Breach of Contract

[Lizard King]

Can someone help me here?

We made an Offer to purchase a Display Home. CBA knocked back the finance, as they do not lend against display homes if it is in a Display Village.
'Black and White Policy'', I am advised.

The Builder granted us an extension, thought it went through my Settlement Agent formally, now I believe, verbally.

Got a call from the Builder today advising us that they have received a Cash Offer and sold the Display Home.

Are they in breach of the Contract?

Thanks,

Lizard King

 

[D.T.]

Is it in WA?
Why didnt you choose a suitable lender?
If the extension isn't noted anywhere, then its you that is in breach of contract.

 

[Lizard King]

Yes, in WA

Went with CBA, they are our bankers and all properties are with them.

An email was sent to me about the extension.

 

[Terry_w]

Impossible to say without reading the contract erms.

If you had exchanged subject too finance and the periods were not up etc then possibly. This is why you need a lawyer.

 

[HotRod]

The extension was granted verbally but nothing written?

You might be out of luck.

But I'd speak to a lawyer.

 

[Rolf Latham]

Yes, in WA

Went with CBA, they are our bankers and all properties are with them.

.

ouch

They could have told u that straight up

many bankers will take stuff on that they probably shpuld not relying on exceptions.

Working at the edges is rarely a sustainable thing.

There are a few lenders that will take display stock as standard

If your conveyancer has written proof you may have a case - good luck chasing it through the courts though - how do u quantify the loss ?

ta
rolf'

ta
rolf

 

[tobe]

Its a bit of a moot point methinks. How are you going to finance the venture even if they could give you back the contract?

Quite a few lenders exclude, or have specific restrictions on display homes, and not for no reason, they are generally much more risky than normal houses.

If I were you I would be breathing a sigh of relief that I didnt have to go through with the purchase.

 

[Tano]

Just because they are more riskier? How?

 

[tobe]

you are renting to a company rather than an individual or family (this also makes insurance problematic).

The leases are too short for a commercial deal, and too long for the usual residential deal (usually lease for the first year or two with 3 months extensions possible)

They are usually 'overcapitalised', finished to a much higher specification than surrounding houses. They are therefore sometimes sold at a premium to the surrounding properties. This makes bank valuations problematic.

They are invariably in outer suburbs which historically have uneven periods of capital growth, which is usually highly effected by the wider economy. More so than inner suburbs.

There are further points, but these I reckon are the main ones. Like anything if banks are loathe to lend, its worthwhile taking a step back and asking whats so good about a particular deal.

 

[Rolf Latham]

There are further points, but these I reckon are the main ones. Like anything if banks are loathe to lend, its worthwhile taking a step back and asking whats so good about a particular deal.

wise words

They dont say DONT do such deals, they say take an extra layer of DD

ta

rolf

 

[wylie]

On the subject of display homes, how is it that someone I know bought a builder's display home in Queensland, is on the title as per RP Data, and they definitely bought the house, fully furnished for (apparently) $800K but the RP Data shows a vacant block as the only transaction, for $270K ten years ago. I'm fairly sure it was bought built and furnished less than ten years ago.

When they bought, it was to live in, so display purposes were over, and I believe they didn't receive any rent, but moved in, with everything furnished.

I know RP Data can be wrong, but the name is right. Is there something differently recorded when a builder sells a display home?

 

[Paul@PFI]

Display homes are generally a COMMERCIAL property masuaerading as a house. So often a commercial lend - Just depend on lender policies. You may have spoken to CBA resi lending team and that is their area policy. Disagree its a broad policy of all lenders.

You need a broker. Lots of lenders do display homes and they can generate some kickarse rents and good make-good clauses. Furn packaging etc can be excellent too (although somewhat worn). Have assisted on advice for two clients in past and dont recall any complaints.

There are some extra tax issues you need to consider and you will need to be registered for GST. You may even be able to claim SOME or all of the GST you pay on the house unlike other buyers of new property. A small bit of extra advice but nothing major.

I know SMSFs will struggle to borrow to buy a display home from some lenders too but this may have changed. LVRs is lower than 80% (or used to be) and valuations problematic and lease terms (short ?) can be issue too.

 

[handyandy]

Wouldn't the GST become a bit of a nightmare?

You could now have GST claimable and non GST claimable transaction in the one entity. I guess - more accounting fees!!!!

Cheers