2024-06-03 28Hse Editor
CK Asset’s new project, #Lyos, recently saw 15 buyers forfeit their deposits. In response, the developer announced heavy discounts on the remaining units, with price cuts of up to 32%. Additionally, CK Asset noted that if the resale price of any cancelled units is lower than the initial cancellation price, the original buyers will have to pay the price difference accordingly.
This announcement has quickly drawn market attention, particularly regarding why developers are entitled to claim financial differences when a resale price falls below the cancellation price. The real estate market is inherently unpredictable, and cancelling a transaction, whether due to personal reasons or market shifts, involves significant consequences.
Introduced in 2013, the "Residential Properties (First-hand Sales) Ordinance" grants buyers a five-day cooling-off period after signing a Provisional Sale and Purchase Agreement. If the buyer does not sign the formal agreement within these five days, the provisional agreement is terminated, and the deposit is forfeited, with no further compensation required.
If a cancellation occurs after signing the Formal Sale and Purchase Agreement, the stakes are higher. According to the contract terms, should the developer resell the unit for less than the initial purchase price, the original buyer has to pay for the price difference.
It's important to note that claims for these differences must be made within six years of the cancellation under the Limitation Ordinance. Exceptions exist, such as if the buyer used a company name for the purchase and then dissolved the company to evade repayment.
While developers often do not claim these differences, there are notable precedents, such as CK Asset’s 2013 High Court claim against Joinland Holdings to recover nearly HK$60 million for a cancelled transaction at Celestial Heights. Similar claims have been made for properties like The Legend in Tai Hang and Kingswood Villas in Tin Shui Wai.
As for secondary properties, the consequences of contract termination depend on the terms agreed upon by both the buyer and seller. Generally, if a buyer chooses to terminate the contract after signing the Provisional Agreement, they must pay the deposit, commissions to both agents, and other fees; if the seller cancels the transaction, they must refund the deposit to the buyer, pay a penalty equivalent to the deposit, and cover the brokerage commissions and legal fees.
If the termination occurs after the official purchase agreement has been signed, the compensation differs significantly. If the seller cancels the transaction, the buyer may demand the completion of the transaction or may need legal intervention, potentially delaying the closing date. If the buyer initiates the termination, the seller has the right to forfeit the deposit and, if the property is resold at a lower value, the seller may also claim the difference.
Additionally, there is a scenario where the buyer can cancel the transaction without owing compensation, which is when the buyer discovers undisclosed legal issues with the property’s title. In such cases, the buyer has the right to void the contract. The seller must refund the deposit and might also have to compensate the buyer for other losses, such as commissions and legal fees.
Buying a property is not a trivial matter; it involves a long-term and significant financial commitment. The consequences of terminating a contract after signing can be severe, including the loss of the deposit and potential claims for price differences by the seller. Therefore, it is essential to thoroughly consider all aspects before signing any contract.
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