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In recent years we have seen hous­ing prices in New South Wales sky­rock­et, and as such the pop­u­lar­i­ty of pur­chas­ing off-the-plan devel­op­ments has increased.

While pur­chas­ing a brand-new prop­er­ty off-the-plan is incred­i­bly appeal­ing to poten­tial buy­ers, there are risks, of which all pur­chasers should be made aware.

The cur­rent build­ing mar­ket has seen an unprece­dent­ed rise in the cost of con­struc­tion with­in the past year.  As a result of the increase cost of build­ing mate­ri­als we are see­ing devel­op­ments come to a halt unless, the pur­chas­er agrees to vary the con­tract.

In 2015 the Con­veyanc­ing Amend­ment (Sun­set Claus­es) Act 2015 (NSW) (the Act) was passed by the NSW Gov­ern­ment which aimed to pro­tect pur­chasers from the impli­ca­tions of unscrupu­lous builders rely­ing on Sun­set Claus­es.

What is a Sunset Clause

A Sun­set Clause is com­mon­ly includ­ed in con­tracts for off-the-plan devel­op­ments. These claus­es pro­vide a spe­cif­ic time­frame with­in which the devel­op­ment is to be com­plet­ed.  This time­frame is gen­er­al­ly quite lengthy and usu­al­ly exceeds one year allow­ing for more than enough time for the devel­op­ment to be com­plet­ed.

A Sun­set Clause per­mits either par­ty to the con­tract to rescind the con­tract if the devel­op­ment is not com­plet­ed dur­ing the stip­u­lat­ed time­frames. This type of clause pro­tects pur­chasers and devel­op­ers from delays where nei­ther par­ty is at fault and allows them to exit the con­tract.

It also pro­vides a devel­op­er with secu­ri­ty that a pur­chas­er can­not back out of a con­tract before it is com­plete.

Risk of Sunset Clauses

With prop­er­ty prices soar­ing there is scope (and even incen­tive) for some prop­er­ty devel­op­ers to inten­tion­al­ly delay a devel­op­ment for the pur­pose of rescind­ing under the Sun­set Clause.  Rescind­ing the con­tract allows the devel­op­er to re list the prop­er­ty for sale and receive a high­er mar­ket price in today’s mar­ket.

This issue came before the Supreme Court in Sil­ver Star Fash­ions Pty Ltd v Dal Broi [2018] NSWSC 1445.  In 2014, 12 pur­chasers had made deposits for off-the-plan devel­op­ments in an apart­ment build­ing.  The devel­op­ers act­ed in a way which delayed the com­ple­tion of the devel­op­ment and sent a series of let­ters to the pur­chasers with the inten­tion to scare them into rescind­ing the con­tract. 

With­in the time the pur­chasers had made their deposits, and the time the Sun­set Clause came into effect the devel­op­ers would have gained approx­i­mate­ly $200,000.00 extra on each apart­ment. The Court found the devel­op­ers actions in attempt­ing to rescind the con­tracts amount to them not act­ing just­ly or equi­tably.  The attempt to rescind the con­tracts was dis­missed.

Protection under legislation

In light of the 2015 changes to the Act, a developer’s abil­i­ty to rescind a con­tract for res­i­den­tial devel­op­ments is lim­it­ed.  

Where the Sun­set date pass­es and the devel­op­ment is not com­plete the devel­op­er must now pro­vide notice to the pur­chas­er, along with an expla­na­tion for the delay, and the pro­posed rea­sons for rescis­sion.

The pur­chas­er must be pro­vid­ed with 28 days’ notice of the inten­tion to rescind. For the rescis­sion to occur, the pur­chas­er must con­sent.

In the event the pur­chas­er and devel­op­er can­not come to an agree­ment, the leg­is­la­tion has now put the onus on the devel­op­er to prove to the Court that rescind­ing the con­tract is just and equi­table under the cir­cum­stances and the par­tic­u­lar rea­sons for the delay.

Conclusion

The Act has not pro­hib­it­ed Sun­set Claus­es from off-the-plan devel­op­ment con­tracts. It has put a focus on pro­tect­ing the rights of a pur­chas­er and aims to reduce the risk pur­chasers face when enter­ing into a con­tract.

The shift in dynam­ic that the Act has caused is not an effort to bur­den devel­op­ers. It reduces devel­op­ers’ abil­i­ty to affect a Sun­set Clause for rea­sons which are unjust and inequitable and aims to hold them account­able.

We can help

If you are look­ing to enter into a con­tract for an off-the-plan devel­op­ment or your devel­op­ment is being affect­ed by a Sun­set Clause, one of our team will be able to assist you.

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