Recently, a developer contacted me asking for advise over an Addendum he counter signed with s buyer for purchase of an off-plan condominium apartment in Phuket. A deposit was paid and the Addendum was drafted by the real estate agent as part of ongoing negotiations without my knowledge. A deposit was paid, the original Sales & Purchase Agreement contained all the standard boilerplate clauses, warranties conditions, rights and so on as reasonably expected and consistent with general industry practice.
However, the Addendum contained a short clause which read “if the buyer does not like the view from his apartment then he or she is entitled to a full refund…” In addition as part of the deal, the developer at the buyer’s request also converted the apartment from a 2 to one bedroom apartment at his own cost initially. The apartment holds beautiful views of the Andaman Sea from its balcony and the developer was so confident that the buyer would not exercise that right under any circumstance in the Addendum for a refund.
To his surprise, he was wrong. The buyer changed his mind and demanded his refund back. A dispute broke out. Both parties refused to negotiate, it went to court which decided in favour of the buyer. The developer then had to refund the deposit, pay lawyers fees on both sides, carry refurbishments and opportunity costs all of which amounted to a considerable expense.
What then are the lessons? Well you don’t need, a lawyer to tell you to seek legal advise before you sign any contract to a transaction This includes contract reviews as a integral part of risk management. However, the bigger problem to the developer was that the buyer’s decision to exercise his rights as expressly stated in the Addendum hurt his pride. So against advise to settle, he just wanted to win the case in court.
As a side point, legal systems are not all equal and many savvy business persons forget the differences. The Thai system is codified and quite simple on the one hand but inflexible on the other. It is inquisitorial and does not rely on case precedent as distinct from common law jurisdictions such as Australia or the UK. This means there is much emphasis placed on written content in the documentation rather than the circumstances and implications surrounding the deal.
Each system has its advantages but in this case it was had little to do with legal systems and came down to human behavior. The point is, over confidence can be costly if not fatal in any jurisdiction notwithstanding the quality of the product or service offered.
My client thought he would be able to predictably read the intentions of the buyer. Yet this one short clause cost him a lot of money, was extremely distressful to him and his family with many sleepless nights. In addition, the financial costs impacted the entire project impacting revenue turnover, profit margins and the difficult area to quantify, a tarnished reputation.
There is an old saying that good fences make good neighbors meaning well structured contracts contemplate all reasonable contingencies in a deal, but they are also the essential bridge and protectors of the relationships between parties against litigation, financial and reputation loss among others.