Letters that were “chatty but hopefully scary” were approved by a property developer to be sent to people who’d bought apartments off the plan two years before, in the hope they’d walk away from their contracts, a court was told on Tuesday.

If those buyers could be persuaded to voluntarily rescind their contracts, the developer stood to earn an extra $4.9 million in sales, on top of the $15 million expected, by reselling the units in a rising property market, it was alleged.

Joel Redelman, the managing director of property developer OZD Pty Ltd and developer and builders Parker Logan Property, bought a troubled quarter-built, 16-unit building in Surry Hills from its original owner with the intention of finishing it off.

His barrister Greg Sirtes said he had “come in as a white knight to save the project”.

Letters were later sent in Mr Redelman’s name on behalf of the original owner, fashion businessman Christopher Kalowski, rescinding the pre-sales contracts of 12 of the purchasers of apartments in the ill-named ‘Harmony’ block in Mary Street, Surry Hills.

However, under new laws introduced in 2015, a developer cannot force rescission on buyers; if they do not agree to the termination, he must apply to the NSW Supreme Court for permission to allow them.

Both developers are now arguing at the court’s Equity Division that they are entitled to tear up the contracts and cancel sales because building works were delayed and went over the sunset date, the deadline for the completion of the building. The buyers, on the other hand, say that the rescission order isn’t just, equitable or contractually permissible.

Barrister Peter Braham, for some of the buyers, said that when Mr Redelman was first approached by a real estate agent about the possibility of him taking over the project, he had only two question: whether all the apartments had been sold; and whether the original developer would be open to rescinding the contracts.

Mr Redelman admitted rescissions were a consideration. “It was something we were contemplating if the project was not going to be profitable,” he told Justice Rowan Darke under cross-examination. “It would be possible we would make more money with rescissions, yes.”

Even eight months before the sunset clause was to be reached, he had sent an email to his lawyer saying, ‘I want to get out of all the contracts for sale and resell the apartments’, Mr Braham alleged. Mr Redelman denied that was his intention, saying he’d merely been seeking his solicitor’s advice.

In the event, he bought the unfinished block and land from Mr Kalowski for $7.15 million but then had trouble raising finance. Both St George and NAB “didn’t want to be associated with a development where there had been rescissions,” Mr Redelman said, “because there’d been some bad press about them”.

That followed a series of stories by Fairfax Media on developers deliberately delaying works in order to trigger the sunset clause and resell apartments for a higher price. The revelations led to the introduction of legislation designed to prevent the practice.

Instead, with Mr Redelman’s approval, a lawyer drafted letters – one of which the lawyer described as “chatty but hopefully scary” – saying that they couldn’t give any estimate as to when the project would be completed – if at all – and that Mr Kalowski would be “devastated” if the purchasers were to incur a loss.

Mr Braham said the letters were carefully worded to engender trust, but strike fear, anxiety and uncertainty into the minds of buyers. Mr Redelman said he didn’t think about it, but admitted the line about Mr Kalowski was false.

In addition, a letter was sent to the purchaser of one unit telling her it might be made smaller, shrinking from 62sqm to 45sqm, and asking if she wanted to rescind. At the same time, Mr Redelman instructed his architect to draw up plans to make it larger, and had described it as being made bigger to his financier. He said he didn’t recall that.

“We were assessing all the options,” Mr Redelman said. “We were making an assessment of the viability of the project and looking at how many rescissions might be received and the possible costs.”

At one stage, there was also an email to the real estate agents who’d originally sold the apartments off the plan, with a proposal to pay them $15,000 for every rescission they could extract from their buyers. Another email to a potential financier contained a price list assuming every buyer had rescinded, with the prices “considerably higher” than the original prices.

The case continues.