Potentially significant changes to sunset clauses in off-the-plan contracts March 13, 2019

The Sale of Land Amendment Bill 2018 (the Bill) was introduced by the Victorian Government on 21 August 2018 in an effort to provide greater consumer protection under the Sale of Land Act 1962 (Vic) (the Act). With the re-election of the Andrews government, the Bill is expected to be passed later this year.

A key purpose of the Bill is to introduce changes to the legislation governing sunset clauses in off-the-plan contracts.

Vendors will only be able to rescind a residential off-the-plan contract under a sunset clause with either the written consent of the purchaser or by order of the Supreme Court of Victoria. This mirrors the NSW legislation and it will apply to all off-the-plan contracts irrespective of what date they were entered into.

What is a sunset clause?

Sunset clauses are a provision that allows a contract to be terminated if:

• the plan of subdivision is not registered by the sunset date; or
• an occupancy permit has not been issued by the sunset date.

Written consent of purchaser

When seeking to obtain the purchaser’s consent, the vendor must give the purchaser at least 28 days prior written notice. The notice must contain:

• the reasons for the proposed rescission;
• the reason for the delay in registering the plan of subdivision or the issuing of the occupancy permit; and
• that the purchaser is not obliged to consent to the recession.

Court Order

Alternatively, the vendor may apply to the Supreme Court of Victoria for an order to rescind the contract pursuant to a sunset clause. The Court must be satisfied that making the order is just and equitable and will take into account a number of factors, including:

• the terms of the residential off-the-plan contract;
• whether the vendor has acted unreasonably or in bad faith;
• the reasons for the delay;
• the increase of value of the lot; and
• the effect of the rescission on the purchaser.

If an order is made, the Court can also order that the vendor pay reasonable compensation to the purchaser. The vendor must also pay the purchaser’s costs in relation to the proceeding unless the Court is satisfied the purchaser unreasonably withheld consent to the rescission.

Statement

The Bill will also require all off-the-plan contracts from December 1 2019 to include a statement that sets out:

• the vendor’s obligations to give notice of a proposed rescission of the contract;
• the purchaser’s right to give consent; and
• the vendor’s right to apply to the Supreme Court for an order allowing them to rescind the contract and the power of the Supreme Court to make such an order if it is just and equitable to do so.

Failure to include these statements will attract a fine of 240 penalty units for natural persons and 1200 penalty units for bodies corporate.

Implications

If the legislation is passed, it is expected that vendors will be required to obtain the purchaser’s written consent in order to terminate a residential off-the-plan contract of sale under a sunset clause. It is expected that this will apply retrospectively to all existing residential off the plan contracts of sale, meaning the consequences of the legislation is potentially far reaching.

Future contracts should be reviewed in light of these proposed changes to avoid any retrospective penalties under the Act, if and when the legislation is passed.

Vendors should note that these changes only relate to sunset dates.  Other contractual rights of termination, such as a failure to obtain a planning permit or finance, may still be relied upon by a vendor seeking rescission.

marshalls+dent+wilmoth has lawyers who can assist you to navigate the changing property landscape. Please do not hesitate to contact us on (03) 9670 5000.

This article was written by Commercial Senior Associate Josh Kaplan and Clerk Olly Gagiero.

DISCLAIMER: Please note that this article is a guide to give you a better understanding of the subject matter of the article and should not be relied upon as legal advice. If you have any queries, feel free to speak to our team.