Sunset clauses in residential off-the-plan contracts to be changed in land sale law shake-up

Amendments to the Victorian Sale of Land Act 1962 are expected to come into effect next month which will mean that a vendor in a residential off-the-plan contract of sale will no longer be able to terminate a contract because a sunset date has passed, unless the written consent of the purchaser is provided.

The changes come following concerns developers could intentionally delay registration of plans or applications for occupancy permits in order to rescind contracts and then resell the project at a higher price.

Once the amendments come into effect, they will have retrospective application – meaning they will apply to existing contracts, regardless of their drafting.

A “sunset clause” is a provision in a residential off-the-plan contract which allows the contract to be rescinded if, by a certain date known as the “sunset date“, the plan of subdivision has not been registered or an occupancy permit has not been issued. These clauses are common in most off-the-plan contracts, although many of them only apply to registration of the plan, and not the issue of an occupancy permit.

Purchaser’s Consent Required

Before terminating (rescinding) a residential off-the-plan contract under a sunset clause a vendor must obtain the written consent of each purchaser.

28 Days Notice Must Be Provided

The vendor must provide the purchaser with written notice 28 days before the intended rescission date. The rescission is only valid if the purchaser provides its written consent.

The Sale of Land Act will require the notice to address certain points, such as the reason for the rescission and why there has been a delay in registering the plan of subdivision.

What if the Purchaser Does Not Consent?

The purchaser is not obliged to consent to the rescission of the contract; however, if consent is not given, the vendor can apply to the Supreme Court for an Order allowing the vendor to rescind. The Court must be satisfied that it would be fair to allow the contract to be rescinded and in deciding this it will take into account the circumstances of the rescission, such as the reason for the delay in registering the plan of subdivision, and any disadvantage to the Purchaser.

Other Amendments to the Sale of Land Act

New laws relating to future off-the-plan contracts will also be introduced once the amendments come into effect and vendors who do not include certain terms and conditions in sunset clauses will be liable for monetary penalties. These are largely provisions advising the Purchaser of the fact that the Vendor cannot terminate under the sunset clause without  consent. There will also be further restrictions to Terms Contracts, Rent to Buy Arrangements and Land Banking Schemes.

If you are a vendor in an off-the-plan contract you should seek legal advice before exercising your right to rescind under a sunset clause. To discuss how the proposed changes will impact you, and what your next steps are, please contact our Property team.

This article was written by Elizabeth Linedale, Senior Associate and Katharine Otter, Lawyer – Property and Construction.