Long Term Sales Contracts to Developers

We are noticing an increasing trend in long term sales contracts to developers which were entered into at the height of the market that some developers are having difficulty in settling and seeking to renegotiate or delay settlements.  For some this is a by-product of decreased land values and a tightening lending market with higher interest rates, but for others it is an attempt to renegotiate at a lower current market value rather than the higher price negotiated at the peak of the market. 

Our advice would be when entering into a contract with a longer settlement date would be to make sure that you have at least a 10% deposit and do your due diligence on the purchaser. Is the buyer a $100 shelf company or a company/purchaser with financial clout?  Should you seek a personal guarantee?  For directors of companies which have signed up to buy properties using a $100 shelf company vehicle, don’t be under the misapprehension that you can just walk away if you can’t complete the deal.Directors’ duties in the Companies Act 1993 can end up imputing personal liability with sections such as s136, which states: “A director of a company must not agree to the company incurring an obligation unless the director believes at that time on reasonable grounds that the company will be able to perform the obligation when it is required to do so.” 

We may see increasing instances when sales fall over and a vendor resells at a lower price, vendors seeking to recoup losses from directors personally if they can prove that directors didn’t take due care before entering into a contract to buy the property.