Factors to Evaluate Before Surrendering Your Deposit

CK Asset's latest development, #Lyos, recently witnessed 15 buyers forfeiting their deposits. In response, the developer announced substantial discounts on the remaining units, with price reductions of up to 32%. Furthermore, CK Asset stated that if the resale price of any cancelled units falls below the initial cancellation price, the original buyers will be responsible for covering the price difference.

This announcement has sparked considerable interest in the market, particularly regarding why developers have the right to claim financial variances when the resale price is lower than the cancellation price. The real estate market is inherently unpredictable, and cancelling a transaction, whether due to personal circumstances or market fluctuations, carries significant consequences.

In 2013, the "Residential Properties (First-hand Sales) Ordinance" was introduced, granting buyers a five-day cooling-off period after signing a Provisional Sale and Purchase Agreement. If the buyer fails to sign the formal agreement within this period, the provisional agreement is terminated, and the deposit is forfeited without further compensation.

If cancellation occurs after signing the Formal Sale and Purchase Agreement, the stakes become higher. As per the contract terms, if the developer resells the unit for a lower price than the original purchase price, the original buyer is obligated to cover the price difference.

It is important to note that claims for these differences must be made within six years of the cancellation, as stated in the Limitation Ordinance. Exceptions exist, such as when buyers use company names for purchases and later dissolve the company to evade repayment.

While developers often do not pursue these differences, there have been notable cases, such as CK Asset's 2013 High Court claim against Joinland Holdings, seeking 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.

For secondary properties, the consequences of contract termination depend on the mutually agreed terms between the buyer and the seller. Generally, if a buyer terminates the contract after signing the Provisional Agreement, they are required to 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 brokerage commissions and legal fees.

If termination occurs after signing the official purchase agreement, the compensation varies significantly. If the seller cancels the transaction, the buyer may demand completion or resort to legal intervention, potentially leading to a delay in 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.

There is also a scenario where the buyer can cancel the transaction without owing compensation, which is when undisclosed legal issues with the property's title are discovered. In such cases, the buyer has the right to void the contract. The seller must refund the deposit and might additionally have to compensate the buyer for other losses, such as commissions and legal fees.

Purchasing a property is a significant and long-term financial commitment. The repercussions of contract termination after signing can be severe, including the loss of the deposit and potential claims for price differences by the seller. Therefore, it is crucial to thoroughly consider all aspects before entering into any contract.

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