Purchasers of off-the-plan residential properties will most probably have come across the term 'sunset clause' in their contracts for sale. What is actually a 'sunset clause'?

A sunset clause is a common provision contained in a contract for sale of off-the-plan property by which either the vendor or the purchaser is entitled to cancel the contract if certain conditions for completion of contract have not been met by a certain deadline known as the 'sunset date'. These conditions usually include the registration of plan creating the property and the issue of occupation certificate authorising the final occupation of the property.

In a rapidly rising property market such as that experienced in Sydney in the last few years, unscrupulous developers have taken advantage of sunset clauses at the expense of innocent purchasers by deliberately failing to achieve the conditions for completion before the sunset date, cancelling the contracts for sale when the sunset date has expired and reselling the properties to new purchasers at a higher price in order to reap bigger profits. Off-the-plan purchasers are often left with little recourse against such developers for their loss of appreciation in property values.

Purchasers of off-the-plan residential properties in New South Wales can now expect to be better protected against the unjust cancellation of contracts by unscrupulous developers after the enactment of the Conveyancing Amendment (Sunset Clauses) Act 2015.

The Conveyancing Amendment (Sunset Clauses) Bill 2015 ('the Amendment Bill') was introduced into the Parliament of New South Wales on 10 November 2015 and passed on 17 November 2015. It received royal assent on 24 November 2015 and started to take legal effect on the same date of assent. The Amendment Bill has the following two salient features that are worth noting.

1.      Court Vetting of Contract Rescission by Vendor

A new section 66ZL is introduced into the Conveyancing Act 1919 to provide that a vendor may rescind an off-the-plan contract under a sunset clause only if:

a)      Each purchaser has been served a notice in writing at least 28 days before the proposed rescission that specifies why the vendor is proposing to rescind the contract and the reason for the delay in creating the subject lot by registration of plans; AND

b)      Each purchaser served with the above notice consents in writing to the rescission; OR

c)      the vendor has obtained an order of the Supreme Court permitting the vendor to rescind the contract under the sunset clause.

In deciding whether to make an order permitting the vendor to rescind an off-the-plan contract under a sunset clause, the Supreme Court must be satisfied that it is just and equitable in all the circumstances to do so. The following factors will be taken into account by the Court:

                 (i)            the terms of the off-the-plan contract

               (ii)            whether the vendor has acted unreasonably or in bad faith

             (iii)            the reason for the delay in creating the subject lot

              (iv)            the likely date on which the subject lot will be created

                (v)            whether the subject lot has increased in value

              (vi)            the effect of the rescission on each purchaser

            (vii)            any other matter that the Court considers to be relevant

          (viii)            any other matter prescribed by the regulations

The vendor will normally be held liable for the purchaser's costs in relation to proceedings for obtaining a Court order under section 66ZL, unless the vendor can satisfy the Court that the purchaser has unreasonably withheld consent to the rescission of contract under the sunset clause.

2.      Retrospective Effect of Legislative Amendment

The Amendment Bill introduces a new Part 9 to Schedule 9 of the Conveyancing Act 1919. The new Part 9 provides that section 66ZL applies to all off-the-plan contracts regardless of whether the contract was entered into before, on or after the commencement of that section. Any purported rescission of an off-the-plan contract under a sunset clause by a vendor on or after 2 November 2015 must comply with the statutory requirements as set out in section 66ZL, no matter when the contract was made.

In my next article on this topic, I shall discuss a recent case in which the vendor attempts to obtain an order from the Supreme Court permitting it to rescind an off-the-plan contract under section 66ZL. It will be interesting to see how the Court will apply the new law to protect the interest of off-the-plan purchasers as envisaged by the legislature.

Disclaimer

The contents of this article are for general information only. They do not constitute legal advice and are not intended by the author to do so. Any person who needs to obtain legal advice in relation to anything discussed in this article should contact his or her own lawyer in the relevant area of law. The author specifically excludes and does not accept any responsibility for any loss suffered as a result of any decision, act or omission made by any person in reliance of anything discussed in this article.