Differences in Off the Plan sales

Thursday, 01 April 2010

The decision of the Supreme Court of New South Wales (Court) in the case of Higgins v Statewide Developments Pty Ltd (2010) NSWSC 183 is a decision of particular importance to developers and purchasers of ‘off the plan’ properties.

Brief summary of the facts

A contract for sale and purchase (Contract) was entered into between Statewide Developments Pty Ltd (Developer) as vendor and Mr Damian Higgins (Purchaser) as purchaser for the purchase of an apartment and 2 car spaces in the development (Property).

There was a draft strata plan annexed to the Contract (Draft Plan) and the Property had been marketed by the Developer’s agent as having 180 degree views of the water. Following registration of the strata plan (Registered Plan), the Purchaser inspected the Property and discovered that a wall had been constructed which obscured the water views from the Property.

The Purchaser tried to rescind the Contract by notice given to the Developer. The Developer rejected the purported rescission and served a notice to complete the Contract. Completion did not take place and the Developer served a notice of termination of the Contract and sought to retain the deposit and recover damages from the Purchaser.

Rescission of the Contract

The Purchaser argued that:

  1. it had a right to rescind the Contract if there was a difference between the Property as shown in the Draft Plan and the Registered Plan (including a difference in the area or lay-out of the interior of the lot) which substantially detrimentally affected the Property and that a reference to the Draft Plan included a reference to the marketing model of the development and the Property; and
  2. the rule in Flight v Booth(Rule) should apply, that is, there was a misdescription of the Property because the Contract promised something other than that which the Developer could deliver.

The Court held that:

  1. Reference to ‘the property as shown in’ the Draft Plan could only be a reference to the description or definition of the Property in the Draft Plan. As the parties did not include a reference to the marketing model in the Contract nor include a stipulation about uninterrupted water views, the Court was unable to draw a conclusion that the difference in the Property constructed to the Property in the Draft Plan was one that substantially detrimentally affected the Property.
  2. There was nothing wrong with the unit per se, it was the view that was the problem. Generally, contracts seek to exclude the operation of the Rule by giving the Developer scope to vary the development. The Contract required the Developer to convey to the Purchaser an apartment and 2 car spaces in the designated spaces as depicted in the Draft Plan and the Developer was able to convey this on completion. Accordingly, the Purchaser failed on this claim as well.

Purchaser’s cross claim for return of the deposit

Section 55(2A) of the Conveyancing Act 1919 provides that ‘in every case where the court refuses to grant specific performance of a contract, or in any proceeding for the return of a deposit, the court may, if it thinks fit, order the repayment of any deposit with or without interest thereon’.

For the reasons set out below, the Court held that it would exercise its discretion and require the Developer to refund the deposit:

  1. The Developer dishonoured representations made by it (through both display of the model and the Developer’s agent) that the Property had water views and these representations had been taken into account by the Purchaser as an important consideration in deciding to purchase the Property.
  2. As the Developer’s damages were assessed as zero, the Developer’s right to keep the deposit did not sit happily with the justice and equity of the case.

Summary

Given the decision in this case, developers of ‘off the plan’ developments need to be cognisant of the pitfalls of discrepancies between a draft strata plan and the actual construction of the development which may result in disputes with purchasers. In this case, the Court ruled in favour of the Developer but it was a hollow victory given the Developer was required to return the deposit to the Purchaser due to representations made by the Developer’s agent and a failure by the Developer to demonstrate loss as a result of the default by the Purchaser.


Related Articles


For further information, please contact:

Elias Stephen
Partner | Sydney
P +61 2 9334 8675
Dennis Bluth
Partner | Sydney
P +61 2 9334 8513
Martin Downing
Partner | Sydney
P +61 2 9334 8603
Peter Garrett
Partner | Sydney
P +61 2 9334 8761
 
 

For information on our Real Estate and Projects Group click here.