There was a period in Sydney when developers seemed to be walking around with suitcases full of gold.
Homeowners in Rose Bay, Edgecliff, Double Bay, Bondi Beach, Bondi Junction and other parts of the Eastern Suburbs were being approached directly by developers and agents with a tempting message:
“Your property may be worth far more as a development site than as a home.”
For some owners, the numbers were extraordinary. A house worth $7 million as a residence was suddenly being discussed at $12 million, $14 million or even $15 million as a development site. In larger amalgamations, the figures went higher again.
Many owners listened. Some signed. When someone offers you significantly more than your property appears to be worth, it is very hard not to take the offer seriously.
But today, those numbers are being tested by a very different market. Construction costs have risen. Finance is harder to obtain. Apartment resale values are being questioned. And some developers who agreed to pay premium prices are now telling owners:
“We can’t settle unless you reduce the price.”
For the homeowner who has already exchanged contracts, waited 12 to 18 months, and planned their future around the sale, this is a serious shock.
The real question is simple: what do you do when the developer cannot settle?
This article is general information only and is not legal advice. If you are in this position, speak to your solicitor before agreeing to any extension, price reduction, termination or deed of release.
The gold rush started with planning uplift
The NSW Low and Mid-Rise Housing reforms changed the way developers looked at ordinary homes, semis and older buildings in well-located areas. Properties close to town centres and transport hubs suddenly appeared to have greater development potential. A home that was once viewed as a two-level residence could now be assessed as a possible apartment site.
The affordable housing bonus added more excitement, because some developers started considering whether additional floor space or height could be achieved by including an affordable housing component. The Housing Delivery Authority created the perception that some larger projects might have a faster state-led pathway rather than relying on the usual council process.
All of this fuelled the gold rush. But planning potential is not the same as settlement certainty. A high offer is only valuable if the buyer can complete.
A development offer is a calculation, not an emotion
A developer does not value land the way a residential buyer does. A residential buyer looks at lifestyle, land, location and emotion. A developer looks at the site as a feasibility — what can be built, what the finished apartments may sell for, construction costs, approval timing, finance costs, equity required and profit margin.
The land value is what is left after all those numbers are tested.
That is why a development offer can look very strong in a rising market but become fragile when conditions change. A 10 or 15 per cent fall in expected apartment selling prices can wipe out the developer’s profit and dramatically reduce what they can afford to pay for the land.
So when a developer says, “the numbers no longer work,” they may be telling the truth. But that does not automatically mean the homeowner should carry the loss.
You may have sold time, not certainty
Many development deals were not simple cash sales with short settlements. They were structured with small deposits, long settlement periods, option agreements, company purchasers, limited guarantees and settlement dates 12 to 18 months out.
To the homeowner, it felt like a sale. To the developer, it may have been a way to control the site while they tested planning, finance, construction costs and market conditions.
The owner took the property off the market, waited, and arranged their financial future around the expected settlement. Then, close to completion, the developer asks for a discount. At that moment, the owner discovers whether the contract was truly secure or simply optimistic.
The first question: contract or option?
You need to understand exactly what you signed.
Was it a contract for sale? A call option? A put and call option? An option deed with special conditions? Was there a later variation or extension?
This matters because your rights differ depending on the structure. If contracts have exchanged, you may have rights under the contract if the buyer fails to complete. If it is an option, the answer depends heavily on the wording — the option fee, expiry date, exercise rights, default provisions, notice requirements and any guarantees.
Do not rely on what the developer says over the phone. Your solicitor must review the actual documents.
What happens if the developer defaults
If contracts have exchanged and the developer fails to settle, the starting point is the contract.
In many NSW contracts, if the buyer does not complete on the required date, the vendor’s solicitor may issue a Notice to Complete — a formal legal notice giving the buyer a final opportunity to settle. It must be prepared and served by the solicitor, not handled casually.
If the buyer still does not complete after a valid notice, the vendor may be able to terminate the contract, claim the deposit, resell the property and pursue a claim for loss.
But one point needs to be understood clearly: termination does not always mean the deposit is automatically released to the vendor.
If the deposit is held by the agent or solicitor as stakeholder, it is generally held for both parties. If there is a dispute, the stakeholder will usually require written authority from both vendor and purchaser, or a court order, before releasing funds.
So the vendor may have the contractual right to claim the deposit, but if the purchaser disputes the termination, the agent may not be able to simply release the money. Further steps — formal demand, negotiated consent, or proceedings — may be required.
The lesson: having a legal right to the deposit is not the same as having immediate access to it.
The 5 per cent deposit problem
Many development deals were exchanged on a 5 per cent deposit with a long settlement period. The owner accepted this because the price was attractive.
But if the buyer defaults, you need to know whether the deposit was truly capped at 5 per cent, or whether the contract provided for a 10 per cent deposit with only 5 per cent paid upfront. That distinction matters. Your solicitor needs to check whether the balance can be recovered, whether there is a deposit bond or bank guarantee, and who is actually liable.
A 5 per cent deposit on a $15 million sale is still significant money. But if the property later resells for $12 million, that deposit will not come close to covering the shortfall.
The biggest weakness: a company with no assets
Many developers do not sign personally. They use a company — often a special-purpose company created only for that project.
If there is no meaningful personal guarantee, your claim may be against that company only. The company may have no assets, no finance and no capacity to pay damages. If the project fails, the contract may be worth far less than the headline price suggested.
A $15 million contract with a weak purchaser may be less valuable than a lower offer from a buyer who can actually settle. The headline price is not the same as certainty.
What about a personal guarantee?
A personal guarantee can change the position — but only if it is strong enough.
Some guarantees are broad, covering the buyer’s obligations, losses, damages and enforcement costs. Others are limited, covering only the deposit or a capped amount.
Your solicitor needs to check who signed, whether it is unlimited or capped, whether it survives extensions or variations, and whether the guarantor actually has assets worth pursuing. A guarantee that only covers the balance of a 10 per cent deposit will not protect you from a much larger resale loss.
The issue is not only what you can claim — it is what you can actually recover.
Do not rush to agree to a price reduction
When a developer asks for a discount, do not panic. Your response should be evidence-based, not emotional.
Ask why the developer cannot settle. Has finance actually been refused? Is there written evidence from the lender? What has changed in the feasibility — construction costs, presales, resale values? Can the developer settle immediately at a reduced price?
Then understand what you may be giving up. Will you lose the right to sue? Will the guarantor remain liable? Is the revised price still above today’s market value? What happens if the developer still fails to settle after the reduction?
A reduction may be commercially sensible in some cases. If the revised price is still strong, the buyer can settle immediately, and the prospect of recovering more through litigation is doubtful, certainty may be worth considering.
But do not automatically accept the developer’s problem as your own. The developer took a commercial risk. You should not absorb that risk without advice, evidence and compensation.
Suing may be possible — but is it worth it?
A solicitor may advise that you have a claim. The next question is whether you can recover the money.
If the purchaser is well funded and there is a strong guarantee, pursuing the claim may make sense. If the purchaser is an empty company and the guarantee is weak, litigation can become expensive, slow and frustrating.
Sometimes the best outcome is to keep the deposit, terminate properly and resell. Sometimes it is to negotiate a controlled price reduction with immediate settlement. Sometimes it is to enforce the contract and pursue damages.
There is no single answer. It depends on the documents, the buyer, the guarantee, the market and your financial position.
What to do next
If a developer says they cannot settle, slow the conversation down. Do not agree to a price reduction over the phone. Do not agree to an extension casually. Do not sign a deed of release, variation or termination without legal advice.
Then:
- Speak to your solicitor and review the contract, option deed, deposit clause, guarantee and default provisions. Understand who the buyer really is and what stands behind that company.
- Ask for written evidence of the developer’s claimed finance or feasibility problem. If they want you to reduce the price, they should explain why, in writing.
- Obtain updated market evidence. What is the property worth today as a residential home? As a development site? Has the market genuinely moved, or is the developer simply renegotiating?
Once those facts are known, you can make a commercial decision — to negotiate, issue a notice, terminate, resell, or sue. But do it with structure, not panic.
The lesson for future sellers
The highest price is not always the best offer.
A strong development offer should be supported by strong terms: a full 10 per cent deposit, a meaningful non-refundable option fee, a shorter settlement period, a proper director’s guarantee, clear default rights, limited extension rights, evidence of funding capacity, and compensation if the developer wants time.
If a developer wants to control your property for 12 to 18 months, that time has value. You should be paid for the risk. Otherwise, you are not really selling with certainty — you are simply giving the developer time to see whether the project works.
My view
After more than 35 years in real estate, I have seen many cycles where confidence turns into overconfidence. The recent development gold rush was driven by planning change, low supply and the belief that future apartment values would keep supporting higher land prices.
For some owners, selling to a developer may still be the right decision — but only if the deal is properly structured.
A large price means very little if the buyer cannot settle. A contract means very little if the purchaser has no assets. A guarantee means very little if it covers only a fraction of the loss.
For homeowners who have already signed and are now being told the developer cannot complete, the next step is not panic. It is to understand your contract, your deposit, your guarantee, your legal rights, your resale options and the real market value today.
The developer’s failed feasibility should not automatically become the homeowner’s loss.
The suitcase of gold is only valuable if the buyer can actually deliver it.
