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What do you mean I can’t extend the deadline? The sun has set

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Due to a recent Supreme Court case developers who sell land off a proposed plan of subdivision must be careful when they calculate how long they think it will take them to register the plan of subdivision. This article gives a very brief overview of an important case which could impact property developments.

In the case of Solid Investments Australia Pty Ltd (developer) and Clifford & Bailey (buyers), the buyers purchased 2 lots off a proposed plan from the developer. There were 2 separate contracts for each lot. The contracts were conditional upon the developer registering the plan of subdivision within 30 months (1 1/2 years) from the date of the contract. The deadline for registration under each contract was 30/01/09 and 02/02/09. However, the developer also had the right under each contract to extend the date to register the plan.

The developer’s solicitor wrote to the buyers telling them that the developer was extending the deadline to 31/03/09. The buyers rejected that extension and relied on their rights under legislation to end each contract. The developer challenged the buyer’s right arguing that they could extend the date because of a special condition in the contract which allowed the developer to extend the deadline.

The buyers in this case won. These conditions were fairly normal. The judges’ main reason was that the buyer needed to be certain of when a plan of subdivision was to be registered. That is, once a developer and buyer agree in the contract of when a plan of subdivision is to be registered then that date cannot be changed. Until this judgment is challenged, the developer cannot rely on or include a special condition in the contract to extend the registration date. There are risks if they do.

What does this mean for developers?

  • Before signing a contract, developers should do their homework. They should consider consulting with their surveyor, financier, building consultants, project manager, lawyer and Council to try and estimate a realistic timeframe for the completion of the development works
  • If developers have already sold land off a proposed plan of subdivision, they should check their contracts to determine if the development works will be completed on time and whether they risk of the buyer exercising its rights to end the contract if they need more time
  • Financiers may also tighten their lending criteria or require greater pre-sales if is likely that a development will take longer to complete
  • A longer registration date may also not be attractive to a buyer which may affect a developer’s sales and possibly cashflow

If the property market improves and buyers believe they are getting a good deal, then it will be interesting to see what impact this case will have in the future.

For further information please contact one of our Commercial Property lawyers.

Author: Anastasia Tsiounis