Since 17 November 2015 a dark cloud has hung over sunset clauses in off the plan contracts. Changes to the Conveyancing Act 1919 have caused rain to fall on the parade of sunset clauses and dampened their effect, placing off the plan purchasers on the sunny side of the street.
It used to be that in a rising property market a developer could use a sunset clause as a tool to extract more money for a project. Purchasers who have already signed up for a lower price were hit with a price variation or else the developer would rescind the contract. If the contract was rescinded in a rising market another off the plan purchaser could be found ensuring more value for the project.
Sunset Clauses Defined – Walking The Plank And Not A Long Walk Along the Beach
While there is a romance to the term 'sunset clause' in effect such contractual provisions rarely leave a purchaser with a warm glow. Unless of course the property market falls and a purchaser wants to exit a bad deal.
A sunset clause can be found in off the plan contracts and provides for a contract to be rescinded if the lot which is the subject of the off the plan contract isn't created by the sunset date.
While projects can run into legitimate problems which cause delay, there has in the past been a cynical use of sunset clauses in a rising property market to extract more money for a project or as a tool to make a project more profitable if the margin is too low.
Consent Or Supreme Court Order Now Required
Now under the changes to the Conveyancing Act 1919 in order to rescind an off the plan contract under a sunset clause a vendor must give notice in writing to the purchaser at least 28 days before the proposed rescission date specifying:
- Why the vendor is proposing to rescind the contract; and
- Why the project is delayed.
A contract may only be rescinded under a sunset clause if:
- Each purchaser under the contract after being served with the written notice from the vendor consents in writing to the rescission; or
- The vendor has obtained an order from the Supreme Court permitting the rescission.
For the Supreme Court to grant an order rescinding the off the plan contract under a sunset clause the vendor must persuade the Court that the order is just and equitable in all the circumstances.
The Court will take the following into account when determining if it is just and equitable to rescind an off the plan contract:
- The terms of the off the plan contract;
- Whether the vendor has acted unreasonably or in bad faith;
- The reason for the delay in creating the subject lot;
- The likely date on which the subject lot will be created;
- Whether the subject lot has increased in value;
- The effect of the rescission on each purchaser;
- Any other matter the Court considers to be relevant.
- Generally the vendor is liable to pay the costs of the purchaser in relation to any application to the Court for an order rescinding the off the plan contract, unless the Court is satisfied that the purchaser unreasonably withheld consent to the rescission.
It's All One Way Traffic
The restrictions which are placed upon the vendor rescinding an off the plan under a sunset clause are not placed upon any right that the purchaser may have to rescind an off the plan contract under a sunset clause.
Parties to off the plan contracts should be aware of the limitations placed upon the operation of sunset clauses.
Should you have any queries in relation to an off the plan purchase please do not hesitate to contact the writer.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.