The High Court allowed property developer Kenny Li to cancel contracts and keep $128,000 in deposits received after aggrieved purchasers lodged caveats against head title to a proposed South Auckland subdivision without justification and in breach of a ‘no caveat’ clause. Purchasers complained a ‘sunset clause’ was being used as leverage to force payment of an increased price.
In August 2018, Wila Developments got Auckland City consent for a 24 lot subdivision at Argento Avenue in Flat Bush. Over the next year, sections were sold off the plan whilst Wila set about complying with Council engineering and legal requirements for issue of individual titles. Wila was managed by Guoxiong Li, otherwise known as Kenny Li.
The High Court was told each contract contained a ‘sunset clause:’ either party was at liberty to cancel if individual section titles were not available by end of March 2021.
With a rising market, a number of purchasers on-sold their ownership interest before section titles were available.
Come ‘sunset date,’ Wila Developments cancelled. A number of purchasers objected, with Wila now offering them first refusal on a new contract for their same section, at an increased price.
They alleged Wila had deliberately delayed satisfying Council requirements, so as to trigger the ‘sunset clause.’
Justice Lang ruled Wila had taken reasonable steps to get individual titles issued within time. Council staff were under a heavy workload. Processing delays were exacerbated by downstream effects of the covid-19 pandemic. Contractors expediting the process on behalf of Wila were in regular contact with Council over perceived delays. More regular contact might have been beneficial, Justice Lang said, but this criticism has the benefit of hindsight. Equally, pestering Council staff might have caused antagonism with further delays resulting.
Terms of sale required refund of deposits if cancellation arose because of the ‘sunset clause.’ But further terms allowed Wila to keep deposits paid by any purchasers who lodged a caveat against the head title; a so-called ‘no caveat’ clause.
Justice Lang ruled Wila developments could retain deposits totalling some $128,000 paid by purchasers who did caveat the head title.
Seizing their deposits did not amount to a penalty, otherwise void under contract law. Rather, it was compensation for costs incurred by Wila; legal fees challenging successive caveats registered without justification and penalty interest Wila was forced to pay second round purchasers when transfer of title to these buyers was delayed because of caveats lodged.
Lu v. Wila Developments (Ormiston) LP – High Court (18.04.24)
24.095