Real estate agency H&T Realty is suing developer Metro Property Development over $4 million in off-the-plan apartment sales commissions.
H&T, which sells apartments in Sydney, Melbourne and Brisbane, alleges Metro withheld commissions after blaming the agent for a 20 per cent to 25 per cent default rate at seven of its Brisbane projects.
H&T had the bulk of the sales at the seven towers. Troubled Chinese-based group Ausin was also used, it is understood.
The case highlights the rising casualties of the housing downturn triggered by tightening bank lending, the fallout from the banking royal commission and an oversupply of apartments aimed at local and foreign investors, particularly in the Brisbane and Melbourne CBDs.
Both parties had agreed on a roughly 6 per cent commission for new apartment sales at Broadway on Ann in Fortitude Valley, the three towers at Newstead Central, Newstead Towers, Canterbury Towers and the Brisbane Casino Tower (BCT), it is understood. Settlement periods for these multi-density Brisbane CBD towers have passed except BCT, which is handling payments now.
While Metro has paid H&T the first part of the commission, it has withheld most of the commission on settled apartments until H&T resolves the defaulted sales.
It is understood the contracts between Metro and H&T are “industry standard”, which means some commission is paid upfront when deposits are taken, with the rest to be paid on settlement.
H&T claimed this approach was unfair as many of the defaults were not “business as usual” fallovers that tend to occur in any off-the-plan sales, but caused by a blanket refusal by banks to issue loans, forcing both foreign and local buyers to walk away.
Loans were also rejected because of falling apartment valuations of up to 25 per cent, H&T said.
A recent valuation of a two-bedroom 60-square-metres unit at the Brisbane Casino Towers came to $460,000, a 20 per cent decline in value on its sale price of $576,000.
“You can’t say it’s the agent’s fault for not assessing the buyer’s ability to settle. We don’t control bank policies or the decline in valuation, so it is unfair that we are not paid until all settlements have been made,” H&T Brisbane’s Alvin Tan said.
“We do our best to check the buyer’s financial situation but we can only do what we can based on the conditions at the time of sale.”
While H&T is actively reselling defaulted apartments, it says it should at least be paid fees on apartments that had already settled.
Metro said it would be counter-suing, alleging that H&T had defaulted on its agreements and was claiming more than it was owed.
“Metro is always happy to pay any monies properly due and payable,” Metro chief executive Luke Hartman said. “We do dispute that monies are due to H&T and the matter is presently before the courts.”
Metro, which has built more than 3000 apartments in Brisbane in the past seven years, has strong links with some big players in the housing market including ASX-listed Stockland, which backed part of Newstead Towers and Brisbane Casino Towers, and private lenders such as Alceon, which has funded Metro projects in Sydney.
Mr Hartman said Metro would be defending the “pretty cut-and-dry case”.
“Agents are paid commissions to settle a property not paid to exchange a contract,” he said. “No developer or land owner will pay a commission just on an exchange [of contract]. It’s standard industry practice for all major developers.”
Leading project marketers say “industry standard” contracts usually involve two-part commission payments, but terms depend on specific contracts drawn.
While Mr Hartman confirmed there had been defaults at Metro’s projects, he did not provide details, but said “only 80 units were left unsold”.
The Financial Review previously reported Metro had asked many agents across Sydney, Melbourne and Brisbane to sell “residual units” at these projects offering larger discounts and commissions.
Separately, a Stockland spokeswoman has confirmed its investments with Metro were on track and had received its target return for Newstead Towers.
“The Brisbane Casino Towers finished construction earlier this year and is progressively settling in line with our forecasts, with equity being repaid to Stockland as expected,” she said.