The sun sets on developer rights
Following lengthy discussions in 2018, The Sale of Land Amendment Bill 2019 passed through the Parliament.
The new Sunset Provisions will give greater power to purchasers in off-the-plans contracts. The amendments will severely limit the right of developers to cancel contracts that have extended past their ‘sunset periods’.
Currently, the act does not prohibit a developer from rescinding an off-the-plan contract of sale by the sunset date if:
- the plan of subdivision has not been registered; or
- an occupancy permit has not been issued.
Generally, developers must have made all reasonable endeavours to register the plan or to obtain the permit within the sunset period.
How do Developers Use Sunset Provisions?
Sunset provisions enable developers to cancel contracts and re- sell if delays are incurred that are out of their control. Often developers encounter unexpected issues with authorities and other third parties which can lead to increased expenses and interest payments on loans. However, these provisions create uncertainty for purchasers whose plans for future homes may never eventuate.
A number of recent cases have also identified that developers may be exploiting these provisions by delaying works, cancelling contracts and re-selling for higher profits. However, in the current market such cases are becoming rarer. The proposed amendments are basically consistent with the NSW provisions and aim to provide greater protection to purchasers.
What are the Key Changes?
Interestingly, the proposed amendments will come into operation in a staggered manner with the first amendments being introduced retrospectively.
Some of the key changes are as follows:
From August 23 (back-dated):
A vendor must not rescind an off-the-plan contract under a sunset clause except for as provided below.
Subject to the below, a vendor may rescind a residential off-the-plan contract under a sunset clause if:
a) the plan of subdivision has not been registered by the sunset date; or
b) an occupancy permit has not been issued by the sunset date.
Before rescinding under a sunset clause, the vendor must obtain the written consent of each purchaser to the rescission after giving each purchaser at least 28 days written notice, setting out:
a) the reason why the vendor is proposing to rescind;
b) the reason for the delay; and
c) that the purchaser is not obliged to consent to the proposed rescission.
A provision of a residential off-the-plan contract has no effect to the extent that it is inconsistent with the above. It is also confirmed that the above amendments apply to residential off-the-plan contracts entered into before the commencement of these amendments.
These amendments will not affect any proceeding concerning the effect or operation of a sunset clause that was commenced prior to the bill being passed.
From the date that the Bill passes and it receives Royal Assent:
A vendor may apply to the Supreme Court for an order permitting them to rescind the contract under a sunset clause.
The Court may order reasonable compensation to the purchaser.
The Vendor is liable to pay the costs of a purchaser in relation to the proceeding for such an order unless the Vendor satisfies the Court that the purchaser was acting unreasonably.
The above amendments apply to residential off-the-plan contracts entered into before the commencement of these amendments.
From ‘a day to be proclaimed’ (or 1 March 2020):
A sunset clause in a residential off-the-plan contract must include a statement that:
a) the vendor is required to give notice of a proposed rescission of the contract;
b) the purchaser has the right to consent to the proposed rescission but is not obliged to do so;
c) the Vendor has the right to apply to the Supreme Court for an order permitting them to rescind the contract; and
d) the Court may make an order permitting the rescission.
It will be an offence not to include this statement. This clause does not apply to contracts entered into before the operation of this provision.
You should be aware of the amendments, especially those that may function retrospectively. Any purported action by a developer after 23 August 2018 with regards to cancelling an off-the-plan contract pursuant to a sunset clause may be deemed invalid. Caution should be taken if the developer plans to re-sell any lot that was cancelled after 23 August. Legal advice should be sought if a developer has already re-sold any lot that was cancelled after 23 August.
Developers should also seek to update their contract of sale to be consistent with the amendments.