When purchasing a newly constructed home or strata property from a developer, there are many advantages. For example, a brand new house or apartment requires much less upkeep and the purchaser may have a say in design and structural features to truly make the home their own. And, with property values often on the rise, there could be the advantage of securing a future property at today’s prices. On the flip side, these purchases are not without their risks.
Because many of these properties are sold before the developer has subdivided the land into individual lots, they require the use of an off-the-plan type contract. This contract includes the purchase of the land as well as the dwelling that sits on it. However, because the sale is dependent on critical milestones that have not yet been completed, they usually include clauses that a standard contract for the sale of land does not necessarily include.
One common clause is a “sunset” clause. This stipulates that if the necessary approvals do not occur by a specific date, either party can rescind the contract, returning any deposit back to the purchaser. While in its essence this clause offers valid protections to both parties in the event of unforeseen delays, an alarming trend has been seen.
Because of the steady growth in the housing prices, some unscrupulous vendors have purposely delayed securing approvals, then used this clause as a way to back out of a deal in order to sell the property to another party for a higher price. This has left many home buyers on the short end of the deal. Not only are they left without a home, but now face the issue of rising prices as they try to find a new property — all while the developer reaps increasing profits from the contract termination.
In an effort to provide purchasers with protection, the Government of New South Wales introduced the Conveyancing Amendment (Sunset Clauses) Act 2015 which led to the introduction of s 66ZL in the Conveyancing Act. This amendment stipulates that a sunset clause can only be used to rescind a contract if it is “just and equitable in all circumstances” unless the purchaser gives their written consent to the rescission. In order to make this determination about what is just and equitable, the court looks at all of the following: -
- The terms of the contract
- Whether the vendor has acted unreasonably or in bad faith
- The reason for the delay in creating the lot
- The likely date the lot will be created
- Whether the lot has increased in value
- The effect of the rescission on each purchaser
- Any other matter prescribed by the regulations
- Any other matter that the court considers to be relevant
While this new legislation goes a long way towards protecting the rights of the purchaser, it is by no means an easy process. One look at the above factors illustrates just how complex the issue can be and the types of evidence needed. The court has a wide discretion in these kinds of matters and because this legislation is fairly new, with only a handful of decisions decided so far, it is unclear how this legislation work for purchasers in the long run. So if you have received a notice of an intention to rescind an off the plan contract and are facing a property dispute in respect of a Sunset Clause, it is important to seek legal advice promptly from a firm that focuses on contract litigation. Litigant offers over 10 years of litigation experience, and has been involved in numerous cases involving breaches of contract type issues concerning the sale of land. To get more information regarding your specific situation, simply call our litigation lawyers in Sydney, NSW at +61 2 8644 0663 to book a consultation.