House and land packages seem to be making a resurgence. To be clear, when I use the expression, I mean a separate land contract with the land developer and a separate building contract with the builder.
For some time it was hard to get funding for these arrangements and they became less common. However, I have seen a few recently – and they are causing problems which we will discuss below.
For those that read the newsletter to the end – I will insert a new section at the end of this and future newsletters being the most ridiculous thing I’ve come across this week. All those lawyer jokes are not undeserved!
Recent Issues
As many will be aware, in recent times the value of many building lots has at best remained static while building costs have increased.
Some clients therefore face the problem that the builder is refusing to proceed without a substantial price increase – as after unanticipated delays building costs have increased – while the developer is forcing settlement of the sale of the land. In some cases, with interest rate rises, the client is struggling to get a loan based on the original contract values and can’t afford a price increase even if they were prepared to agree to it.
This leaves the property buyer in a poor position.
The Developer
The developer, once the subdivision is registered, will likely force the property buyer to settle the purchase of the land. If the value of the land hasn’t increased the Developer will be reluctant to release the buyer. The consequences for the buyer for not settling will typically include the loss of their deposit and potentially an exposure to costs in addition to this.
The Builder
Meanwhile the builder will be pushing back and seeking a price increase. Whilst many building contract don’t allow for this – builders have found a range of interesting grounds to try to justify price increases. In some cases, the builder has intimated that if the client doesn’t agree to the price rise the building company will go into liquidation. Presumably, the builder would re-sign new contracts with compliant buyers in a new company name.
The Builder is generally open to just terminating the building contract.
The Buyer
However, the buyer also needs to be conscious that many current off-the-plan land contracts include obligations to commence construction within 12 months and complete construction within 12 months. Hence, simply settling the purchase of the land and agreeing to terminate the building contract with the builder isn’t really an option.
If you do agree to terminate the building contract it’s unlikely that you will get the deposit back.
In addition, the price increase sought by the builder may still be less than the increased cost of getting a different builder to quote.
Some Suggestions
To avoid finding yourself in this position, I have a few suggestions.
Firstly – be very aware of the sunset period under the land contract. The sunset period (of ten called the Registration Date or some other expression) is the date by which the developer must secure the registration of the plan of subdivision. Typically this is three years or more.
If the developer hasn’t got the land subdivided by this date then you have the right to terminate the contract and get your deposit back. Ideally, you should negotiate this down to something that is closer to the period in which the developer is promising during the sales process.
Secondly – ask to insert a special condition into each of the land contract and the building contract that specifies that each contract is interdependent on the other. If the land contract doesn’t settle within the agreed period then the building contract is terminated and any deposit is refunded. If the builder terminates the building contract then you have the right to terminate the land contract.
Finally, if you are about to sign contracts typically hundreds of pages long for hundreds of thousands of dollars – GET SOME ADVICE first. The hundreds of dollars you spend with us could save you thousands of dollars and much heartache later.
You can book an appointment for a phone or zoom call with me by clicking here….
The Most Ridiculous Thing…
This week I came across a covenant registered on title that said:
“No swimming pool shall be constructed on the burdened lot unless the swimming pool is designed to be koala friendly ….”
I wonder if that means koala change rooms and a eucalyptus bar?
Next Week
Next week we will revisit the subject of building inspection conditions. Specifically, we will look at the difference a few words make and some tricky situations encountered by clients buying and selling land.
Lewis O’Brien
Your Preferred Property Lawyer