Class action looming against Canberra developer 3 Property Group after rescinding contracts for off-the-plan properties

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© Provided by ABC Business The 3 Property Group have used a sunset clause to rescind their contracts. (ABC News: Elizabeth Byrne)

Some Canberra off the plan buyers who’ve lost their home deals after the 3 Property Group rescinded their contracts have stepped up their fight, starting a class action.

The 3 Property Group has done nothing illegal — it’s simply used a sunset clause which allows either party to get out of the contract.

But, the rescinded sales have left dozens of people now out of the housing market, after they received letters saying the company had failed to obtain the necessary approvals to commence the building works.

The letter provided little other detail.

Kieran Hanchard has been working harder than ever this COVID-19 pandemic, so when he was told his contract for his apartment was rescinded, he was devastated.

“Working as a registered nurse, you work hard, you think you’ve done everything right,” he said.

“It was quite a lot of work to get to that [point of purchase] because originally no mortgage broker wanted to deal with me. It was just me trailblazing on my own. Then finally I got approval from the bank.”

Mr Hanchard bought a two bedroom apartment in the FORM building, in Coombs in Canberra’s south, last December. 

But in mid-September, he was told the contract had been rescinded.

“It pretty much pushed me out of the market. So I won’t be able to buy in Canberra,” he said.

And the rescission of his contract carries a greater cost — Mr Hanchard will no longer be eligible for the various government supports he had previously qualified for.

“I won’t get the $15,000 builders grant, I won’t get the position in the lenders mortgage insurance scheme, I was also promised a fridge and all these little small extras with the house,” he said.

“I’m pretty much out of the market … I won’t be able to get in.”

Mr Hanchard joins a number of Canberra homeowners burned by the property group, many of whom will be joining the class action.

For Mr Hanchard, it’s a way of trying to get his home back. 

“Our best outcome would be to have the special clauses that they’ve noted to be void so the contract’s still in place or at least some sort of compensation for it. Or something that will be able to get me back into the market,” Mr Hanchard said. 

“Obviously I could lose some money, but at the moment I already am losing money.

“So I feel like at this point it’s probably worth it to put in a bit more for hopefully a better gain.”

Between 200 and 250 units impacted by contract rescission

Lawyer Rahul Bedi says there are between 200 and 250 units and town houses in the affected 3 Property Group developments at Throsby and Coombs.

He says those who want legal help fall into two groups.

“There’s one group seeking specific performance of their contract which has purportedly been rescinded on, and there’s another group which has moved on and taken their deposit but are seeking damages for the loss of chance of obtaining the property at the price they agreed to obtain the property at,” Mr Bedi said.

Mr Bedi believes both groups have a case, partly based on the lack of detail in the letters rescinding the deal.

“They ought to have provided a very detailed rescission letter to the property lawyers of each of the purchasers, with reference to the contract, and providing all evidence up front.” Mr Bedi said.

“3 Property Group has an interpretation at the moment which we have investigated and are of the view that it’s not sustainable.

“Whether out of or in court action, we are of the view that their interpretation is either unfair or unconscionable.”

Complaints from many impacted by the contract rescissions have prompted the ACT government to consider legislation reforms, possibly modelled on the New South Wales laws in force since 2015. 

Lawyer Robert Ishak says the rising housing market around the time of the 3 Property Group developments had created problems.

“Pre legislation … on an increasing property price market, regrettably, some developers were rescinding contracts not fairly,” Mr Ishak said.

ACT to consider law reforms

Rescission regimes, similar to ones in place in NSW, create a fairer process. 

“[Developers] either need to get written consent from the purchasers, or they need to get consent from the supreme court of New South Wales [to rescind a sale],” Mr Ishak said.

“I think having judicial oversight of the rescission regime within sale of contracts for land has probably discouraged developers from taking advantage in a heated or overheated market.”

But the ACT Property Council’s Adina Cirson said Canberra is a very different market, and a rescission regime may not work here.

“This is a very new problem Canberra’s facing which is why we have never had to regulate,” she said.

Rather, the industry relies on sunset clauses.

Currently, sales contracts contain a sunset clause which allows either the seller or the buyer to exit the deal before settlement. 

Ms Cirson said they have an important role play in protecting builders. 

“What we’ve been seeing is the need for [a] small amount of builders in Canberra to rescind contracts because the cost of building the homes has gone through the roof,” she said.

She said the costs of building some units and townhouses has risen by around $120,000 in six months, leaving developers facing hard questions from their bankers.

The ACT Property Council has welcomed the debate over increased protections, but is wary of following the New South Wales model.

“Apparently it’s not very user-friendly; there are loopholes and it’s a very big bar to have to go to the Supreme Court for any seller,” Ms Cirson said.

The ACT Liberals have also rushed to join the fight, with plans for draft legislation protecting homebuyers to be introduced in the next Legislative Assembly sitting.

The government is also drafting laws, due to be introduced late this year or early next year.

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