Protections for off the plan property purchasers: sunset clauses and the Law

23 September, 2016

For many Australians, buying a home is the largest investment they will ever make. It is estimated that for the average income earner it would take approximately 10.8 years to save for a 20% deposit and up to 15 years if you are considering buying in a major city. The purchaser is also burdened by additional expenses including legal fees, finance costs, insurance and stamp duty. Considering the significance of the investment, it is pertinent to ensure that there are legal protections in place for people engaging in such large transactions.

There is some good news for those purchasing off-the-plan. On 17 November 2015 the NSW Government recognised the need for additional protections for off-the-plan purchasers by passing the Conveyancing Amendment (Sunset Clauses) Act 2015. The new Division 10 of the Conveyancing Act 1919 applies to residential property and prevents developers from unjust cancellation of contracts on expiry of the sunset date. The provisions are of retrospective application and apply to all purported rescissions from 2 November 2015.

Unlike a standard residential contract, an off the plan contract is entered into prior to the registration of individual lots with the LPI. The developer sells the various lots or units prior to the construction of the building and the deposit is usually held by an agent until time of registration and at this time the contract can be completed.

The legislation is in response to a growing trend of unscrupulous developer’s deliberately failing to meet the conditions of completion by the sunset date (‘the deadline’) and exercising their right to rescind the contract. The developer would then return the deposit of the initial purchaser, complete the project and take advantage of the rising property market and resell the property at a higher price.

In light of the new protection legislation, developers are only able to rescind the contract under a sunset clause in limited circumstances and must give the purchaser notice in writing at least 28 days prior to rescission providing reasons for their proposal and the delay. The vendor may only rescind with written consent to the recession proposal or by a obtaining a Supreme Court order permitting the rescission. Without the consent of the purchaser to the rescission, the Supreme Court on application of the vendor will consider matters including the terms of the contract, whether the vendor has acted reasonably or in bad faith, the reasons for delay and any increases in value of the lot in question.

In the spirit of consumer protection, these provisions do not inhibit the rights of the purchaser to rescind under a sunset clause. The additional protections also act as an incentive for vendors to reasonably commit themselves to the developments to avoid being liable to pay the purchaser’s costs of the application to the Supreme Court.