By:
Bryan Lui (Co-Managing Partner) [bryanlui@luibhullar.com]
Harneshpal Karamjit Singh (Co-Managing Partner) [harnesh@luibhullar.com]
When a property developer fails to fulfill its obligations under a Sale and Purchase Agreement (SPA), homebuyers often find themselves exploring the possibility of terminating or canceling the agreement. The legal process surrounding this can be complex, especially when dealing with issues such as delays, breaches of contract, and unfulfilled promises.
This article delves into the legal principles behind terminating a Sale and Purchase Agreement with the developer, offering practical insights and examples to help buyers navigate their rights effectively.
Understanding Anticipatory Breach in SPAs
One common reason for cancelling a Sale and Purchase Agreement is an anticipatory breach by the developer. An anticipatory breach occurs when one party indicates—through actions, words, or circumstances—that they will not or cannot fulfill their contractual obligations by the agreed-upon date.
Federal Court Precedents
Two landmark Federal Court cases illustrate the application of anticipatory breach in property disputes:
Damansara Realty Berhad v. Bungsar Hill Holdings Sdn Bhd
In this case, the developer failed to commence development on the property after 13.5 years. The court held that the developer’s failure to act constituted a material breach, entitling the buyer to terminate the agreement. The judgment emphasized that “time was of the essence” in the agreement and that the buyer was justified in treating the contract as voidable.
Berjaya Times Square Sdn Bhd v. M Concept Sdn Bhd
Here, delays in delivering a commercial property led the buyer to seek rescission of the agreement. The court ruled that unless there was a total failure of consideration (i.e., no performance at all by the developer), the buyer's remedies were limited to compensation under the Liquidated Ascertained Damages (LAD) clause in the SPA.
Key Principles for Terminating a SPA
When Can a Buyer Terminate a SPA?
A buyer may terminate a SPA with the developer under the following conditions:
Anticipatory Breach: If it becomes evident before the due date that the developer cannot deliver the property as promised.
Fundamental Breach: A serious breach of the SPA’s terms, such as failing to deliver vacant possession on time.
Delay in Delivery: Excessive delay in delivering vacant possession, especially if time is of the essence in the agreement.
The Role of Liquidated Ascertained Damages (LAD)
LAD clauses are standard in most SPAs, providing compensation for buyers when developers delay the delivery of vacant possession.
However, LAD does not automatically preclude the buyer from terminating the agreement. If the delay constitutes a fundamental breach, buyers may still have the right to terminate the contract.
Evidence of Anticipatory Breach: A Real-Life Example
In a recent case involving the Sovereign Bay project, the developer failed to complete construction within the agreed timeframe. Key facts included:
Buyers observed slow progress at the construction site, with only minimal activity and no updates from the developer.
Financial difficulties led to an 8-month cessation of work, and there was no evidence of an updated completion timeline.
As of the trial date, 43 months into the agreement, only 35% of the work had been completed, and vacant possession was still pending.
The court ruled that these circumstances demonstrated an anticipatory breach, allowing buyers to terminate the SPA and seek remedies.
How to Terminate or Cancel a SPA with a Developer
1. Assess the Grounds for Termination
Determine whether the delay or breach by the developer is significant enough to warrant termination. Key considerations include:
Has there been a fundamental breach of the SPA?
Is the developer unable or unwilling to perform their obligations?
2. Understand the Legal Provisions in the SPA
Review the SPA’s clauses on:
LAD for delays
Termination rights
Time as an essential element
3. Provide Notice of Termination
Notify the developer in writing, citing the reasons for termination and the relevant SPA provisions or legal grounds.
4. Seek Legal Assistance
Consult a lawyer experienced in terminating Sale and Purchase Agreements with developers to ensure compliance with legal requirements and protect your rights.
Conclusion
Cancelling a Sale and Purchase Agreement with a developer is a significant decision that requires careful legal consideration. By understanding the principles of anticipatory breach and your rights under the SPA, you can make informed decisions and pursue remedies effectively.
If you are facing delays or breaches by a developer, it’s essential to act promptly and seek legal advice to protect your interests. Remember, as a homebuyer, you are entitled to the property you paid for—or compensation for any undue delay or breach.
Please contact us for a free consultation via WhatsApp (+60143000960) or E-mail (admin2@luibhullar.com) for any queries.
Comments