Can developers cancel signed offers?

News > news - 21 Jun 2007
Attorneys Smith Tabata Buchanan Boyes answer readers’ queries and advises on problem issues on the home front in the latest edition of the Intellectual Magazine

Q. What pitfalls are there in signing an offer to buy off-plan in a proposed development? A friend experienced problems when, having signed a contract, the developer cancelled the sale due to certain approvals not having been obtained and then subsequently offered the property again to my friend – but at a higher price. What do you advise?

A. It would be unusual for a sale agreement NOT to have the types of conditions to which you refer. A prudent developer always makes his sale agreements dependent upon conditions being met, which may not be known at the time of signing. The agreement will normally refer to, for example, the requirement that the developer gets approvals in terms of subdivision/ rezoning within a certain time frame. These conditions should be capable of being objectively confirmed.

Increases in building costs and the effects of inflation do make it necessary for developers normally to review sales if the envisaged time scale for approvals is not met. Also, developers usually make a contract subject to cancellation by them if they have not achieved the number of sales needed to make the scheme financially viable to enable them to proceed. It may be that the developer’s lending institution requires proof of a number of sales before granting the finance needed to proceed with the development.

It is understandable that members of the public view these conditions with suspicion, but there are generally viable commercial reasons for their inclusion in agreements of sale.
If you are buying “off-plan” make sure that conditions are explained to you by the selling agent so that you can make an informed purchase.
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