Here we will explain what these changes are to a vendor’s right to rescind an off the plan contract in NSW.
On 17 November 2015, the NSW Government passed the Conveyancing Amendment (Sunset Clauses) Act 2015 (NSW) (Act). The changes to the Act provide purchasers under off-the-plan contracts for the sale of residential property in NSW (Contract) with protection against rescission by property developers.
What Contracts are captured?
The Act applies only to sale contracts for the sale of ‘residential lots’ as defined by Section 66Q of the Conveyancing Act 1919 (NSW). Essentially this means land upon which homes or units are constructed or vacant land upon which homes or units can lawfully be constructed but excludes land in excess of 2.5 hectares in area.
The Contract must be an ‘off the plan contract’, that is a contract for the sale of a lot that does not have a separate title at the time the contract is entered into.
An ‘off the plan contract’ will be conditional upon registration of a plan of subdivision creating the separate lot and often will be conditional upon completion of building works. It will contain a clause (Sunset Clause) allowing the vendor and/or the purchaser to rescind/terminate the Contract if certain works are not completed and/or a plan of subdivision is not registered before a particular date (Sunset Date).
If a Contract is rescinded will the Act apply?
The Act will apply to off the plan sale contracts where the subject lot has not been created (by registration of a plan of subdivision) by a Sunset Date and the rescission of the Contract occurs under a Sunset Clause on or after 2 November 2015.
Prior to 2 November 2015, unless a Contract provided otherwise, a vendor was able to rescind a Contract without restriction if it contained a Sunset Clause and if the relevant plan of subdivision was not registered by the Sunset Date.
Under the Act, a vendor must now give a purchaser notice in writing at least twenty-eight (28) days prior to rescinding a Contract under a Sunset Clause (Notice). The Notice must state:
- why the vendor is proposing to rescind the Contract; and
- the reason(s) for the delay in creating the subject lot.
When can a vendor rescind a Contract?
A vendor can only rescind a Contract under a Sunset Clause if:
- the purchaser gives written consent to the vendor’s proposed rescission; or
- the vendor obtains an order from the Supreme Court of NSW permitting the proposed rescission (Rescission Order); or
- the reason for the proposed rescission falls within a category prescribed by the regulations to the Act* (which are yet to be made).
*Proposed regulations prescribing valid categories of rescission
The Act prescribes that the regulations will be made within the next twelve (12) months and may take effect at any time on or after 2 November 2015. The regulations will likely prescribe the specified categories of circumstances that would automatically entitle a vendor to rescind a Contract.
Supreme Court Application
The Supreme Court can make an order on application of a vendor allowing a vendor to rescind a Contract but only if the vendor satisfies the Supreme Court that it is just and equitable to do so.
Factors that the Supreme Court will consider when determining whether or not to approve a vendor’s proposed rescission of a Contract will include:
- the terms of the 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 Supreme Court considers to be relevant; and
- any other matter prescribed by the regulations to the Act.
A vendor will be liable to pay the costs of a purchaser in relation to the proceedings for the Rescission Order, unless the court is satisfied that the purchaser unreasonably withheld consent to the vendor’s proposed rescission of the Contract under the Sunset Clause.
What if a purchaser wants to rescind a contract?
If the Contract permits this without restriction, the Act does not apply to rescission of Contracts by purchasers who may still rescind a contract.