A new amendment to the Conveyancing Act 1919 was passed by the NSW Parliament and applies from 2 November 2015 to the purchase of off-the-plan residential strata units or residential lots i.e. strata units or land lots awaiting creation following the finalisation of building works or sub-division.

There have been concerns about developers using a “sunset clause” (a provision in a contract allowing the contract to be terminated if the strata or land lot is not created by the sunset date) to obtain a financial gain by deliberately delaying projects thereby entitling them to activate the clause and re-sell the property for a higher price. The purchaser would be left with nothing after incurring conveyancing costs.

The new amendment provides that a vendor must give the purchaser at least 28 days written notice before rescinding a contract under a sunset clause. The notice must state the reasons for the proposed rescission and the delay. Even then the vendor can only rescind with the purchaser’s written consent or after obtaining an order from the Supreme Court of New South Wales.

If the vendor is forced to apply to the Supreme Court it will take into account various factors such as:

* the terms of the contract
* whether the vendor has acted unreasonably or in bad faith
* the reason for the delay
* whether the subject lot has increased in value
* the effect of the rescission on each purchaser
* any other matter the Court considers relevant

The vendor is also required to pay the purchaser’s costs of the proceedings unless the refusal to consent is considered unreasonable.

If a developer determines that there is a substantial profit to be made by delaying a project and invoking a sunset clause to rescind a contract it can still make life difficult for a purchaser. One obvious tactic would be to offer a purchaser a financial incentive to consent to the rescission while at the same time warning the purchaser that it will claim in any application to the Supreme Court that the purchaser’s refusal to consent is unreasonable so that no legal costs will be recoverable.

So, despite this commendable attempt at consumer protection the developer will still find a way to apply maximum pressure to purchasers.
And many may well give in rather than face a long and costly legal battle.

November 2015