A recent judgment of the Supreme Court of Queensland illustrates the inherent danger in purchasing a property “off the plan” and the potential cost implications for a Buyer in the event that his or her obligations are not fulfilled under the Contract of Sale.
In the matter of Orchid Avenue Pty Ltd v Parniczky & Anor, Ms Parniczky in her capacity as trustee of the Parniczky Family Trust signed a contract on 16 April 2008 to purchase an “off the plan” unit as part of a Surfers Paradise development. The agreed purchase price was $1.56 million and the Contract provided that settlement was to occur after registration of the relevant plan and the creation of a separate title for the unit. Ms Parniczky personally guaranteed the payment of the purchase price, the performance by the purchaser of its other obligations under the Contract and indemnified the seller for any loss occasioned or costs incurred as a result of any breach.
In accordance with the Contract, settlement became due on 15 September 2011. With property values having dropped as a result of the Global Financial Crisis, Ms Parniczky refused to complete the Contract.
The seller terminated the Contract for failure to complete on 22 September 2011. In doing so the Seller retained the deposit of $156,000 and resold the apartment for $796,000, incurring expenses in the vicinity of $72,000 in the process.
The Seller applied to the Court for damages for non-performance of the Contract against Ms Parniczky, both personally and in her capacity as trustee. Ms Parniczky also filed a Counterclaim which asserted that:
- The Contract was void and unenforceable because it had been induced by multiple oral misrepresentations regarding the availability of finance;
- Ms Parniczky was not authorised to enter into the contract on behalf of the Trust;
- That the Seller failed to mitigate its loss; and
- The interest rate on unpaid money and expenses under the Contract (being 15%) was a penalty and therefore unenforceable.
The matter went to trial on 22 July 2015 however. Ms Parniczky failed to appear. The judge was satisfied that Ms Parniczky was aware that the trial was to commence on 22 July 2015 in advance of that date.
The Court awarded damages in the amount of approximately $1.24 million, being the purchase price less the deposit and resale value plus the expenses associated with the resale. The Court also awarded interest up to 22 July 2015 at the rate of 15 % as provided by the contract.
This case is illustrative of the impact of market fluctuations on property prices. The difference between the original contract price and the resale value was $764,000 – just less than half of what Ms Parniczky agreed to pay.
When considering purchasing an “off the plan” property, it is crucial to be aware of the potential for market fluctuations between the time of signing and the time of settlement. It is often difficult to predict the length of time that will lapse between signing a contract and settlement taking place, and further what unforeseen circumstances may effect the property market. Let this case be a lesson to buyers to be aware of both the risks and rewards of entering into agreements of this nature.
Finally, all prospective buyers need to be aware that the developer has up to 5 and a half years to complete construction and registration of the property. This time frame is permitted by the legislation and prevents buyers from terminating for delay until it has expired.
If you are considering purchasing an off the plan property, please contact the Commercial Department of McLaughlins Lawyers to discuss your contemplated purchase. As with any agreement, we highly recommend you seek legal advice before signing to ensure you are aware of the obligations, rights, and risks associated with the transaction before you agree to be bound by them.
Author: Kristy Collins
Partner: Ian Kennedy