5% Deposit forfeited due to compulsory acquisition?

Discussion in 'Legal Issues' started by KTJH, 9th Mar, 2022.

Join Australia's most dynamic and respected property investment community
  1. KTJH

    KTJH Well-Known Member

    Joined:
    14th Dec, 2020
    Posts:
    49
    Location:
    Sydney
    Hi guys,

    Need some advice here on my situation which is causing me a considerable amount of stress.
    Not my intention to name and shame any company here so I'll leave them out for now.
    Short summary of how I got here.
    I engaged with a Buyers Agent company, which helped me acquire a H&L package (house to be built from land).
    Initially all was going well, and then 2 months are settlement took place and after I had paid my 5% deposit for Building Approval, I received a letter from the Department of Transport Queensland that train tracks would be built on my land, which would lead to compulsory acquisition eventually.
    During my meeting with the government officials, my Buyers Agent also joined in and asked if there was any information known prior to this acquisition and they confirmed there wasn't. So essentially, no one foresaw this coming.

    After much consideration and consulting with my conveyancer, I decided I wasn't in a financial position to take the risk of spending 6-12 months building a property to tenant out and sell it at market value when the time came.
    My Buyers Agent berated me for wasting an opportunity like that and advised against it.

    With the help of a lawyer, I submitted an early acquisition request and it got approved several months later. During this process, the builder was notified of the termination of the contract so it didn't go ahead further.
    Currently, I am still waiting for the valuation from the government so that I can proceed with the sale.

    After engaging with my Buyers Agent again, I am told that the 5% deposit is fully forfeited ($13k+) due to the work being done with engaging with people for approval.
    I understand that deposits are meant to be non-refundable in most instances, but given the circumstances, is it not reasonable to terminate a building contract on a piece of land that will be acquired by the government?
    My conveyancer believes that I should still be entitled to a refund.

    Let me know your thoughts!
     
    Last edited: 9th Mar, 2022
  2. The Y-man

    The Y-man Moderator Staff Member

    Joined:
    18th Jun, 2015
    Posts:
    13,436
    Location:
    Melbourne
    As often asked, why were you using a conveyancer and not a lawyer?

    The Y-man
     
    Lindsay_W likes this.
  3. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

    Joined:
    18th Jun, 2015
    Posts:
    41,667
    Location:
    Australia wide
    what does your contract say?
     
  4. Lindsay_W

    Lindsay_W Well-Known Member

    Joined:
    1st Jul, 2015
    Posts:
    4,982
    Location:
    QLD/Australia Wide
    I'd be taking the Lawyers advice/read the contract you signed.
    By the sounds of it, you had the option to proceed with the build, which you did, then changed your mind and decided not to proceed?
    I would be very surprised if you were entitled to the deposit refund but you never know...

    This is for the project that has no timeframe as it's only in draft stages so no indication of when the acquisition would take place? (ie. could be 5, 10, 15 years away?)
     
  5. KTJH

    KTJH Well-Known Member

    Joined:
    14th Dec, 2020
    Posts:
    49
    Location:
    Sydney
    Sorry for the confusion.

    He is indeed a property lawyer who acted as my conveyancer for this purchase. Referring to both conveyancer and lawyer as the same person.
     
    The Y-man likes this.
  6. Peter_Tersteeg

    Peter_Tersteeg Mortgage Broker Business Member

    Joined:
    18th Jun, 2015
    Posts:
    8,130
    Location:
    03 9877 3000
    From your post it's my understanding that this is the builders deposit. It generally has nothing to do with the buyers agent beyond them assisting to facilitate the process. It seems to me that the issue is with the builder, not the BA.

    The builder uses the 5% deposit to organise insurances, permits, etc, for your build. That's work done by various parties which has to be paid for. You then cancelled the contract, but that doesn't negate the need for others to be paid for their work.

    My limited observation of compulsory aquisitions is that the government pays a premium for the property, with a lot of checks and balances on the determination of its market value. Quite often you might be better off by proceeding.
     
    Stoffo and Terry_w like this.
  7. KTJH

    KTJH Well-Known Member

    Joined:
    14th Dec, 2020
    Posts:
    49
    Location:
    Sydney
    I'm really not an expert with this so I'll do my best to pick out parts that appear relevant.

    2.1 Subject to Condition 2.5, the Owner may withdraw from the Contract within the times noted below:
    (a) within 5 business days after the day on which the Owner receives from the Contractor a copy of both the signed Contract, including any plans and specifications, and the **** Consumer Building Guide; or
    (b) if the Contract is given to the Owner separately from the Consumer Building Guide, then within 5 business days after the day on which the Owner receives the second document


    2.4 If the Owner withdraws from the Contract pursuant to this Condition, the Owner must pay to the Contractor an amount equal to any out-of-pocket expenses reasonably incurred by the Contractor before the Owner withdrew from the Contract, plus an additional $100 if the Contractor has provided the Owner with the documents required in accordance with Condition 2.1. If the Owner has already paid more than this amount at the time they withdrew, the Contractor must promptly refund the excess.

    The works conducted as per my Buyers Agent email were:
    1. Working drawings
    2. Soil reports
    3. Engineering + Energy
    4. sent to Private certifier - ( anywhere from 4 - 8 weeks)

    I don't know how much this information will help, but the process started from late May and didn't get up to stage 4 until towards the end of August.
    I sent a follow-up email to my Buyers Agent in early September but never got a response. Shortly after that, when I had to make a decision, my conveyancer communicated with them to put everything on hold and then we terminated the contract.
     
  8. Scott No Mates

    Scott No Mates Well-Known Member

    Joined:
    18th Jun, 2015
    Posts:
    27,095
    Location:
    Sydney or NSW or Australia
    It's now up to your lawyer & valuer to assess & prepare your claim under the Just Terms Compensation Act. Your costs with the builder are probably incidental and may not be covered under the heads of compensation as there was no development application lodged at the time of gazettal.

    You need a valuer ASAP who can advise on the matter.

    In any case, as above, builder's costs are payable but whether you get reimbursed will be dependent upon the interpretation of the Act.
     
    lixas4 and Stoffo like this.
  9. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

    Joined:
    18th Jun, 2015
    Posts:
    41,667
    Location:
    Australia wide
    Can you understand 2.1? Did you withdraw within the 5 day time frame?
     
  10. KTJH

    KTJH Well-Known Member

    Joined:
    14th Dec, 2020
    Posts:
    49
    Location:
    Sydney
    I'm sorry to have wasted everyone's time.
    I was just checking here to see if maybe there was something about compulsory acquisition I was not aware of that may be able to help with this.

    I just got a valuer last month so currently, according to my lawyer, I have to wait until the government does a valuation on their end as well before we can begin the negotiation process.

    Would you by any chance know what I might be reimbursed for? Would any of these apply?
    - valuer fees
    - lawyer fees
    - council/water rates
    - land tax
    - stamp duty
     
  11. The Y-man

    The Y-man Moderator Staff Member

    Joined:
    18th Jun, 2015
    Posts:
    13,436
    Location:
    Melbourne
    FWIW, I found compulsory acquisitions deals to be very generous - they might even entertain reimbursing you for the out of pocket?

    The Y-man
     
    lixas4 likes this.
  12. KTJH

    KTJH Well-Known Member

    Joined:
    14th Dec, 2020
    Posts:
    49
    Location:
    Sydney
    My valuer's figures came back a lot lower than I expected (still higher than what I paid for the land, but I will still likely end up with a big loss given all the fees paid).
    Do you think these figures are normally conservative and the land could sell for more?

    What happens if this whole process drags on for another year? I'm assuming the valuation would need to be done again to reflect capital gains?
    This sounds silly, but I'm just trying to make myself feel better about the value of the land going up each month I am paying off a mortgage on it.
     
  13. dabbler

    dabbler Well-Known Member

    Joined:
    18th Jun, 2015
    Posts:
    8,572
    Location:
    Sid en e - olympic city
    There is something no right with this story.

    No developer or council will approve a build on land that a state rail authority will be running train tracks over.
     
    Samj likes this.
  14. The Y-man

    The Y-man Moderator Staff Member

    Joined:
    18th Jun, 2015
    Posts:
    13,436
    Location:
    Melbourne

    Those would be good questions to the government dept.

    We had a 2BR apartment so different to you (and a while ago), but they came forward with a sales figure based on recent sales AND paid all transactional expenses (solicitor fees including solicitor conveyancing fees for next purchase), stamp duty on the next purchase up to the same value (i.e. if we bought anything more expensive, we just topped up the stamp duty in excess)... etc


    The Y-man
     
  15. Peter_Tersteeg

    Peter_Tersteeg Mortgage Broker Business Member

    Joined:
    18th Jun, 2015
    Posts:
    8,130
    Location:
    03 9877 3000
    The last compulsory aquisition deal I saw had the government going out of their way to cover the costs of replacing the property with another of similar value. They were covering legal fees, stamp duties, valuations etc. In essenence they're allowing you to swap one property for another and not be out of pocket.

    I don't recall them covering holding costs such as rates and land tax. They are regular costs for owning a property and don't really have anything to do with the aquisition.
     
  16. Scott No Mates

    Scott No Mates Well-Known Member

    Joined:
    18th Jun, 2015
    Posts:
    27,095
    Location:
    Sydney or NSW or Australia
    • Valuer/Lawyer fees - yes (S59 a & b - Disturbance)
    • rates - no
    • land tax - no (you would need to lodge your objection to land tax office)
    • stamp duty - yes (S59 d)
    • mortgage discharge - yes (S59 e)
    Refer Division 4 of the Act - View - NSW legislation
     
    Last edited: 9th Mar, 2022
  17. thatbum

    thatbum Well-Known Member

    Joined:
    18th Jun, 2015
    Posts:
    5,788
    Location:
    Perth, WA
    I'm surprised you didn't just go ahead with the build and collect your extra money and premium. Especially if you're concerned about losing $13k now with this course of action.
     
    Terry_w likes this.
  18. KTJH

    KTJH Well-Known Member

    Joined:
    14th Dec, 2020
    Posts:
    49
    Location:
    Sydney
    There were quite a few mixed opinions on this one:
    URGENT ADVICE: Selling due to Compulsory Acquisition?
    It's the same property in that thread that I'm still trying to get rid of. My early acquisition request was approved end of December last year and my own valuation was done on in February. According to my lawyer, we're just waiting on the government to get their valuation done so the negotiation process can take place, but they are definitely taking their time with it.

    At the time of this occurring, we were also in hard lock-down and I was stood down from my job. I had to make 1 of 2 decisions:

    Option 1:
    Go ahead with building despite the uncertainties with my financial income and also have my savings tied to this one property.
    The build would probably be completed by the end of the year this year (given the delays with lockdown and all) and I could probably get it tenanted by the end of the year after paying 10-12 months of Interest Only repayments.
    From then on, it is a waiting game until the property is acquired.

    Option 2 (what I chose):
    Pursue early acquisition, keep my savings by not having my funds tied to the build, and invest somewhere else. I actually bought an established property in February this year and it is currently tenanted. This was only able to happen because I had enough savings from terminating the build contract.
    This "Compulsory Acquisition" property is costing me about $480 a month (interest only repayments) and quarterly council rates of $500-700. It is incredibly frustrating but it is not crippling me financially at the moment. Assuming this is settled and sold by the end of the year (which I doubt it should take that much longer, given the stage it is currently in), at least I would've already owned a positive cash-flow property from the start of the year.


    With my limited experience in property investment, I really don't know for sure which of the 2 options I would've been better off with.
    It was just horrible luck that my first purchase was such a disaster and I don't have the experience to deal with it confidently.
     
  19. thatbum

    thatbum Well-Known Member

    Joined:
    18th Jun, 2015
    Posts:
    5,788
    Location:
    Perth, WA
    What advice did you get?

    I remember I said quite a few times in that original thread that Option 1 seemed like an easy winner on the information provided. Basically, just sticking to the plan and enjoying the compensation when it eventually came around.
     
    sanj likes this.