Relying on a sunset clause to cancel an off-the-plan contract? Not without consent...
Lachlan discusses vendor rescission rights under a sunset clause in off-the-plan contracts
Developers will no longer be able to engage in delaying tactics in order to cancel off-the-plan contracts as the Sale of Land Amendment Bill 2018 recently introduced by the Victorian Government will restrict the use of sunset clauses in contracts of sale without the consent of the purchaser.
The changes are in response to strategies used by developers to increase their profit, especially during a ‘hot’ property market, where registration of a plan of subdivision or application for occupancy permit is intentionally delayed in order to terminate contracts so properties can be re-sold at a higher price.
What is a sunset clause?
A sunset clause is a condition in an ‘off-the-plan’ contract of sale which refers to the maximum time in which the developer has to finish the project.
The sunset clause allows a vendor or purchaser to terminate a contract of sale if:
- the plan of subdivision has not been registered by the sunset date; or
- an occupancy permit has not been issued by the sunset date.
The changes will mean that off-the-plan contracts cannot be terminated by a vendor under a sunset clause without the prior written consent of the purchaser or by order of the Supreme Court of Victoria.
The vendor must provide the purchaser with 28 days written notice before the intended rescission date and provide an explanation of the project delays and their reason for proposing to rescind the contract of sale. The rescission is only valid if the purchaser provides its written consent having received the notice.
If the purchaser does not consent to the rescission of the contract, the vendor can apply to the Supreme Court of Victoria for an order allowing the Vendor to rescind the contract. The Court must be satisfied that it is fair to allow the contract to be rescinded.
Once the proposed changes are passed as legislation they will have retrospective application meaning they will apply to all residential off-the-plan contracts.
Impact on developers
There is a risk to developers that purchasers will leverage the vendor’s proposed rescission or inability to register the plan of subdivision in order to extract compensation out of the developer.
Developers may negotiate a longer period between the date of sale and the sunset date in order to give them sufficient time to complete the works and obtain all approvals from the relevant authorities.
The changes reflect the Victorian Government’s current push to provide greater consumer protections.
If you're a vendor in an off-the-plan contract wishing to exercise your right to rescind under a sunset clause, contact Lachlan Cloak to discuss how these changes may affect you.