Property Law (Sunset Clauses) Amendment Bill

I move, That the Property Law (Sunset Clauses) Amendment Bill be now read a first time. I nominate the Justice Committee to consider the bill.

Auckland expectant couple Manu and his partner bought a $600,000 two-bedroom home in West Auckland off the plan in April 2020, and it had a November 2020 completion date and a July 2021 sunset clause. These sunset clauses are common off-the-plan deals. They are meant primarily to protect buyers so that they can pull out at a certain date if a project is legitimately delayed—say, due to the supply chain constraints that we saw during COVID times. Manu got little communication and saw little construction, according to Radio New Zealand’s Phil Pennington, who reported his case. Eventually, 1½ years later, after he signed the contract and just days before the baby was due, the sunset clause was invoked. That meant the seller did not have to sell the house. Instead, with a freshly issued certificate of compliance—conveniently issued, in fact, just a day before the sunset clause was invoked—the seller could put the house back on the market, this time fully built and worth tens, if not hundreds, of thousands of dollars more.

Manu and his partner did not have funds to legally challenge what had happened, and now, with new baby in tow, they face finding a home that, due to the heated market, would likely cost them $100,000 more. Shock, heartbreak, uncertainty, and a massive financial burden for Manu and his family; no impact to the seller, no reputational risk or legal issues—it was all done under the sanctity of the sunset clause. Radio New Zealand reported on three similar cases in Papakura, Christchurch, and the North Shore. I spoke to several lawyers, along with property law expert Joanna Pidgeon, who had between them been involved in dozens of similar cases involving people desperately trying to get on the property ladder, who get taken advantage of through these sunset clauses.

In February 2020, Stuff reported that a developer—Tawa LLP—cancelled the sale of some of its properties in Wellington under a sunset clause. It then relisted the properties for a higher price to reflect market-value increases, and this left many first-home buyers trying to recover their deposits. One of them was actually ACT deputy leader Brooke van Velden, who was a political candidate at the time. Interestingly, she acknowledged that she had been a victim of dodgy development and market failure, saying there was no indication that the development would be cancelled, even after she had been advised to buy curtains for the new apartment. But despite being left out in the cold, she did not support a legislative fix. I’m not looking to the ACT Party to support my member’s bill, but I am looking to their more rational coalition partners for support this evening.

Many of the other affected buyers did call for more parliamentary action to protect buyers’ rights after the incident, and that has been covered in the media, via lawyers, via consumer activists, and including on Fair Go. Some cases they spoke of involved land deals being cancelled or contracted buyers being called on to stump up extra so-called contributions to keep a project on track, with the sunset clause weaponised as a threat to pull out of the deal if those contributions were not forthcoming. In one case, $100,000 was added to the purchase price and, when the buyer couldn’t pay it, the sunset clause was invoked. Once again, the house sold days later at a much higher price. You get the picture.

It might be a first-time buyers’ market now; however, only a few years ago, the property market was so hot, that commentators feared it risked collapse. In 2017, the average house price increase was 24 percent, and, in some spots, it was 30 percent. It is inevitable, in an, essentially, property-market economy, that it will sizzle again and we will see the same unconscionable behaviour by a small number of unscrupulous developers. It’s all very well for lawyers to say, “If you’re buying off the plan, and the contract includes a sunset clause favouring the developer, you should insist it’s removed.” It’s all very well to say, “Run a mile if that doesn’t happen.” Yes, contracts need sanctity, but not in a failing market, and this is a market failure regarding power imbalance and unethical behaviour. In tight markets, and when sunset clauses are increasingly common, there is a real power imbalance between the buyer and seller. Even when sunset clauses are crossed out of contracts, some developers still try to invoke them, according to one barrister I spoke with. And there’s bugger all the buyer can do unless they have money for lawyers.

Now, don’t get me wrong, many developers have every intention of finishing on time—they’ve costed their development and are acting on good faith—but it is unethical for any developer to cash in on a sunset clause because the property prices have increased since the contract was first signed. Unfortunately, the bad practice of a dodgy few developers has tainted the reputation of the sector. The legislative fix I am bringing to this House protects the good guys and gals from the reputational damage that has been caused to them by the dodgy few. It’s a win for purchasers and a win for developers.

The bill amends the Property Law Act 2007. Purchasers would have to give their consent if vendors wanted to rescind their sale and purchase agreement under a sunset clause, and this would rebalance the scales between purchasers and vendors, especially for first-home buyers, who often can only afford off-the-plan dwellings. It requires written consent of the buyer to rescind the sale agreement of an off-the-plan property where a vendor has initiated the rescission. The consent would have to be obtained at the time of the rescission. It allows vendors to rescind an off-the-plan contract under a sunset clause where a court determines that it would be just and equitable. There is a contestable element to it for vendors that feel that the permission has been withheld unreasonably, and it doesn’t affect any other mechanism a vendor has in their contract with a purchaser that would allow cancellation of the contract. It’s modelled on Australian laws. It has been enacted in New South Wales (NSW), Victoria, and the Australian Capital Territory. They experienced similar unethical behaviour by some developers, and it has worked very well.

There may be times when ending a contract is the best way forward for both vendor and purchaser, and in these cases—as within Victoria and NSW—a sunset clause could be activated by the vendor with the written consent of the purchaser. A vendor, as I said previously, can go to a court to seek a court order under the factors of the new section 41C(2). Those factors are: “(a) the terms of the off-the-plan contract: (b) whether the vendor has acted unreasonably or in bad faith: (c) the reason for the delay in creating the subject lot: (d) the likely date on which the subject lot will be created: (e) whether the subject lot has increased in value: (f) the effect of the cancellation on each purchaser: (g) any other matter that the court considers to be relevant.” It really does enable the court to determine whether the developer is acting in good faith, rather than the current carte blanche assumption that it is so.

For a sunset clause to be valid, this bill requires that certain consumer information will be included in the contract, including that the purchaser has the right to consent to the proposed cancellation of the off-the-plan contract but is not obliged to consent. It includes relevant procedures that a vendor must undertake in order to legally cancel a contract under a sunset clause. It also allows for the court to make any other order that it considers just and equitable in the circumstances, including an order for compensation for the purchaser. This will disincentivise any dodgy vendors from using the court process until and unless it can be justified.

Being a property developer does entail risk, but so does buying a home, and purchasing a home is one of the most significant decisions and sometimes risky decisions a family can make. New Zealand families deserve to know that, when they sign on the dotted line and entrust a vendor with the creation of that home, they will not lose out due to greedy behaviour rewarded through a technicality. The bill aligns with Labour’s values that support homeownership. It is simple. It doesn’t add red tape. It won’t make developers more risk-averse, because it is fundamentally narrow in scope. It only captures the actions of those vendors who use a sunset clause in an unjustifiable manner. It provides a safeguard for a developer, through a court order, where a purchaser unreasonably withholds use of the clause.

By changing the rules now, we can pre-empt the next wave of hot property prices and the considerable harm that can be done to families wanting to buy a home before it actually happens. This is a sensible bill, and I do hope that the sensible parties within the coalition Government will put aside party politics and do the right thing for New Zealanders and support my bill.

The question is that the motion be agreed to.

Thank you very much, Madam Speaker. Unlike what some of my other colleagues might have done, and I could take my full 10 minutes and string the member along and hold her on to the hope that we’ll be voting in favour or opposed to the legislation, I’m not going to do that. We’re going to be opposing this legislation. Despite the member in charge crying out for the more rational side of the Government to come in to play, rational National won’t be supporting this legislation. To clarify for the member: the Justice Committee won’t be required to consider the bill, because it won’t be progressing to the Justice Committee without support from coalition partners and things on the bill, as well.

There are four problems I see with this legislation—

Reuben Davidson: I’m looking at more than four problems right now.

TOM RUTHERFORD: —and I’m going to outline them through my—what was that, I’m sorry?

Reuben Davidson: I said, “I’m looking at more than four problems right now.”

TOM RUTHERFORD: Oh, very smart from Mr Davidson, very smart—very smart.

But there are four issues I have with this piece of legislation, and I’m going to outline them, but, ultimately, this bill does seek to change how sunset clauses work in off-the-plan property purchases, as the member in charge outlined. Sunset clauses currently allow each party to cancel if construction isn’t completed by a certain date, and I believe that this proposed change would actually create a one-sided sunset clause. These agreements are for two parties, but this bill would empower it for one side and one side only.

Number one: the first problem I have with this piece of legislation is that it’s a solution in search of a problem. The size and scale of this supposed issue is not well established. There’s limited evidence that developers are systematically misusing sunset clauses, and we shouldn’t be making major legislative changes without clear evidence of widespread problems. Anecdotal cases, as the member outlined in her contribution, citing, for example, the deputy leader of the ACT Party who was involved in one of these, as she outlined in her speech, but then she said herself, “But I don’t think we should have legislative change.”—that kind of verifies why there’s no need for this bill in the first place, and why it’s actually a solution searching for a problem.

The number two problem that I have with this bill is that it’s using the wrong legislative vehicle. The Property Law Act 2007 deals with property rights, leases, and mortgages, not consumer protection. Consumer protection in building contracts already exists under the Building Act 2004.

Miles Anderson: I thought so. Good point.

TOM RUTHERFORD: That’s quite right, Miles Anderson. That Act already protects consumers with information requirements, implied warranties, and remedies. If there is a genuine problem, it should be addressed through existing consumer protection laws, not property law. It’s the wrong legislative vehicle.

Problem number three is sunset clauses serve legitimate purposes. These clauses protect both buyers and sellers from unreasonable delays. They allow consumers to withdraw if they’re not happy with what is being delivered, and construction projects do face genuine uncertainties: resource consents—how long are resource consents taking at the moment across the country, for example?—and weather. We have seen literally over the last three weeks what some of the weather impacts are that our country faces on a rather regular basis, and they too can create uncertainty in construction projects. There can be supply chain issues and skilled labour shortages in some cases. It also removes flexibility that could make developers less willing to offer off-the-plan sales, reducing options for buyers. Now, the member in charge said, “No, that’s not going to happen. That’s not going to happen.” Well, actually, I would say the counter to that and say that it could be a genuine option that developers would be less willing to offer off-the-plan sales, reducing options available for buyers.

The fourth problem I have with the legislation is the unintended consequences for the housing supply. Requiring court approval adds cost and delay to property transactions. It can reduce availability of off-the-plan housing when we desperately need more supply, and it may push developers toward less consumer-friendly contract structures.

What I want to focus on is what we’re actually doing to address housing issues. Let’s have some real action on housing supply in this country. While Labour and their members focus on narrow regulatory tweaks that might help a handful of cases, we’re tackling the fundamentals of the housing crisis we inherited from them. New Zealand house prices are among the most expensive in the developed world. This is fundamentally a planning and supply problem, not a contract law problem. We’re replacing the Resource Management Act with a new planning system that makes it easier to build housing that New Zealand desperately needs. We’ve got six major legislative changes under way at the moment. We’ve got housing growth targets for councils, making them accountable for enabling growth rather than blocking it. We’ve got new rules making it easier to expand outwards at the urban fringe. We’re strengthening intensification provisions around transport hubs and city centres. We’re requiring councils to enable mixed-use zoning across our cities, abolishing minimum floor area and balcony requirements that unnecessarily push up costs, and streamlined consenting processes that reduce delays and uncertainty.

We need to be focused in this House and in this country on the fundamentals, not tinkering around the edges. It’s better to have more housing options available at lower prices than fewer options with slightly different contract terms. If we’re serious about helping first-home buyers, we need more housing supply and lower prices. That comes from planning reform and removing barriers to development, not adding more legal complexity to property purchases, as this legislation will do.

This bill could actually reduce housing options by making off-the-plan sales less attractive to developers. That could be the unintended consequence of this legislation. There are alternative approaches, if problems exist. We could strengthen disclosure requirements under existing consumer protection law. The Real Estate Institute could develop better industry standards for sunset clauses. The Commerce Commission already have tools to address unfair trading practices. Target any specific problems with precision, not a broad brush of a legislative change.

The economic reality is that housing supply is our critical challenge. We need more homes built faster, not more red tape. Adding regulatory complexity and mandatory court processes slows down development. This could discourage developers from offering off-the-plan purchases all together. Every barrier we add to housing development ultimately hurts affordability.

The National Party supports protecting consumers, but this bill is fundamentally the wrong approach. There’s no clear evidence of systematic problems requiring this level of intervention, and, ultimately, it’s using the wrong legislative framework when consumer protections already exist elsewhere. There’s a real risk of unintended consequences that could harm housing supply and affordability, so we oppose the bill and instead focus on the real solutions: planning reform, removing the barriers to development, and increasing housing supply. While the Labour Party tinkers around the edges with narrow fixes that might help a few cases, we’re solving the real problem: making housing more abundant and affordable for all New Zealanders. Good intentions aren’t enough. What we need in this country is evidence-based policy that addresses root causes, not symptoms, and this bill fails that test.

Thank you, Madam Speaker. To make it clear: we are supporting the Property Law (Sunset Clauses) Amendment Bill. We want to commend the member Ingrid Leary for bringing this to the House.

I think it’s rather rich of the National Party to claim that they’re not supporting something because of tinkering around the edges. If that was the case, I don’t think they would be supporting most of their own members’ bills, because that’s basically what they do most of the time.

The reality is that this bill is addressing an issue that has been reported by people as a detrimental factor and something that can cause hardship and stress. What this bill, effectively, does is it prevents developers from using sunset clauses to cancel off-the-plan property contracts, to sell at a higher price. While I don’t disagree that there are other areas in the housing space that will lead to greater affordability, what this bill does do is protect consumers. It adds a level of protection, and it prevents greedy property developers and multiple-home owners, that are basically raking over the housing market, from benefiting at the expense of everyday people. If the Government side of the House was so concerned about addressing the fundamentals, they would stop treating housing as a commodity to make a profit from. And if they were so concerned about supply, they would not be cancelling so many Kāinga Ora projects.

The truth is that the so-called supply they’re focusing on is in unaffordable housing that is out of reach for the people that they have made homeless and that they have sanctioned if unemployed. So it just falls in an incredibly disingenuous way, on this side of the House, because this is not what the Government is doing. They’re not addressing the fundamentals; they’re allowing landlords to get richer. Actually, they’re giving tax cuts for landlords, while we continue seeing more people going overseas. Even when we look at rent prices in places like Wellington, where this place is, the slight decrease in rent prices has been largely driven by people having moved overseas due to the job cuts and poor economic conditions that this Government has created. So I do think the Government may want to reconsider their position. If they genuinely believe in standing for everyday people, and potentially first-home buyers, people who’ve been locked out of having secure tenure, I think this this bill does go some way to addressing it.

I think even the previous bill we debated, the Government admitted that it wasn’t transforming—well, the National Party at least, because their coalition members were completely out of touch, admitted that it wasn’t transformational; no one here thought so, and yet they voted for it. I think this shows that, yeah, members’ bills have a place in finding discreet reforms that we can use to support our communities and specific constituents—it happens all the time.

I think that the bill that has been brought forward by Ingrid Leary will protect consumers. What it will, effectively, do is create, also, greater certainty when somebody is looking at purchasing a home, that they won’t end up being ripped off by somebody trying to, basically, make a greater profit by having that house increase its value, and selling it to someone else at an even more out-of-reach price.

So the Green Party supports the intent of the bill. We look forward to hearing from submitters, particularly people who have been negatively affected by this. So I am particularly looking forward to hearing from people who have been negatively affected by the existing provisions. I will be listening, and my colleagues will be listening, with a grain of salt to the people who are benefiting from the housing crisis. I hope that those are not the dominant voices at the select committee, because I think that the member who brought this bill forward raises a valid point around the lack of balance that exists between people who hold a huge amount of privilege and wealth, and those that are seeking to have just a bit of security of tenure in the housing market.

So we will be supporting this bill. We look forward to the select committee discussions, and we call on the Government members to reconsider their position and to not fool themselves into thinking that just because something tinkers around the so-called edges, it’s not worth supporting. Then again, that seems like most of their political agenda, unless it does seem to be leading transformative change to wreck our environment, to wreck workers’ rights, and to make the inequality crisis worse.

Just before I call the next speaker, I just had a question about laptops. Under Speaker’s ruling 19/5, it’s OK to have laptops on the desk when you’re using them to speak with, as long as they don’t have any logos on them. But when you’re using them and not speaking, they need to be in your desk and not on top. So that’s just clarifying a question that I’ve just been asked.

Thank you, Madam Speaker. I rise on behalf of the ACT Party to speak on this bill drawn in the name of Ingrid Leary—and well done, Ms Leary, for taking an issue that has affected New Zealanders and trying to come up with a solution. Unfortunately, this isn’t it.

The reason that it became an issue—if we think back to COVID times, I was but a humble builder working on site and wondering why the Government thought it was a good idea to be spending copious amounts of money, borrowing like crazy, the interest rates were going down—we were just in boom times. Shock, horror! When you print a whole lot of money, borrow a whole lot of money, it went straight into assets and asset prices went sky high. So the people in the early 2020s—so 2020, 2021, when this was an issue—they were raising it, and it was an issue that was brought about by profligate Government spending and an inability for the financial system to actually digest that spending.

Hon Dr Duncan Webb: Say it like you mean it.

CAMERON LUXTON: Instead it was going—oh, well, Dr Webb, I’m just a humble builder trying to explain the way it was on the ground dealing with the decisions that your Government had made.

Now, what we had was a poor planning system, as Tom Rutherford has laid out, which led to a shortage of housing. We had poor building products laws, which is another thing that this Government is getting on top of, to make sure the price of constructing a house doesn’t go blowing through the roof again as it did in the 2020s. What we had was an inflating house price that was completely devoid from what value there was. That was a monetary phenomenon and that is what this bill is seeking to address. Something that happened—an embarrassing part of what the last Government put on to New Zealand, but it is something that we hope we never see again.

Coming to the mechanisms in this bill—[Interruption]. Well, this is talking about—Dr Webb, I was trying to lay out the ground for your colleague taking such a decision despite being misguided. This bill will be removing—it was an interesting comment that Ms Leary made in there, saying there’s a risk in being a developer and a risk in buying a house. Well, risks have costs. So you could say we’re going to remove the risks on the purchaser by having the developer or the builder have no ability to mitigate those risks of increasing their costs. But all you’re doing is putting the cost on the upfront price. If you can’t say, “This building is getting more expensive,” because of delays through consenting delays, through products—if you, as a developer—

Hon Member: No, you can.

CAMERON LUXTON: Yeah, you can, but you have to go and spend a whole lot of money, tens of thousands of dollars fighting it through the High Court. Yes, you can, but it’s creating legal uncertainty. It’s adding costs if it goes wrong, which means if a developer looks at that—and this bill, by some horrible turn of circumstance, actually passed—a developer would then have to look at that and then say, “OK, I’m going to have to price that up front because it’s a cost that I can’t mitigate.” That’s what would happen. We’d end up with higher costs. We would end up with fewer off-the-plan builds, which is what we need in this country to actually get some more supply into the housing market. We need off-the-plan builds. This bill, if by some crazy turn of circumstance actually passed, it would lead to less off-the-plan builds, therefore New Zealanders would go back to that old pastime of trading already built houses, which is one of the things that has held our economy back.

This will just be creating a “just and equitable” High Court test. It’s just going to insert unpredictability. It’s going to make New Zealanders who decide they want to go out there, who go out there and want to deploy their capital to build for other people, to have other human habitats for humans—just to try and get that word in—we’d end up being disincentivised to provide new housing. All this is going to do is perpetuate an issue that New Zealand has got, which is undersupply of housing. It’s going to create uncertainty. If this was to pass, it wouldn’t fix any of the problems that the member has identified. And it’s hard to do anything but say that we do not commend this bill to the House.

Thank you, Madam Speaker. Look, first of all, I want to start off by thanking Ingrid Leary for reaching out around this bill. Congratulations for getting the bill drawn. I know that’s a lottery rather than a skill, but at least you got the bill in the biscuit tin, and it got drawn out.

Look, we understand the issues that you’re raising. We understand the stories that you’re talking about. The question is the question of balance. What are we talking about? We’re talking about sunset clauses. Why do we have sunset clauses? They’re there for the situation where a development that might have been expected to take a certain amount of time—18 months, 24 months, or whatever—takes a lot longer than that. The buyer might say, “Well, look, actually I want to be able to get out of that and be able to get on with my life, go somewhere else, and buy something else.”

It’s quite reasonable that a buyer would say, “I want to get out as well.”, but the developer may also have a problem. If it takes a lot longer, there are risks in this. What are the risks? Well, the costs may blow out or the consent may be hard to get. What we’re doing is we’re talking about situations where things are, by and large, bought off the plans, or it’s a new development. That means, by definition, there’s a whole lot of processes to go through. You’ve got to get the subdivision done. You’ve got to get the consent done. You’ve got to actually go and build the house or the houses.

There are risks there. We know what happens when you are committed to a project, come hell or high water, and you can’t get out of it if it takes a long time and the costs build up, because you can’t necessarily foresee everything at the beginning. Maybe you should say, “Well, you should foresee most of those things”, but you can’t necessarily always do that. It sounds a little bit like some of the major Government projects. We go in thinking that maybe a couple of ferries and a terminal might only cost us a few $100 million, and then, hey presto, two or three years later, it’s heading up towards $3.2 billion, and then, hey presto, it’s looking like $4 billion. Being committed, come hell or high water, even if you’re a Government, is a problem. If you’re a developer, it’s the kind of thing that will send you broke.

The sunset clause exists to allow both parties to be able to get out. The problem with the bill, as we see at the moment, is it’s quite one-sided, because it says that the buyer, the purchaser, can get out. In fact, there’s a specific out, which says the ability to get out is there for the buyer, but it is not there for the vendor. It’s not there for the developer unless—unless—the buyer says, “Yep, I’m OK.”, or unless they go to court. That, of course, is a risky process. [Coughs] Excuse me, Madam Speaker. [Coughs]

DEPUTY SPEAKER: Take your time and have a drink.

ANDY FOSTER: I’ll do that.

DEPUTY SPEAKER: Of water—just clarifying for the audience.

ANDY FOSTER: Yeah, no, I can assure you it’s water.

By definition, what we’re dealing with is a situation where there is no lot created. Possibly there is no contract to build the building. There is no building. There is a risk there for the developer. I guess what we’re hearing, particularly from this side of the House, is that the greater the risks are, what you start doing is you’re putting more barriers in the way of creating new housing. That, I think, fundamentally, is our concern as well, because the more risks you put in place, what it means is you’ve either got to price those risks in, upfront, or you might actually say, “Well, actually we’re not going to do that off-the-plan development at all.” That, of course, reduces the supply of housing. That, fundamentally, is one of our concerns because this is quite a one-sided piece of proposed legislation.

New section 41B of this bill says that the vendor cannot cancel once they have passed a sunset date without the purchaser agreeing or going to court and the court agreeing to that. We understand the problem, but we consider that, on balance, the potential harm to the building market is greater than the gains which are going to be there.

Look, I just wanted to say one other thing. If we do this to developers—if we force developers—what, effectively, we’re saying is we’re forcing developers to be more advanced in their development before they enter a contract, because it’s too risky to do it right at the front end. If we do that, how are developers going to be able to finance some of these developments? It’s going to be a lot harder, a lot more expensive, and that cost will flow through.

There are two other things I wanted to mention—while I’ve got 30 seconds left—because they were raised, which aren’t directly relevant to this, but they were raised in debate. One of them is that we keep getting, from this side of the House, concern about cancellations of Kāinga Ora projects. If you look at the cost of some of those Kāinga Ora projects, they were running 40, 50, and 60 percent higher than the market was delivering. That is why those things were cancelled. They were just not good value for money. That is what this side of the House wants us to keep doing, to keep building things which are not good value for taxpayer money.

Finally, Tom Rutherford said that the most important issue is housing. I think that it is productivity in our economy. Thank you.

This debate is interrupted and is set down for resumption next sitting day. The House stands adjourned until 2 p.m. tomorrow.

Debate interrupted.

The House adjourned at 9.57 p.m.