Adelaide homebuyers secure legal win in their battle with developer that severed contract

A landmark court win in South Australia means two homebuyers who had their contracts cancelled by a developer during Covid-19 can finally move in – and it could have ramifications for others.

Homebuyers who had their contracts terminated by a development company in South Australia after years of delays will finally move into their newly-built townhouses after securing victory in a landmark legal battle.

Prameykant Kakkad and Arun Vashishta hope the case will lead to new rules over the use of so-called sunset clauses, which enable a developer or homebuyer to pull out of an off-the-plan contract if a project is not completed by a pre-specified deadline.

The duo brought legal proceedings against the developer of a townhouse project in Adelaide’s Kurralta Park – Ameronix Pty Ltd and Treana Holdings Pty Ltd – in 2023, claiming they failed to use “reasonable endeavours” to complete the development by the sunset date, before attempting to terminate the contracts in a bid to resell the townhouses for a higher price during a property boom.

In his judgment handed down in the District Court, Auxiliary Judge Wayne Chivell agreed the developer’s decision to terminate the contracts with Mr Kakkad and Mr Vashishta represented a breach of contract.

Auxiliary Judge Chivell rejected claims from the developer – headed up by director Gingui (Otto) Zhu and his brothers and fellow directors Qingwei (Ben) Zhu and Qingning (Reno) Zhu – that missing the construction deadline was out of their control due to a shortage of labour and materials during the pandemic. The directors are not being personally sued.

The court orders for specific performance of the contracts mean Mr Kakkad and Mr Vashishta will be able to move into their new homes more than five years after they signed their off-the-plan purchase contracts.

Prameykant Kakkad and Arun Vashishta hope their case will lead to new rules over the use of so-called sunset clauses. Picture: RoyVPhotography

Mr Kakkad said that while he was relieved by the court’s decision, he’d spent more than $350,000 on legal and other costs, and argued reforms to state property laws were needed to protect homebuyers in the future.

“I’m really thankful to the court, they gave the justice to us,” he said.

“This is my dream house, my first house, and I’m waiting still. I’ve been renting over that time; the past three years have been very stressful, it’s had an impact on my health.

“Changes are really required because at the moment the developer and the builder are getting the benefit from the consumer. We need to take care of the consumer as well.”

As part of a review into SA’s building and construction industry, the state government is considering new rules around the use of sunset clauses, including whether to limit when a seller can use a sunset clause to cases whereby they secure the purchaser’s consent or court permission.

That would bring SA into line with Victoria, NSW and the ACT, where legislation has been introduced to prevent developers from unreasonably terminating contracts part way through construction.

Mr Kakkad and Mr Vashishta each entered contracts to acquire townhouses in the Anzac Highway development for $399,000 in September 2020, before construction commenced in May 2021.

A year later they both agreed to pay an extra $50,000 to secure the townhouses following an increase in building costs caused by labour and materials shortages during the early stages of Covid-19. The proposed practical completion date was later extended from June 29, 2022 to the sunset date of December 29, 2022.

However the developer terminated the contracts on January 10, 2023 – two weeks after failing to complete construction by the deadline.

The court heard that Mr (Otto) Zhu blamed the delay on a shortage of tradespeople following the Covid-19 lockdown in July 2021, timber and materials shortages, and delays sourcing window units, joinery and other materials from China.

But Auxiliary Judge Chivell ruled in his judgment that the developer, working more closely with the builders of the project, could have done more to seek alternative suppliers.

A decision to cease negotiations with Mr Kakkad and Mr Vashishta was another sign that the developer intended to trigger the sunset clause, the judgment says.

“This event, combined with Mr Otto Zhu’s actions in extending the proposed completion date to 29 December 2022, and his other evidence, lead me to conclude, on the balance of probabilities, that Mr Otto Zhu was fully aware, in June 2022, that the development would not meet practical completion by 29 December 2022 and decided then that he would terminate the contract after the sunset date was reached and put the properties back on the market at a substantially higher price rather than negotiated with the respondents,” the judgment says.

“Mr Kevin Xu (real estate agent) was in regular contact with the applicants during this time, and they were becoming increasingly anxious about this issue, yet he did nothing to ease their concerns or accelerate the project.”

Lawyer Mark Gustavsson, representing Mr Kakkad in his case, said it highlighted the need for stronger legislative protections around off-the-plan contracts.

“By introducing laws similar to recent laws interstate, SA will address current imbalances so that consumers can be protected from the significant financial and emotional burdens associated with sunset clause disputes,” he said.

Consultation on the building and construction industry review closes on January 31.

Originally published as Adelaide homebuyers secure legal win in their battle with developer that severed contract