Sunset Clauses In Off-The-Plan Residential Contracts
The Sale of Land Amendment Bill 2018 (Bill) was introduced to the Victorian parliament in August 2018, passed by the Legislative Assembly on 20 September 2018 and introduced to the Legislative Council on 20 September 2018.
A key purpose of the Bill is to amend the Sale of Land Act 1962 to restrict the use of sunset clauses in certain off-the-plan contracts, aimed at protecting purchasers under existing residential off-the-plan contracts from vendors seeking to take advantage of existing rights to rescind a residential off-the-plan contract under a sunset clause.
What is a sunset clause?
A sunset clause is a provision in a residential off-the plan contract that allows the purchaser or vendor to rescind an off-the-plan the contract if:
The relevant plan of subdivision has not been registered by the sunset date; or
An occupancy permit has not been issued under the Building Act 1993 by the sunset date.
Proposed changes under the Bill
Vendor to obtain purchaser’s consent
Under the proposed Bill, a Vendor may only rescind a residential off-the-plan contract under a sunset clause if the vendor obtains the written consent of each purchaser no earlier than 28 days after the purchaser has been given written notice by the vendor setting out the reasons for the proposed rescission, the reason for delay in registering the plan of subdivision or the issuing of the occupancy permit, and that the purchaser is not obliged to consent.
Supreme Court Order
If a purchaser does not consent to the rescission of the residential off-the-plan contract under a sunset clause, the vendor may apply to the Supreme Court for an order allowing the vendor to rescind contract if the Court is satisfied that making the order would be just and equitable in all the circumstances. The Court will have regard to the vendor’s conduct, the reasons for delay, the increase of value in the relevant lot, the effect of the rescission on each purchaser and any other matter that the Court considers relevant.
The vendor will be required to pay the purchaser’s costs in the proceedings unless the vendor can satisfy the Court that the purchaser unreasonably withheld consent to the rescission under the sunset clause. The Court may also make an order for reasonable compensation of the purchaser or any other order that it considers just and equitable.
Vendor’s additional obligations
The proposed Bill will require vendors to include certain statements in a sunset clause in residential off-the-plan contracts after the date of commencement of the section including:
A description of the vendor’s obligations to give notice of a proposed rescission of the contract;
The purchaser’s right to give written consent;
The vendor’s right to apply to the Supreme Court for an order permitting the vendor to rescind the contract and the power of the Supreme Court to make such an order;
A proposed maximum penalty of 240 penalty units will apply to a natural person and 1200 penalty units to a body corporate for breach of this section.
What does this mean for developers?
If passed, the Bill will curtail a developer’s rights to terminate off-the-plan residential contracts without the prior consent of the purchaser. Accordingly, developers must be prudent when determining sunset dates in off-the-plan residential contracts, allowing sufficient time for the relevant plans of subdivision and occupancy permits to be obtained.
Developers may also amend their contracts to provide for certain circumstances in which the Vendor may terminate the contract such as when permits are refused by the relevant authorities, project finance is not obtained or an insufficient number of lots have been sold.
If you would like further information regarding sunset clauses or amending contracts for sale of real estate, please contact Urban Lawyers.