VILLA World (ASX:VLW) has cleared the air over a potential lawsuit involving a Tweed Heads development, announcing that it will take a $6.5 million hit to its bottom line this financial year.

However, despite the latest impost, the Gold Coast developer says rising activity in its key housing markets has put it on track to come close to its FY15 pre-tax profit forecast issued earlier this year.

Villa World was facing legal action over alleged defects in the Silverstone apartment building which was completed in 2009.  The body corporate and apartment owners had been seeking rectification work totalling $14.5 million.

The 27-apartnment complex was built by subsidiary Villa World Developments and Villa World says the $6.5 million payout is the company's portion of the claim. 

The final figure is still subject to audit, although for Villa World the settlement comes at a comfortable time in its development cycle.

The company says the average sales rate across its portfolio has risen from 58.7 per month in the first half of this financial year to 82 in the third quarter.

This has led Villa World to offer a revised pre-tax profit forecast of between $26 million and $28 million for FY15 after taking into account the $6.5 million provision.

In January, the company upgraded its pre-tax profit target to at least $28.5 million.

"We are pleased that the continuing growth in the operating performance of the business has allowed us to deliver a strong result, while being able to make provision for the one-off legacy issue of Silverstone," says Villa World managing director Craig Treasure.

Although he cannot comment further on the settlement, Treasure says the latest announcement is important from the perspective of bringing the issue to a close.

"It also means that (without this provision) we would have been effectively on target for a pre-tax profit of $30-$34 million which means business is performing very well and allow us to achieve very good things in 2016."

Treasure says sales have remained strong in the final quarter, aided by a solid performance from the company's Queensland operations, while all projects released in 2015 are exceeding forecasts.

The company expects to achieve more than 800 sales this financial year, climbing to between 1000 and 1200 sales in FY16. More than 280 sales contracts will be carried forward to FY16 to drive the company towards that target.

"In the past 18 months there has been a step change in the business, along with strong market conditions, and we now have a portfolio that is positioned for sustainable long-term growth and value creation for our shareholders," Treasure says.

Growth is expected to be driven by improved business and consumer confidence following the latest Federal Budget, which Treasure says appears to have broader community support than last year's document.

Meanwhile, shareholders took today's announcement in their stride, boosting Villa World's shares 2c to $2.29.

Villa World affirmed its intention to pay a 9c final dividend, bringing the full-year payout to 15c.

The company posted a net profit of $19.1 million in the 2014 financial year, up from a $13.1 million loss a year earlier.

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