Legal question - OTP and keeping deposits

Discussion in 'Legal Issues' started by cimbom, 4th Dec, 2012.

  1. cimbom

    cimbom Member

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    Hello,

    As some of you know, my husband and I purchased an OTP apartment mid last year. Construction has not started yet. Today I got a call from the REA saying that the developer would like to get our permission to extend the sunset clause and give them extra time to complete the apartment (2 years from now). As a "bonus", they are offering an upgraded oven and stovetop.

    As much as I liked the apartment and floor plan, I am seriously considering rescinding the contract. I asked the REA if we would get our deposit back straight away. She said she thinks we'd have to wait until completion but will double check with the developer.

    My question is - is there a legal basis for this? The deposit is in the REA's trust account so I'm not sure why the developer would even have a say once the contract between us no longer exists.

    Thoughts?

    Thanks :)
     
  2. Aaron_C

    Aaron_C Finance Broker

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    Check your contract. Usually the deposit is refunded immediately because no contract exists anymore. An extension of a sunset clause is a major variation so you have grounds to rescind.
     
  3. cimbom

    cimbom Member

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    Thanks for your reply. I will probably speak to our solicitor tomorrow. I'm just confused as to how the contract can stipulate anything once it no longer exists. Am I missing something?
     
  4. Aaron_C

    Aaron_C Finance Broker

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    The whole 10% deposit is part of the contract. If the contract is rescinded, then the basis for that 10% deposit no longer exists, and therefore it must be returned. Otherwise they will be holding the 10% unlawfully and it will be tantamount to stealing.
     
  5. Terry_w

    Terry_w Member

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    Rescinded means avoiding the contract from the beginning, ie as if the contract never existed. So you should get your deposit back immediately if you rescind.

    If you terminate then this is different.
     
  6. cimbom

    cimbom Member

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    Good to know - we will be rescinding then. Will be great to have the money back in our hands and to be free from the developer's whims. Never again :p
     
  7. kathryn d

    kathryn d Member

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    Will you receive interest on this money?

    If not, if may be a great way for developers to access cheap money.
     
  8. Terry_w

    Terry_w Member

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    Depends on the contract. Possibly.
    If it is deposited into an agents trust account then no interest - and the developer doesn't get access to this money, usually.
     
  9. Jamie M

    Jamie M Mortgage Broker - Oz Wide

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    Hi Cimbom

    Might be a blessing - the OTP market in Canberra isn't looking too good at the moment. Way too much supply.

    Best of luck with it - hopefully there's no dramas with getting out of the contract and getting your money back.

    Cheers

    Jamie
     
  10. cimbom

    cimbom Member

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    Looks like it will be pretty straightforward. Our solicitor said that they have a letter written up which they will send to the developer, as some of their other clients purchased in the same development and are also rescinding. We should get our deposit back within a week or two.

    I will be putting the money into a term deposit and seeing how the market goes over the next few months. We would still ideally like to buy in the same area (but an existing apartment), just not sure how prices will go as there are another three developments currently in progress.
     
  11. b simpson

    b simpson Member

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    How generous of them :rolleyes:
     
  12. VYBerlinaV8

    VYBerlinaV8 Member

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    Hey Cimbom - was this unit in Canberra?

    I heard a developer spokesperson on the radio the other day, and he was saying that Canberra has a problem in that much of the land zoned for new units is away from the city centres, so although there's lots of zoning, many people who want a unit don't like the available locations, and thus there aren't enough presales to get the financing sorted. As such, once the current crop of developments complete, there may bee quite a lot less units becoming available.

    FWIW, I think you've done the right thing. I'd never buy OTP.
     
  13. Mazda

    Mazda Member

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    Hi cimbom, good to know that you are not agreeing to the extension :)

    Not too sure if the developer would release the deposit to you right away. They may declare that the contract is still valid until the stated 'sunset' clause and hang onto the deposit. Best of luck on that though, hopefully they allow you to rescind ASAP.

    I had a similar issue with the Coburg OTP in Victoria where, after 6 months they asked me to sign an extension 'just to fulfil funding regulations, won't impact the build-time at all'. I said no and my conveyancing lawyer sent a letter declining the extension and asking for the deposit back. They replied that the contract is still valid and asked me to reconsider the extension.

    I only got my deposit back over 1 year later :(
     
  14. RPI

    RPI Member

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    Every OTP contract I have seen requires that if any interest is earned, it is the property of the buyer.

    As an aside, I was drafting an OTP contract for an inner suburban Brisbane 20 storey building today. First one above 3 stories in the area, it looks great too. Unfortunately can't say where yet, but developer has done some iconic developments in Brisbane.
     
  15. cimbom

    cimbom Member

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    Really? That's terrible. Our solicitor said that she thinks we'll get it back next week so fingers crossed nothing like that happens.
     
  16. VYBerlinaV8

    VYBerlinaV8 Member

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    Was this unit in Canberra?
     
  17. cimbom

    cimbom Member

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    Yes it was
     
  18. tom32

    tom32 Member

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    I'm glad you mentioned your solicitor. You don't want to be writing anything about rescinding anything till you are absolutely certain that you can.

    At this stage you may not be able to rescind the contract and you could end up with a faulty termination which happens all too frequently. The number of times you hear of people getting dicked around and then when sick of a contractor, sack them, and be the ones stuck with damages for loss of profit, overhead, etc for work not even started.

    Remember they have not gone over the sunset clause yet (it seems to me from your post?) and it is likely they have not advised you that there is no way they can reach it at this stage. I would tread very carefully and get them to let you out if possible rather than instigating things yourself before the sunset clause has triggered.

    Tread carefully.
     
  19. cimbom

    cimbom Member

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    An update on the situation - my solicitor has checked the contract and said it is fine for us to rescind and get our money back. However, they then said "the seller has not yet made a decision if they will accept your recission" and that we will need to wait until early next year to find out. I'm confused by this. If they make the offer then doesn't it imply that they have accepted it? I don't get why they get two opportunities to make a decision.
     
  20. kathryn d

    kathryn d Member

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    Maybe they are testing the waters?
    Maybe they have a few projects going, and want to delay one..or more.

    If no one wants to wait..they may proceed?