Off the plan contracts are used by developers to pre-sell vacant land lots or strata units before the necessary building and contract works have been finalised. After paying a deposit the purchaser then waits for the developer to obtain registration of a plan to create an individual title to the land or unit. Once this occurs the contract can be completed in the usual way.
It is important to note that these are conditional contracts that require some mechanism to allow the contract to be terminated if the development is not finalised, so a “sunset clause” is a provision in the contract that provides for it to be rescinded if the lot is not created by the sunset date. The sunset date is the latest date for the lot to be completed and have a separate title issued for it. Most sunset clauses provide that either the vendor or purchaser can rescind if the development is not completed within time.
The new Division 10 of the Conveyancing Act 1919 aims to prevent developers from unreasonably rescinding off the plan contracts for residential property under a sunset clause.
Under the new protections, a vendor must give each purchaser notice in writing at least 28 days prior to rescission under a sunset clause. The notice must state why the vendor is proposing to rescind and give reasons for the delay. If the lot has not been created before the sunset date, the vendor can only rescind under a sunset clause if:
- the purchasers give written consent to the vendor’s proposed rescission; or
- the vendor obtains an order from the Supreme Court permitting the rescission; or
- the reason for the rescission comes within a category prescribed by the Regulations (no Regulations have yet been made).
The Supreme Court will consider the following factors when deciding whether to approve the vendor’s proposed rescission :
- the terms of the contract
- whether the vendor has acted unreasonably or in bad faith
- the reason for the delay
- whether the subject lot has increased in value
- any other matter the court considers to be relevant.
The vendor is liable to pay the purchaser’s costs of the application to the Supreme Court, unless it can be shown that the purchaser’s refusal to consent to the rescission was unreasonable.