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New House

We're regularly approached by buyers of “off the plan” investment properties who wish to explore their legal rights to escape the purchase contract or damages for misleading representations. A recent series of Supreme Court cases underscores the need for such buyers to carefully consider their legal position before asserting a right of termination.

The background

In Gough & Anor -v- South Sky Investments [2011] QSC 361 and seven related cases, the purchasers entered into contracts to buy proposed apartments in The Oracle, a twin tower high-rise development at Broadbeach, Gold Coast. The apartments were marketed as iconic, luxurious, up-market and exclusive.

Prior to settlement, the buyers were informed that letting rights had been acquired by the Peppers brand and the towers would be known as Peppers Broadbeach.

The buyers relied on the contract and a disclosure statement which formed part of the contract. It was alleged they had expected and contracted to purchase an apartment in a residential tower known as The Oracle whereas at settlement what was proffered was a lot in a hotel or resort branded as Peppers Broadbeach. Concerns were raised about the likely reduction in security and privacy, accelerated deterioration of common areas and liquor licence implications.

Due to the changes, it was argued the seller had evinced an intention not to be bound by the terms of the contract and therefore the buyers were entitled to terminate.

Some buyers also attempted to terminate the contracts under the Body Corporate and Community Management Act on the basis they would be “materially prejudiced” if compelled to settle given the extent to which the disclosure statement had become inaccurate.

The decision

In all eight cases, Justice Applegarth found the buyers had no entitlement to terminate the purchase contracts. The nature of the development as a residential tower had not changed despite the introduction the Peppers branding and business. There had been no contractual promise that the development would be occupied predominantly by owner-occupiers or long-term tenants rather than holiday makers. Although the development was now known by a different name, this did not mean the seller had repudiated the terms of the purchase contracts.

Similarly he found the disclosure statement had not become inaccurate in any relevant way, save for one exception, but on that issue, the buyers had not suffered material prejudice.

The buyers were ordered to perform the contracts and pay the seller’s costs on the indemnity basis.

The implications

This case illustrates a Court will look to the terms of the contract when assessing whether a seller has failed to fulfil its contractual obligations rather than the buyer’s expectations.

There are at least two lessons for buyers here.

First, buyers need to ensure their expectations about the property to be purchased are sufficiently enshrined as fundamental terms of the contract before signing.

Second, buyers need to be cautious about asserting a right to terminate a contract in “line ball” cases. Buyers commonly scour the contractual documents for a discrepancy that may allow them to escape their settlement obligations but they need to be realistic and objective when assessing whether any discrepancies found will be sufficient to establish a right to termination.

The buyers in Gough have appealed the decision.

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