EXCLUSIVE

A GROUP of 34 first home buyers say they are devastated after losing a major class action lawsuit launched in a bid to prevent their property developer going through with a ‘sunset clawback’.

The group, who purchased 34 out of 94 off-the-plan units in a Wolli Creek apartment complex between November 2009 and April 2010, launched the class action earlier this year against the developer, Kaymet Corporation, after it rescinded their contracts in March 2013.

They argued the developer did not use “reasonable endeavours” to complete the construction and register the strata documents before the sunset date.

With the price of a two-bedroom unit in Wolli Creek having appreciated by more than 75 per cent from $500,000 in 2009-10 to nearly $900,000 today, Kaymet Corporation stands to gain around $13 million by reselling the units at their current market value.

The plaintiffs did not put forward the argument that the developers had delayed construction on their homes in a bid to make more money, so the court was unable to factor that into its decision.

In the NSW Supreme Court on Tuesday, Justice Stevenson dismissed the case, finding the group had not been able to prove that any delays were the reason that the strata documents were unable to be registered by the sunset date.

In his judgment, Justice Stevenson stated that based on a report from quantity surveyors Washington Brown, it would “not have been possible for the defendants to cause the strata documents to be registered” until 14 months after the earliest and nine months after the latest date of registration specified in the contracts.

“Thus, the plaintiffs must show that the delay caused by the defendants’ failure to use reasonable endeavours was in that order,” he wrote. In other words, they would have had to prove a full nine months’ worth of delays during construction.

Kaymet Corporation submitted that because the commercial arrangements were “informal”, there was no building contract or formal program for the works, and they did not maintain an extensive record of the works.

“The effect of the progress of the work by events such as late delivery, congestion, wind, and rain, [was] not documented or memorialised, or therefore analysed and justified. The principal ... knew of the problems, and merely adapted the building strategy to cope with them as best he could,” the defendants’ lawyers argued.

Justice Stevenson therefore relied largely on witness testimony from the pair. “Both impressed me as straightforward, honest witnesses,” he wrote. “I have no hesitation in accepting their evidence.”

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Out of 11 individual periods during which the group alleged the developers did not use reasonable endeavours, Justice Stevenson only agreed with one six-week period relating to piling. “That delay did not cause the defendants to fail to register the draft strata documents by the various dates of registration,” he found.

“The plaintiffs have not shown that had the defendants used reasonable endeavours during that period, the strata documents could have been registered by the dates for registration.”

One of the group, who did not want to be named, said she couldn’t understand how the court could simply accept the word of the developer at face value. “He made his judgment basically on what he was told in the hearing by the development company,” she told news.com.au. “I don’t understand how he can do that.”

In addition to almost $800,000 in legal costs, the group have been ordered to pay costs for the developer, which could bring the total bill to well over $1 million.

With the Kaymet Corporation still holding their $50,000 deposits, the group say they will be lucky to get anything back. “It’s a huge financial burden on me,” the woman said. “I’ve basically lost the opportunity to enter the property market for a while.

She said had “lost faith and trust in the legal system”. “[Developers] need a percentage of units sold to get the development loan, and then they can basically use us as free finance,” she said. “I do feel taken advantage of. I just feel this whole thing is unfair.”

The group, largely comprised of locals with around half a dozen overseas buyers, has 28 days to launch an appeal. She said they would meet on Friday to discuss their options. “Some just want to cut their losses, but a fair percentage are thinking of appealing,” she said.

Another member of the group, who also did not wish to be named, said he felt like he had effectively “burnt” $50,000 for nothing. “I basically fit the bill of a first-home buyer who’s now been totally screwed out of the market,” he said.

“In 2010 I scraped together $50,000, put a deposit down and patiently waited two years. I had my conveyancers obviously checking on progress, and pretty much not getting any response from the developers.

“I’ve been spending quite a large amount on these proceedings. I’m not really in a position to get anywhere close to a 20 per cent deposit now. I’ve been renting for the last two years — I could have been paying a mortgage over that time.”

He said regardless of the contractual requirements, developers had a moral obligation. “Whatever happened to the gentlemen’s agreement? It’s 100 per cent up to the developer the way they deal with these issues.”

Kaymet Corporation’s spokesman said he was happy because “justice has been done”. He said it was a “straightforward contract”. “Two years, both parties can rescind. That’s what happened,” he told news.com.au.

“We tried to give them $2 million to settle the matter with them, and they didn’t want to settle, they said no we want everything. We said okay, let the court decide. They were very cruel people to make a class action. We lost over $2 million in rent.

“You put a lot of s**t [in the media], I know what you want. But that’s what happened, that’s the truth. There is justice in this country, once the judge sees.”

Asked whether, had the market fallen or stayed flat rather than rising by as much as 80 per cent, Kaymet Corporation would have allowed the buyers to go through with the purchase, the spokesman said: “That’s a question I’m not going to deal with.”

REFORMS ‘TOO LITTLE, TOO LATE’

The NSW Government is considering reforms to the Conveyancing Act 1919 to prevent against “exploitative practices”, and is encouraging members of the public to provide feedback to NSW Fair Trading by Wednesday 14 October.

The reforms being considered include allowing only the purchaser to rescind off-the-plan contracts, and requiring the vendor who terminates and resells under a sunset clause to pay damages equal to the difference in sale price between the two contracts.

A spokesman for NSW Minister for Innovation and Better Regulation Victor Dominello said the government was “closely examining this issue to better understand the extent of the problem”.

“Buying a property is one of the biggest financial decisions a person or couple will make in their lifetime, and we need to ensure they are afforded adequate protection against exploitative practices,” he said.

The Wolli Creek buyer said the reforms were a good idea, but there may not be much point anymore. “The market’s cooling off now,” she said. “Developers rescind contracts in a rising market, so it might be too little, too late — especially for us.”

Stephen Albin, NSW chief executive of the Urban Development Institute of Australia, has called on the government to properly investigate the scale of the problem before committing to law changes which may have unintended consequences.

“It is not a common practice among reputable developers in the industry,” he said. “Some people are experiencing difficulty and I feel really sorry for them, and I think we need to stop the behaviour of those on the margins.

“People are making serious investments and some in the industry are acting unscrupulously, [but] some of the solutions may not get the desired outcomes. We need to sit down and look at it very carefully.”

Mr Albin said in the cases that had been brought to his attention, it was usually smaller developers, often undertaking their first project. “They often come from a building background, but being a good builder and being a good developer are two totally different things,” he said.

“By no means are we condoning this behaviour and we want to work with the government to ensure they find a sensible solution to stop this. The whole thing with the property market is people need confidence, and you can get a few fringe players out there that can hurt that.”

frank.chung@news.com.au