Property News Alert: NSW legislative changes in relation to sunset clauses in residential off-the-plan contracts
Following recent publicity surrounding a number of off-the-plan apartment developments, the NSW government has acted on concerns that some developers may have deliberately delayed completing projects or engaged in other tactics in order to invoke their rights under sunset clauses to cancel contracts for sale. The focus on sunset clauses is no doubt the result of the devastating consequences of such tactics for buyers, given the surge in Sydney property prices, and the difficulty of establishing in court that the developer failed to use reasonable endeavours to complete the development before the sunset date.
The Conveyancing Amendment (Sunset Clauses) Bill 2015 was introduced into NSW Parliament on 10 November 2015. The Bill proposes to amend the Conveyancing Act 1919 to restrict the rights of a vendor to rescind an off-the-plan contract for the sale of a residential lot under a sunset clause. For the purposes of the proposed changes, a ‘sunset clause’ is a provision that provides for the contract to be rescinded if the subject lot is not created by the sunset date. Interestingly, no reference is made to other common conditions that are the subject of sunset clauses contained in off-the-plan contracts, for example, the issue of an occupation certificate.
Under the changes, before a vendor can rescind an off-the-plan contract under a sunset clause, the vendor must give at least 28 days notice of the proposed rescission to the buyer together with the reason for the delay. The vendor then must obtain the written consent of the buyer or, failing that consent, obtain an order from the Supreme Court permitting rescission. In order to obtain such an order, the vendor must satisfy the Court that making the order is just and equitable in all the circumstances. In making this determination, the Court is to take the following into account:
- the terms of the off the plan contract;
- whether the vendor has acted unreasonably or in bad faith;
- the reason for the delay in creating the subject lot;
- the likely date on which the subject lot will be created;
- whether the subject lot has increased in value;
- the effect of the rescission on each purchaser;
- any other matter the Court considers to be relevant; and
- any other matter prescribed by the regulations.
Unless the vendor satisfies the Court that the purchaser unreasonably withheld consent to the rescission, the vendor will be liable to pay the purchaser’s costs of the proceedings.
The changes will apply to all contracts whether made before or after the new law comes into effect, and cannot be contracted out of.
Developers should be aware of these changes in the preparation of off-the-plan contracts and in the administration of their projects.
Martyn Tier, Partner
Caroline Najjar, Senior Associate