Property developers often require purchasers to agree to 'no caveat' clauses and to grant powers of attorney in favour of the developer, in order to assist the efficient running of developments. However, the use of these mechanisms was recently scrutinised by the New Zealand High Court in Nicholson v Morning Star (St Lukes Garden Apartments) Limited [2008] NZHC 599.

THE FACTS

In the Morning Star case, the developer changed the plans for a residential property development midway through the development. A purchaser of one of the apartments objected to the changes and lodged a caveat over the 'future development units' in the development land.

In what were effectively preliminary proceedings (an application to lapse the caveat), the Court had to consider:

  • The extent of the developer's contractual right to alter the development.
  • The effect of a 'no caveat' clause.
  • Whether the purchaser had a beneficial interest over, and could therefore caveat, the future development units.
  • Whether the developer could use a power of attorney granted by the purchaser to remove the caveat.

THE DECISION

The Court refused to lapse the caveat. Based on the facts surrounding the case, the Court held that the proposed changes to the development might exceed the developer's rights under the sale and purchase agreement. Because of this, and because of the specific wording of the 'no caveat' clause, the Court also found that the caveat did not breach the 'no caveat' clause.

Of particular interest however, was that the Court sustained the caveat even though it was lodged over the title to the future development units when the purchaser's apartment was outside the future development units and comprised within an entirely different certificate of title.

Also, the Court indicated a willingness to impose limitations on a developer's use of a power of attorney (granted by a purchaser). Particularly, where the developer may be using it to prevent a purchaser from protecting their contractual rights.

IMPLICATIONS

In short, this case highlights that 'no caveat' clauses and supporting powers of attorney are not completely reliable.

In addition, it serves as a reminder that when looking to make changes to a property development, developers need to be mindful of the limitations any pre-sales agreement might impose on those changes.

Phillips Fox has changed its name to DLA Phillips Fox because the firm entered into an exclusive alliance with DLA Piper, one of the largest legal services organisations in the world. We will retain our offices in every major commercial centre in Australia and New Zealand, with no operational change to your relationship with the firm. DLA Phillips Fox can now take your business one step further − by connecting you to a global network of legal experience, talent and knowledge.

This publication is intended as a first point of reference and should not be relied on as a substitute for professional advice. Specialist legal advice should always be sought in relation to any particular circumstances and no liability will be accepted for any losses incurred by those relying solely on this publication.