Late last year, the NSW Government passed an amendment to the Conveyancing Act 1919 (NSW) (the Conveyancing Act) to provide protections to purchasers of off-the-plan property.  All those involved in off-the-plan property should be well aware of this important change.

The Conveyancing Amendment (Sunset Clauses) Act 2015 (NSW) (the Act) is the product of consultation between the Government, with the support of Fair Trading, Land and Property Information, and the community. A survey conducted earlier last year revealed an emerging concern that developers may be delaying off-the-plan projects so that they can terminate contracts through ‘sunset clause’ provisions, and then resell the properties for financial gain.

Further, the change was prompted by the decision in Wang v Kaymet Corporation where a developer was found to be entitled to terminate contracts using a sunset clause in circumstances where the value of the apartments had increased significantly and owners wished to proceed with their contracts.

The Issue with Sunset Clauses

Sunset clauses in development contracts allow either party to end the contract if the project is not completed on time. This generally works in favour of purchasers, giving them a right to end the contract if the project is delayed.

However, given Sydney’s booming property market, the Minister for Innovation and Better Regulation Victor Dominello expressed concern that projects are being deliberately delayed to invoke sunset clauses, thereby allowing units to be resold at significantly higher prices than the original contract price.

Changes to the Conveyancing Act

The Act inserts a new Division 10 into the Conveyancing Act. The new division requires that a vendor give each purchaser notice of the rescission in writing at least 28 days prior to rescission. Its aim is to prevent developers using the sunset clause to unreasonably rescind off-the-plan contracts for residential property.

It has been suggested that the system in Western Australia, where the right to rescind under a sunset clause is restricted to the purchaser, is a preferable model.

Right for vendor’s to rescind

Under the Act, a vendor can no longer rescind an off-the-plan contract for residential property unless the vendor has given each purchaser notice (as mentioned above) and has stated the reasons why the rescission is proposed.

However for those contracts where the lots have not been created before the sunset date, the vendor can only rescind if:

• Written consent to the vendor’s proposed rescission is obtained from the purchasers; or
• An order is obtained permitting the rescission from the Supreme Court; or
• The reason for the rescission falls within a category prescribed by the Regulations (no Regulations have yet been made).

Factors considered by the Court

When deciding whether to approve a vendor’s request to rescind an off-the-plan contract, the Supreme Court will take the following factors into account:

• The terms of the contract;
• The vendor’s behaviour;
• The reason for delay;
• The value of the lot; and
• Any other matter the considers relevant.

Commencement

Despite the introduction of the Act in late November 2015, the Act  applies retrospectively to any purported rescission that takes place on or after 2 November 2015.

It is important for purchasers purchasing residential property off-the-plan to be mindful of sunset clauses and the new protections now available.

For further information please contact ERA Legal.