Overview
If you purchase a property off the plan and nominate your desired colour scheme for various items in the property, you might naturally assume the finished product will match your selection.
But what if the developer gets it wrong, and you open the door to your new property and see the kitchen bench is, low and behold, in the wrong colour?
Can you get out of the contract, or are you stuck with what you have?
This unfortunate situation was recently addressed by the New South Wales Supreme Court in its decision in Morgan v RHS Hotel Investments Pty Ltd (receiver and manager appointed) as trustee for the Rushcutters Unit Trust [2025] NSWSC 1295 (Morgan).
The key lesson? Always read the contract very carefully before proceeding with an off the plan purchase. Even something as serious – and upsetting – as your dream home being built in the wrong colour will not automatically mean you can terminate the contract.
Facts
The first defendant, RHS Hotel Investments Pty Ltd (Vendor), redeveloped a property at 100 Bayswater Road, Rushcutters Bay into a mixed-use building containing 117 residential apartments and a retail unit, which it called “Nautique”. The Vendor used the services of a related entity, 100 Bayswater Pty Ltd (Developer) to complete the redevelopment. The Developer was the second defendant in the proceeding.
Both the Vendor and the Developer encountered financial difficulties during the redevelopment, and receivers and managers were appointed over both entities by their major financiers. The receivers and managers proceeded to complete the redevelopment on behalf of the Vendor and the Developer.
The plaintiff, Ms Morgan (Purchaser), bought a one-bedroom unit off the plan from the Vendor in April 2022 (Property).
The contract of sale for the Property was a standard-form New South Wales sale and purchase of land contract (Contract), supplemented by various special conditions (Conditions).
Item 15 of the Contract set out the “Style Choice” applicable to the Property, and enabled the Purchaser to select either the “Park Scheme” or the “Harbour Scheme” as the colour of the marble stone to be used for the kitchen benchtop (and one of the bathroom walls). The Purchaser selected the Harbour Scheme, which was white, in contrast to the green of the Park Scheme.
During a pre-purchase inspection, the Purchaser discovered that the kitchen benchtop was actually green, not white, with the Developer having completed the benchtop in the Park Scheme despite the Purchaser’s selection in Item 15 of the Contract.
The Purchaser refused to complete the Contract, demanding rectification of the incorrect colour choice. While acknowledging the choice made by the Purchaser, the Vendor insisted on completion, claiming the difference in colour was inconsequential.
The Purchaser then purported to terminate the Contract on the basis of the Vendor’s repudiation, and demanded a return of the deposit she had paid. The Vendor refused, and the Purchaser commenced proceedings seeking a return of the deposit. The Vendor filed a cross-summons seeking specific performance of the Contract
Relevant terms of the contract
Under clause 50.1.1 of the Conditions, if a style had been selected in Item 15 of the Contract, the style was deemed to form part of the Property. On the other hand, under clause 50.1.2 of the Conditions, if no style was selected, the Vendor could decide at its absolute discretion which style to use, with the Purchaser having no claim due to the Vendor’s decision.
Under clause 51.1.2 of the Conditions, the Vendor was entitled to alter “any manner of finish” forming part of the Property if it was “a similar manner of finish of at least equivalent quality to that specified in the Finishes Schedule”.
The “Finishes Schedule” was defined to mean the “schedule of finishes comprising Attachment 3”, and Attachment 3 referred to a stone bench in the kitchen, among other things.
Decision
Pike J held that the inclusion of clause 50.1.2 of the Conditions in the Contract – i.e. that if no style was chosen, the Vendor could decide which colour scheme to use and the Purchaser would have no claim – did not mean that clause 50.1.1 of the Conditions should therefore be taken to deny the Vendor any entitlement to change a colour scheme for the kitchen bench that had been chosen by the Purchaser.
Rather, Pike J construed clause 51.1.2 of the Conditions to enable the Vendor to change the appearance of the kitchen bench – as a relevant “finish” contemplated by that clause – in any way, provided the end product was “at least of equivalent quality”. It was held that the Park Scheme and the Harbour Scheme merely related to colour, and the fact the Property was completed in a colour scheme not chosen by the Purchaser did not mean the end product was of lesser quality.
As a result, Pike J held that the Vendor had not engaged in any repudiatory conduct in refusing to rectify the kitchen bench to accord with the Harbour Scheme chosen by the Purchaser. Adopting the test for repudiation from the High Court’s decision in Koompahtoo Local Aboriginal Land Council v Sanpine Pty Ltd (2007) 233 CLR 115 – i.e. a party’s willingness to perform a contract only “in a manner substantially inconsistent” with its obligations – Pike J noted that:
- in fact, the Vendor had complied with its express contractual obligations at all times, given that clause 51.1.2 of the Conditions, properly construed, permitted the Vendor to change the colour scheme for the kitchen bench chosen by the Purchaser; and
- even if clause 51.1.2 was construed as not permitting a change by the Vendor, the mere difference in colour was not serious enough to give rise to any substantial inconsistency in the end product delivered to the Purchaser.
As a defence to the Vendor’s claim to specific performance of the Contract, the Purchaser alleged the Vendor was not ready, willing and able to perform its end of the bargain. However, given Pike J’s conclusion that clause 51.1.2 of the Conditions should be read as giving the Vendor the right to alter the colour scheme for the kitchen bench, the Purchaser’s defence to specific performance necessarily failed, along with her claim for the deposit to be returned.
Takeaways
While the ending in Morgan was unfortunate for the specific Purchaser, the decision does not mean the same result would always follow in other cases.
Rather, the relevant contract of sale could be worded so that a vendor is not permitted to make any changes to finishes specified in the contract, and also set out what relief the purchaser is entitled to if a change is made (e.g. damages, rectification or a right to terminate).
As a purchaser, you should therefore always carefully read the contract of sale before proceeding – especially in an off the plan purchase, which can be riskier than buying an existing property due to uncertainties in construction, financing and a developer’s risk of insolvency.
You should also be very careful before purporting to terminate a contract relying on the repudiation of the vendor. The test for repudiation – a party’s willingness to perform a contract only “in a manner substantially inconsistent” with its obligations – is very difficult to satisfy.
If you get it wrong, you could yourself be found to have repudiated the contract, and the vendor could suddenly have a right to terminate and seek damages against you.
The K2 difference
At K2 Law, we have a depth of experience in all residential and commercial property matters, from inception to completion.
Please get in touch with Matthew Kumnick or Jess Hepburn if you want to discuss an upcoming purchase, or a dispute that has arisen with your developer.
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