CONSTRUCTION LAW UPDATE – No. 602
When the boom ends ~ Avoiding settlement on "off
the plan" contracts
Introduction
Pan Urban Watergate Pty Ltd v Graham, a recent Victorian Supreme Court decision, will be
closely read by developers who sold "off the plan" apartments to
investors during the last period of the recent real estate boom.
Background
Mr Graham
was a busy stockbroker. In mid 2001 he
heard from an agent of the proposed Watergate development in Docklands,
Melbourne. The project was yet to be designed
when he was first contacted. He paid a
$5,000 fee to secure a level 18 penthouse apartment. He said he was told that by signing up early,
he would obtain the apartment at cost price - a 30% discount. He said he was told that the price was to be
$4,500 to $5,000 per square metre and he would be able to sell the apartment
before settlement without any difficulty at a profit of about 20%. He was given a brochure showing an apartment
of 143 square metres with a purchase price of $1,200,000.
In December 2001
he signed a contract and paid a 10% deposit on a $1,067,000 penthouse. Mr Graham said he did not see the plan
when he signed the contract and thought it was the same layout as the earlier
brochure. However, the contract listed
the drawing numbers for the penthouse and gave an address for their inspection.
Mr Graham claimed he first received
the floor plan in August 2004.
By early
2005, the market had turned and the newly completed penthouse was valued at
less than the sale price. Mr Graham
attempted to avoid settlement. The
developer issued proceedings to compel him to complete the sale. There were four aspects to Mr Graham's
defence:
Misleading and Deceptive Conduct
The parties
bought conflicting evidence as to the representations that were made. The oral evidence of the parties was given
some four years after the discussions occurred.
The agent
denied stating that the price would be discounted by 30% to $4,500 to $5,000 per
square metre and said that Mr Graham had been informed of the reduced
apartment size. The court concluded
that, due to his hectic work schedule at the time, Mr Graham had little
reliable recollection of the events and that his account of his dealings with
the agent was riddled with inconsistencies.
While in
this particular case it appears that the credibility of the parties largely
determined the outcome, parties should note that representations that:
entitle the
party to whom the representations were made to claim damages for the difference
between what they received under the contract and what they would have received
if the representations had been true.
In any
dealings of this nature, contemporaneous notes as to promises or
representations can prove invaluable in the event that disputes subsequently
arise.
Domestic Building Contracts Act 1995 (Vic)
The court
noted that the amendments made to the Act in 2004 exclude from the effect of
the Act, contracts for the sale of land on which a house is being constructed
where the house is being constructed as part of a major domestic building
contract.
The difference between the contract and the finished
apartment
Mr Graham
claimed that the 127 square metre apartment was not the 143 square metre
apartment he had signed for and that a variation of this nature entitled him to
terminate the contract under the variation clause in the contract. However, his assertion that he was not aware
of the amended plan showing the reduction in area was rejected by the Court,
proving fatal to this aspect of the claim.
The contract was so uncertain as to be unenforceable
Mr Graham
brought this claim on twin bases; that the amended plan was not incorporated
into the contract as signed, and that the details of the apartment were
insufficiently defined.
The court
found that the arrangements as to identification of the plan were not ideal but
that there was sufficient evidence to support the incorporation of the amended
plan as part of the contract. As to the details of the apartment, the court
found that, notwithstanding the general nature of the plans and specifications,
there was no relevant uncertainty.
Conclusion
Always read
construction contracts and ensure that the plans are as anticipated. Parties promoting "off the plan"
sales can take the following steps to reduce the potential for disputes:
Contributor: Tom Grace
Tom is a
former engineer who ran his own construction company for 20 years before
becoming a construction lawyer. He has
wide experience in the engineering and construction fields and specialises in
the resolution of commercial disputes.
Contact Details:
Tom Grace – Partner
Ph. (08) 8110 8004
Jeanie Elliott – Partner
Ph. (08) 8110 8006
February
2006
This publication is not legal advice. It is for general interest. You should not rely on it without obtaining
legal advice.
Fenwick
Elliott Grace is a law firm that specialises in providing legal services to the
construction and engineering industry.
Office: Level
10, Optus Centre
431
King William Street
ADELAIDE SA 5000
Ph: (08) 8110 8000
Fax: (08) 8231 2922
Web: www.feg.com.au