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Unscrupulous practices in off-the-plan property sales

Property Law News | June 2016

The proliferation in “off-the-plan” sales as a result of the building boom across Sydney has concurrently resulted in a rise in vendors and developers delaying the completion of building projects in order to trigger the legitimate termination of the contract (a "rescission") under sunset clauses in contracts so that the developer can re-organise finance or so properties can be resold for a higher price in the booming property market.

Purchasers of an off-the-plan property should be aware of the terms of the sunset clause in a contract for the sale of the property. This is a clause which sets out the last date by which the builder or developer is supposed to have registered the plan, thereby creating individual “lots” which can then be sold or conveyed to purchasers. Traditionally, if the builder or developer was unable to meet this deadline then the contract was able to be terminated and the parties returned to their pre-contractual position.

When used properly, the mechanism is designed to help protect prospective purchasers by preventing them from having to wait an indefinite period for the completion of their contract. However, the clauses have been increasingly misused by unscrupulous vendors who have been manufacturing delays, rescinding contracts and reselling the properties for more profit.

Circumstances for rescission have been narrowed

In order to combat this activity the NSW government has amended the legislation by inserting new provisions which restrict the ability of a vendor to rescind an off-the-plan contract – only where the purchaser consents, or with the leave of the Supreme Court.

In deciding whether or not to grant leave, the Supreme Court must take into account:

  • 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 matters considered relevant by the court; and
  • Any other matters prescribed by the regulations.

Additionally, the new provisions to apply to all existing off-the-plan contracts. New contracts can also not contract out of the new provisions.

Greater protection for purchasers – but a warning

If you are planning to purchase a property off-the-plan then you are afforded more protection than in recent years from unscrupulous business dealings with vendors, however, this could also result in sunset dates being extended to 5 or even 10 years to ensure that vendors are able to comply with their obligations in respect of the changes to the legislation. As with all off-the-plan sales, this could result in discrepancies in finance such as the bank withdrawing its unconditional approval or the value of the property at completion being less than the agreed purchase price at exchange.

It is of vital importance that you obtain the proper legal advice regarding your rights and the sunset clauses inside of your contract.

Forum Law’s solicitors have a wealth of experience and knowledge in all areas of property law and conveyancing. Call us to make a time to meet with us to discuss any concerns you may have regarding a property sale or purchase on (02) 9560 3388.

Forum Law is an active member of several reputable law and industry associations. We have recently obtained ISO9001 accreditation.