Buying off the plan means purchasing a property that has not yet been built. Consequently, the contract does not have a definite settlement date which can only be estimated at the time of entering it, with a range of contingencies likely to influence completion.
A sunset date is a final date provided under the contract for a vendor / developer to complete. In practical terms, this means the latest time for completion of all that is necessary for registration of the relevant plan of subdivision and / or issue of the occupancy permit for the subject lot.
Registration of the plan or issue of the occupancy permit, as the case may be, triggers a settlement date under the contract – typically 14 – 21 days after notification of registration / issue of the occupancy permit is provided to the purchaser.
If the vendor cannot complete in accordance with the sunset date, then the parties may terminate the contract and the deposit is generally refunded to the purchaser.
Generally, sunset clauses protect vendors from liability if they are unable to complete a contract due to unforeseen delays, such as issues with development approval, changes in legislation, supply problems or inclement weather.
Over the past, however, sunset clauses have sometimes been used by certain vendors to terminate a contract in circumstances where they can achieve a better price for the property than that negotiated under the existing contract. The deliberate delay of a construction project beyond the sunset date could essentially give the vendor reason to rescind the contract and sell the property at a higher price. This practice would leave purchasers without the benefit of the deal bargained, or a legal remedy.
Provisions of the Sale of Land Amendment Act 2019 (Vic) now prevent vendors / developers from relying on sunset clauses in off-the-plan contracts to purposely delay residential building projects to the detriment of the buyer.
Vendors must obtain written consent from a purchaser, or alternatively seek permission from the Supreme Court, to exercise certain rescission rights under a sunset clause in an off-the-plan contract.
How do the sunset law provisions operate?
The Act inserts provisions into the Sale of Land Act 1962 (Vic) to restrict the way sunset clauses are utilised in residential off-the-plan contracts. A sunset clause is defined as a
provision in the contract that allows it to be rescinded if the relevant plan of subdivision for the subject lot has not been registered, or an occupancy permit has not issued by the sunset date.
The provisions enable a vendor to rescind a residential off-the-plan contract only in circumstances where:
the contract contains a sunset clause purporting to give the vendor rescission rights; and
the relevant plan of subdivision has not been registered or an occupancy certificate has not issued by the sunset date; and
at least 28 days before the vendor proposes to rescind the contract, written notice is provided to each purchaser of the vendor’s intention to do so.
The notice must include the reason for the delay in registration of the plan or issue of the occupancy permit, and a statement that the purchaser is not required to consent to the proposed rescission.
If the purchaser does not consent, the vendor may apply to the Supreme Court for an order to rescind the contract in accordance with the sunset clause. The Court may make such an order if it is satisfied that it is just and equitable to do so in all circumstances. In determining the application, the Court must consider:
the contractual terms;
whether the vendor has acted unreasonably or in bad faith;
the reason for the delay in registration of the plan or issue of the occupancy permit and, if relevant, the likely date on which the plan will be registered, or occupancy permit issued;
whether there has been an increase in the value of the subject property;
the effect of the rescission on each purchaser;
any other prescribed or relevant matter.
Key takeaways
Vendors / developers of residential subdivisions should ensure their contract terms and practices are consistent with sunset laws. Contracts containing a sunset clause must also include a prescribed statement noting the vendor’s requirements and the purchaser’s rights under the laws. Significant monetary penalties apply for non-compliance.
Purchasers of residential off-the-plan property should seek legal advice if they receive notification from a vendor / developer purporting to rescind the contract.
This article is general information, and you should obtain professional advice relevant to your individual circumstances.
If you or someone you know wants more information or needs help or advice, please contact us on (03) 9422 5439 or email laurie@irvinelawyers.com.au.