Recently, the NSW Government passed the Conveyancing Amendment (Sunset Clauses) Act 2015. The amendment seeks to provide further protection for purchasers in off the plan property contracts.

The Act was amended due to concerns that some developers were using sunset clauses as a way of terminating an off the plan contract for financial gain. There have been numerous instances of developers purposely delaying projects so that the sunset clause may become operational. Although the purchaser does receive their deposit back, they are left out of pocket for their legal or conveyancing fees and may also not be able to purchase a replacement property.

What is an off the plan contract?

An off the plan property is a contract to purchase a property that has not yet been built. This type of contract is used by developers to presell vacant land lots or strata units prior to construction being finalised.

The process involves the purchaser paying a deposit and waiting for the developer to obtain registration of a plan at LPI. Once the plan has been registered, an individual title is created for the land or unit. Once title for the lot has been issued the contract may then be completed in the usual way.

What is a sunset clause?

A sunset clause is a provision in an off the plan contract which allows the contract to be rescinded if the lot is not created by the sunset date. A majority of the sunset clauses allow for the Vendor or Purchaser to rescind the contract if the development has not been completed within the specified time.

What are the new changes to the Conveyancing Act?

The amendments to the Conveyancing Act aim to prevent developers from unreasonably rescinding off the plan contracts for residential property through a sunset clause. A residential property is:

  • A parcel of land less than 2.5 ha in area on which no more than two dwellings exist
  • Vacant land on which construction of a single place of residence is not prohibited
  • A lot/s (including proposed lots) under the strata schemes development legislation that is intended to be used as a single place of residence

Any vendor intending to rescind an off the plan contract under a sunset clause must give each purchaser at least 28 days notice in writing. This notice must disclose why the vendor has chosen to rescind and the reasons for the delay.

If the proposed lots has not been created prior to the sunset date, the vendor is only permitted to rescind under a sunset clause if:

  • The purchaser has provided written consent to the vendor’s rescission; or
  • The vendor obtains an order from the Supreme Court permitting the rescission; or
  • The reason for the rescission comes within an exception prescribed by the Regulations (no Regulations have been made yet)

The Supreme Court will take into consideration the following factors when deciding whether to allow the vendor’s proposed rescission:

  • Whether the vendor has acted unreasonably or in bad faith
  • The reason for the delay
  • The terms of the contract
  • Whether the subject lot has increased in value
  • Any other matter that the court deems relevant

When is the commencement of the new provisions?

The new laws will apply to any rescission that takes place after 2 November 2015.

If you require any further information in regards to off the plan property contracts, please do not hesitate to contact our team of lawyers at The Quinn Group on (02) 9223 9166 or submit an online enquiry form today.