In November 2015, the New South Wales government passed the Conveyancing Amendment (Sunset Clauses) Act 2015 designed to assist purchasers of “off-the-plan” properties.
The new law applies to all new and existing contracts for the sale of “off-the-plan” properties that have not yet completed. Typically, “off-the-plan” contracts are used by developers of high rise, residential apartments that are “pre-sold” before the building has been constructed.
These specialised contracts usually contain a “sunset clause” which normally provides that, if the development is not completed by a certain date, the developer can “rescind” the contract. In these circumstances, the buyer would receive a refund of any deposit paid but would be left with no property and no other remedy or right to compensation.
Why Was the Law Changed?
The purpose of the new law is to address a perceived problem with property developers deliberately manipulating sunset clauses to their advantage. In particular, in a rising market, it may be in a developer’s interest to intentionally “drag out” completion of a project so that they can exercise a rescission right under a sunset clause and then re-sell the property to a new buyer at a higher price. As the Minister explained when introducing the Bill to Parliament:
“There has been an increased incidence of developers delaying projects until the sunset date is reached. The developer can then rescind the contract and resell the property, sometimes for hundreds of thousands of dollars more. The purchaser will eventually have their deposit returned, but they lose any capital appreciation their lot has accrued. In addition, they are prevented from purchasing another property while their funds are tied up in the developer’s hands”.
What are the new Protections for Off-the-Plan Purchasers?
Notwithstanding the terms of any existing contract, a vendor (developer) under an off-the-plan contract can only rescind the contract for a failure to complete the development by the sunset date if the developer has:
- given the purchasers at least 28 days’ notice in writing of a proposed “sunset date” rescission and the purchasers have consented to that rescission; or
- obtained an Order from the Supreme Court permitting the rescission of the contract.
The Court is required to consider a number of factors when deciding whether to grant such and Order including; whether the vendor has acted unreasonably or in bad faith, the impact of the rescission on the purchasers and any increase in the value of the property since the date of the contract.
The new laws have addressed one perceived problem arising from off the plan contracts. However, questions remain about the power imbalances in the relationship between property developers and purchasers of off the plan units and apartments.
Off the plan contracts contain many (often hidden) risks and issues for purchasers of which “sunset clauses” are but one. If you are considering buying off the plan, it is strongly recommended that you obtain a full legal review of the contract before “signing on the dotted line”.
For advice and assistance in property and contract law matters, contact Colin Sloan – firstname.lastname@example.org or 0414 608 085.