The family have a new home canceled just before completion due to a legal clause
An Auckland family have had the contract for their new home canceled as it neared completion, by a developer invoking a clause which a property lawyer said had barely been used two years ago.
The Yuan family received a legal letter on February 23 stating that the contract was terminated.
Tony Yuan visited the property two and a half weeks prior and shot a video showing that the carpeting had been laid, the kitchen and bathrooms installed and the bedroom closets completed.
The developer, Kawerau Development (a subsidiary of Precise Homes North Shore) was able to terminate the contract for the New Lynn townhouse because a clause in the sale and purchase agreement gave the developer the right to declare construction ” impracticable” and to cancel the agreement without giving any reason.
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Tony Yuan says buyers of off-plan contracts bear all the risk, because if markets go up, prices go up, but if they go down, they still have to pay the agreed sum.
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Yuan said he and his mother, Kate Sun, had been looking forward to owning their first home in New Zealand, but now they were back to square one.
“We lost our first home and we are still sad. We always try to recover from what has been lost,” Yuan says.
A settlement has since been reached between the family and the developer, but Yuan said the family would still need property prices to fall further to allow them to buy again.
Clause 21 of the contract stated that the agreement was conditional on the vendor confirming within six months of the date of signing the agreement on December 19, 2020 that it was satisfied that the development was feasible.
If the condition was not met, the seller was not required to disclose the reason for declaring it unenforceable and terminating the contract.
Three days after the contract was canceled, the developer gave the family the option of keeping the property for an additional $150,000. The developer said this offer was also made before the contract was canceled.
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Jan McNamara says she would like to see more buyer protections in sale and purchase agreements for new construction.
Law firm director Jan McNamara said she often sees similar clauses, and they’re meant to allow a developer to cancel a contract at the start of the project.
But she said it was rare for such a clause to be used so late in a project, and that they would usually be satisfied once a development had begun.
McNamara said that two years ago these types of feasibility clauses were almost never invoked, but lately they have become more common, being invoked in as many as one in 20 contracts that contained them, almost always at the start of construction.
She said Yuan’s lawyer should have made sure he was happy within six months of signing the contract, or told them about the risk of late cancellations.
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Yuntao Cai, director of Precise Homes, says many developers are struggling with record building costs.
“Unsatisfied, to me, you’re leaving your client open to that exact situation,” she said.
She said it might be possible to challenge the cancellation of the contract on good faith grounds, but that was expensive and often beyond the reach of first-time home buyers.
The Sun family said they intended to file a complaint with the Law Society about their former lawyer and warned others to seek similar clauses.
Yuan said he and his mother read about the pitfalls of new construction contracts, including how sunset clauses could be used by developers to demand higher prices if constructions weren’t completed by a certain date.
He said Sun checked that only the buyer could invoke the sunset clause on the Nikau St property, but said the couple were unaware of the powers granted by Clause 21.
Yuntao Cai, who goes by the name Sky, is the sole director of Kawerau Development Ltd and Precise Homes.
Cai said the project was deemed unfeasible due to rising construction material and labor costs, which meant the project was starting to lose money.
“We had to protect our business interests and we have to survive in this tough market,” he said.
Chris McKeen / Stuff
An image of Clause 21 of the family’s contract, which the family says others should look up if they buy out the plans.
Cai said the situation would be difficult for the Yuan family and they should have been contacted sooner, but the company only recently realized that the development was losing money.
The Yuans were represented by Auckland-based firm Lucy Chu Lawyers.
Chu said his company pointed out to Kate Sun after she met her financial condition that the seller had their own condition to meet under Term 21.
If this condition is not met by the seller by June 18, 2021 at the latest, any party may terminate the contract at any time.
She noted in her file that the buyer did not intend to use the termination clause and that only the seller’s party could do so.
“When it was June 18, 2021, we did not change the Term 21 condition on our system, or ask it. She didn’t ask us either.
She said the promoter’s lawyers did not inform her of their decision to use Term 21 before the company received the cancellation.
The Chief Executive of the Fair Trade Chief Executive’s Trade Commission, Vanessa Horne, confirmed that the watchdog had received a complaint about Kawerau Development but was unable to provide details.
CLARIFICATION: This story has been updated to clarify that a settlement has been reached between the Yuan Family and Kawerau Development. Updated April 16, 11:50 a.m.