering voluntary administration or receivership does not, by itself, usually amount to a breach or repudiation of the contract.
You may request that the contract be ended by mutual agreement, but the administrator, receiver or mortgagee is unlikely to agree immediately. Existing off-the-plan sales contribute to the value and financial viability of a development. Releasing purchasers may reduce the project’s value and make it less attractive to lenders or another developer considering taking it over.
Your right to terminate will depend on the specific terms of your contract, the progress of the development and the applicable legislation.
Attempting to terminate without a clear legal right is dangerous. A wrongful termination may itself amount to repudiation, potentially allowing the vendor or receiver to terminate the contract, retain or claim the deposit and pursue other losses.
3. Review the Sunset Date and Contract Terms
Your contract should be reviewed carefully, particularly the following provisions.
Sunset date and extensions
The sunset date is the deadline by which a specified event—usually registration of the plan—must occur.
Check:
- the current sunset date;
- whether the developer has previously extended it;
- whether the contract permits any further extension;
- whether the required extension notices were validly issued; and
- what rights arise if the sunset date passes.
If the sunset date passes without the required event occurring, you may acquire a right to rescind. However, that right must be considered against the precise wording of the contract and the statutory protections applying to NSW off-the-plan contracts.
Insolvency and default provisions
Some contracts contain provisions dealing specifically with administration, receivership or liquidation. Your contract should be checked to determine whether the developer’s insolvency constitutes an event of default or gives you an immediate right to terminate.
These clauses are not included in every contract and should not be assumed to apply.
Your continuing obligations
Expect an administrator, receiver or mortgagee to closely examine whether purchasers have complied with their contractual obligations.
Continue to comply strictly with the contract, including any requirement to:
- pay further deposit instalments;
- provide finance or other information;
- complete identification or AML/CTF checks;
- sign documents required under the contract; and
- respond to notices within the required time.
A purchaser default may weaken or remove an otherwise available right to rescind and may give the vendor or receiver grounds to terminate the contract.
4. Do Not Agree to Contract Changes Without Advice
Do not sign or verbally agree to any proposed:
- variation of the contract;
- extension of the sunset date;
- extension of time;
- change to the property, plans or inclusions;
- change to the settlement arrangements; or
- waiver or release.
This applies whether the request comes from the developer, administrator, receiver, mortgagee, real estate agent or project marketer.
Agreeing to a variation without advice may waive or compromise a future right to rescind, claim compensation or object to a change.
5. Check for Building Work and Rectification Orders
Building compliance issues may affect whether the development can be completed and whether an occupation certificate or strata plan can be issued.
The NSW Building Commission’s Register of Building Work Orders should be checked for any:
- Building Work Rectification Orders;
- Stop Work Orders; or
- Prohibition Orders preventing the issue of an occupation certificate.
These orders may affect:
- the timing and cost of completing the development;
- registration of the strata plan;
- the issue of an occupation certificate;
- the willingness of lenders to continue funding the project; and
- the willingness of another developer to acquire and complete it.
A serious building order may potentially support an argument that the developer cannot perform the contract. However, termination based on anticipatory breach is legally complex and should not be attempted without advice from an experienced property litigation solicitor.
What Should You Do Now?
If you have purchased in an affected development:
- Contact your conveyancer or solicitor and arrange an immediate review of your contract.
- Confirm that your deposit remains protected.
- Continue complying with every purchaser obligation under the contract.
- Do not sign or agree to any variation or extension without advice.
- Forward any correspondence from the developer, administrator, receiver, mortgagee or agent to your conveyancer immediately.
- Keep your finance approval under review, particularly if completion may be significantly delayed.
- Obtain specialist property litigation advice before attempting to terminate the contract.
In the short term, purchasers may have limited practical options while the administrators assess each project. Some developments may continue, while others may be refinanced, sold or delayed.
The key is to protect your position, remain contractually compliant and avoid making a rushed decision that could jeopardise your deposit or expose you to a claim.
If you need to speak to one of our professionals about your current or future off-the-plan purchaser click the link here.