Parts of the highly anticipated Sale of Land Amendment Act 2019 (the Act) are now in operation, bringing important changes to the Sale of Land Act 1962 (Vic). It introduces a significant reform – the restriction of the use of sunset clauses, designed to create greater protections for purchasers of residential off the plan property.
What you need to know
Sunset clauses, common to off-the-plan contracts, provide vendor developers a right to end a contract with a purchaser if the plan of subdivision is not registered or an occupancy permit is not issued by a specified date. There are reported instances of vendors taking advantage of sunset clauses by deliberately delaying the completion of its development and ending its contract under the sunset clause to benefit from increase in the value of the property by reselling the lot at a higher price.
In response, to the Act restricts a vendor’s ability to exercise termination rights under a sunset clause, even in circumstances where the Vendor has not caused or contributed to the delay in registration of the plan and/or issuing of the occupancy permit.
Vendors will only be able to rescind residential off-the-plan contracts under a sun set clause (as defined by the legislation) if:
- The vendor has provided the purchaser with at least 28 days’ written notice (as prescribed by the legislation), setting out the reason for the proposed rescission and the delay in the completion of the development; and
- The purchaser, in turn, provides written consent to the proposed rescission.
If the purchaser does not consent, the only recourse available to the vendor is to apply to the Supreme Court in seeking an order permitting the rescission. The Court would then be tasked with determining whether making such an order is just and equitable in the circumstances, taking various factors, as prescribed by the legislation into account.
We note the legislation is unclear as to the parties’ rights and obligations in circumstances where a purchaser does not respond to the vendor’s notice and whether this would have costs consequences for a purchaser should the vendor have to seek a determination from the Court.
Of crucial note to vendors who have contracts on foot is that these notice and consent provisions have retrospective effect and will apply to sunset clauses in all residential off the plan contracts entered into from 23 August 2018.
As such, existing residential off-the-plan contracts with sunset clauses that purport to provide for automatic rescission, will be taken to have been substituted by the new notice requirements.
The legislation also provides that for all residential off-the-plan contracts entered into after a date to be proclaimed, a sunset clause must include a statement settling out the vendor’s obligations to give notice of a proposed rescission of the contract, the purchaser’s right (but not obligation) to give written consent to the proposed rescission of the contract, the vendor’s right to apply to the Supreme Court for an order permitting the rescission of the contact, and the power of the court to permit such an order.
The take away points for developer vendors is to obtain legal advice to ensure that their new residential off the plan contracts comply with the sunset clause statement requirements and that requirements prescribed by the new Act are strictly followed before taking any action to end a contract. Penalties, including substantial fines, do apply for non-compliance.
For further information or advice about how these changes and other aspects of the new legislation may impact your development project, please contact a member of our property team.