How to protect your interest if you purchase off-the-plan property: a case on Sunset Clause and legislation changes

In 2014 CS Lawyers acted for one of its clients and successfully challenged the developer’s Notice of Rescission served on him based on the sunset clause.

Background and Key Facts

  • Our client entered into contracts with a developer in December 2012 to purchase, off the plan, 2 strata lots in a proposed strata development located in a Northwestern suburb in Sydney for $650,000 each.
  • Special Condition 3.1 provided that the vendor was required to use all reasonable endeavours to have the Strata Plan registered by the Registration Date.
  • The term Registration Date was defined to be 31 March 2014 (subject to clause 3.5). Clause 3.5 provided a regime for the extension of the registration date by reference to delays in the construction of the building by an Event of Delay but provide for a sunset clause to 31 December 2014, at which point the purchaser would have been entitled to terminate.
  • On 31 March 2014 the vendor purported to rescind our clients contracts together with those of a number of other purchasers, each of whom are in substantially the same position as our client.
  • Subsequent events tend to suggest that at least prima facie, the vendor did not comply with the reasonable endeavours obligation in clause 3.1 yet is seeking to rely upon the rescission provisions in a rising market to obtain an financial benefit to itself.
  • CS Lawyers wrote to the vendor solicitor seeking a justification for the decision but did not receive any meaningful response.

Issues involved

  • It is to be noted that the special conditions in this contract mirror the standard provision in clause 28 of the 2005 edition of the standard form contract for the sale of land in NSW. Under that particular clause a vendor was/is only entitled to rescind the contract if: had complied with the clause 28.2 obligation to do everything reasonable to have the plan registered within 6 months of after the contract date, with or without any minor alteration to the plan or any document to be lodged with the plain validly required or made under legislation; and
    b.such breach was the cause of the failure to register within time.
  • In short the vendor is under a duty to do everything reasonable: ie to use its best endeavours in seeking registration of the plan to act as a prudent, determined and reasonable owner, acting in its own interest and desiring to achieve that result.
  • In order to find out whether the vendor has met his duty. One way to find out if there has been a breach and whether that breach has caused the failure to register within time, is to write and demand that it provide documentation relevant to the question of breach and preserving our client’s rights in the interim. However our requests to the vendor’s solicitors were all ignored.
  • Finally we commenced proceedings in the Supreme Court of NSW for an order for preliminary discover under UCPR 5 for the purposes of determining if it has a cause of action.
  • After the proceedings were commenced, it didn’t take long for the developer to settle with our client.
  • Finally the developer withdrew their Notice of Rescission and the two strata lots were settled according to the original contracts.

Lessons learned:

  • When things go wrong, to seek legal advice as soon as possible. In the case above, we took action the following day when the Notice of Rescission was served on our client. No time wasted.
  • Don’t be afraid of the big players if you know your legal position.

Legislation changes

  • Obviously our client was not alone in dealing with greedy developers in a rising market. Legislation has recently been amended to provide additional protection for purchasers of property, off the plan.
  • In New South Wales, the law has been strengthened to help stop developers from unreasonably using sunset clauses, provided in their contracts for off the plan residential property sales, to bring those contracts to an end.
  • Under the Conveyancing Amendment (Sunset Clauses) Act 2015, a developer that is the vendor under a contract is now required to give notice to each purchaser under the contract, before ending the contract. This notice must state why the developer proposes to end the agreement and give reasons for delay with the project.
  • For the contract to be terminated, the purchaser would need to agree.
  • If the purchaser does not agree, and the lot has not been created before the sunset date, then the developer will need to obtain an order from the Supreme Court permitting the contract to be rescinded.
  • The new legislation will apply to all off the plan contracts that have not been completed – that is, contracts that are still in operation on 2 November 2015; and, also, to any off the plan contracts entered into on or after 2 November 2015.