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