‘We feel betrayed’ Young couple lose house to sunset clause

A young couple are the latest buyers to lose their home after developers invoked a sunset clause, and MBIE are now investigating. Geraden Cann reports.

When Fraser Galbraith and Marina Person paid a deposit on their first home at the Rosier Park development in Glen Eden, Auckland, in January last year, they were relieved to have secured a property in an overheated market.

Then in late November, the couple received an email from developer F&P Dream Homes’ lawyers saying to keep the newbuild property they would have to pay an additional $150,000.

The couple weren’t alone – every other one of the seven buyers in their block also had to walk away after being hit by the same increase, F&P figures show.

The young couple say they couldn’t afford the new price tag of $775,000, lost the property, and found themselves competing in a market that CoreLogic figures show had leapt 23 per cent in between when they paid their deposit and received the letter, taking the median house price from $824,400 to over $1.01 million.

But for Galbraith and Person, who currently live with Galbraith’s parents, losing their first home means delaying starting a family.

‘‘We feel betrayed – absolutely betrayed, and we feel like we’ve been used,’’ Galbraith says.

F&P Dream Homes managing director, Josh Fan, says the increased price of the properties is due to the higher costs of material and labour, and delays resulting from Covid-19.

He also defends the move to increase prices, saying early buyers secured the homes on average for $630,000 for a twobedroom and $690,000 for a threebedroom.

‘‘The market rate for those homes now is $900,000 and $1 million respectively. So even with an extra $150,000 the purchasers would be gaining if they had elected to stay in,’’ he says.

F&P Dream Homes were able to request the additional amount by citing a sunset clause in the purchasing contract.

Sunset clauses are typically intended to protect both parties if build milestones are not met by a certain date, allowing either the builder or buyer to walk away if certificates of compliance are not issued within a certain timeframe.

In the case of Galbraith and Person’s property, that date was set for December 20, and the couple were told they would have to accept the higher price by December 10 or the sunset clause would be invoked and they would lose the property.

Fan says sunset clauses were for the benefit of both parties, and a developer cannot meet the sunset clause if lockdowns and material shortages make it impossible for the development to be completed.

He says most in the industry advise against sunset clauses, and instead propose firms insert a force majeure clause – which essentially frees both parties from liability or obligation when an extraordinary event occurs that’s beyond the control of the parties.

After repeated media reports of home buyers losing their newbuilds to developers citing the sunset clause to demand higher prices, the Ministry of Business, Innovation and Employment (MBIE) is now monitoring the situation.

Commerce and Consumer Affairs Minister David Clark told the Sunday Star-Times: ‘‘I am aware of media reports alleging the misuse of sunset clauses and MBIE informs me it is monitoring the situation for signs of increasing prevalence.’’

The price increase of Galbraith and Person’s home equates to a 24 per cent rise – almost identical to house price increases in the surrounding area.

But CoreLogic’s Cordell Construction Cost Index, which is based on a combination of labour, material, plant hire and subcontractor costs, showed in the year ending September the cost of building only rose by 5.5 per cent.

Fan says these calculations are skewed, because F&P construction contracts were signed in early 2020.

‘‘When they started the total construction costs were $2050 per square metre. Those costs currently stand at $2800 per square metre,’’ he says.

The cost of interest on typical second tier debt used by construction companies has also increased, he says, as projects are pushed out to take into account lockdowns, material shortages, backlogs at Auckland Council, Watercare and Vector.

‘‘These are real developers, on the ground, dealing with the dayto-day costs of development. The data scientists do not always see until months later the real cost,’’ Fan says.

Galbraith, however, says the mismatch between CoreLogic’s figures and the price increase on his property seemed ‘‘nefarious’’.

Galbraith says he and Person received a discount as early-bird buyers, and he was overjoyed to have found a property that was between his mother’s and grandmother’s homes, and in a neighbourhood he knew.

‘‘I would be able to feel very comfortable knowing my child was going to go to the same schools and probably high schools I went to,’’ he says.

Galbraith is 24 and Person is 25, and he says their hopes of buying locally have now been crushed.

Galbraith says communication from F&P was limited while they waited for their home, and after a frustrating wait he decided to go to the construction site himself.

Being an industrial electrician, he donned his uniform and went to Rosier Park in July and November. Images he took show his block still in the early stages of construction while other properties appear close to finished.

The couple have been together since high school and have been saving for a home for years, and Galbraith says they should be in a good position to buy. Neither carries student debt and both have professional jobs.

Galbraith says it’s frustrating to know the developer had the couple’s $62,500 deposit for the best part of a year, used it to fund the project, and now could simply hand it back.

Fan rejects any suggestion that the couple were used for their deposit.

‘‘The same logic applied would mean the person who paid the deposit on the promotional unit price in Block K would be using F&P homes to try and leverage the capital gain in the housing market,’’ Fan says.

‘‘Those people stood to gain nearly $300,000 at today’s market rate on the property F&P undertook to deliver them.’’

The couple say they offered an additional $75,000 to keep the home, bringing the total to $700,000 – their maximum budget before they lost the ability to use Government grants. Their offer was refused, Galbraith says.

The new expected completion and title transfer date is expected to be around October.

Fan says F&P Homes wants to finish its subdivision as it had planned and everything had been done to get people into their new homes.

‘‘More than 70 per cent of them have seen that. They also get to realise the up-tick in the value of the home, not F&P Homes.’’

The entire development had 61 terraced homes, of which 39 had their prices increased after the deposit was paid.

As well as the seven in Galbraith’s block, 32 buyers in five other blocks also had price increases, and four walked away after being asked to pay an additional $30,000, Fan says.

The couple have their deposit back, and hope to rejoin the market soon.

Consumer NZ spokeswoman Gemma Rasmussen says her organisation is aware of a growing issue with sunset clauses, with some buyers being taken advantage of and being asked to pay more amid alleged delays of new builds.

‘‘Our advice is to engage in good legal advice and seek out a property law expert before signing on with any new development,’’ she says.

‘‘Buyers looking to protect themselves from unforeseen price hikes could look to include a buyer-only sunset clause.’’

Galbraith says he will be contacting the Commerce Commission.

An MBIE spokesman says it has not received any formal complaints about this issue, and is not currently considering any legislative changes.

The spokesman also says that under the Fair Trading Act, it is important that any statements developers make about the purpose of sunset clauses and about how they will be used are true and not misleading.

‘‘I am aware of media reports alleging the misuse of sunset clauses and MBIE informs me it is monitoring the situation for signs of increasing prevalence.’’ David Clark, Commerce and Consumer Affairs Minister