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  • Dino Montepara

What do you do when a developer company offers to buy but asks for a discount?

A developer company offers to buy your property but shortly before the settlement date advises you that it cannot come up with the funds and wants a $150,000 discount. What do you do?



There have been cases where a developer forms a company to purchase a property with insufficient money when it comes to settlement. Lawyers sometimes call these shell companies because while the paperwork for the company is all in place, the company does not own any assets. The developer’s game is to then claim, when it comes to time to settlement, that it could not borrow the necessary settlement money and further complain that property prices have fallen. For this reason, we warn our vendor clients against selling to a company purchaser except when a significant deposit such as 10% or more is paid. This is because most people or companies will not walk away from a purchase if they paid up to 10% of the total value which they will lose upon default.


However, if a developer does walk away a court can make a developer personally liable as the director of the company. Put simply, a director of a company cannot be reckless about running a company in a way which causes serious loss to the company’s creditors including you as vendor of the land. In this case the vendor of the land would be a creditor of the company and the developer would be personally liable for the shell company obligations in the purchase agreement. In general terms, the law requires a company to have more assets than liabilities and to pay its debts as they fall due whenever they do a deal.


In most cases a developer who finds out that he or she may be personally liable will often find means to settle at the agreed purchase price. For this reason it is important to have your lawyer keep the right pressure on a party if there is a failed property transaction by a shell company. For more information on this or any other legal issues contact Kemp Barristers & Solicitors at info@kempsolicitors.co.nz or 412-6000.

 


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