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The Facts
Vendor and purchasers enter off-the-plan contracts containing
sunset clause
In 2014, the vendor and several purchasers entered into
contracts for the sale of residential units in a building that was
yet to be constructed.
The purchasers were unable to inspect a display unit, so they
instead exchanged residential off-the-plan contracts with the
vendor, relying on the information and documentation provided in
the contracts.
Each contract was in substantially the same terms and was for
the sale of a proposed lot in an unregistered plan of
subdivision.
The contracts contained a sunset clause, stipulating that if the
unregistered plan of subdivision was not registered by 31 December
2016 (the "sunset date"), then the parties were each
legally entitled to rescind the contract (ie walk away from
it).
The contractual sunset clause was subject to section 66ZL of the
NSW Conveyancing Act 1919. (The relevant
part of the current legislation is section 66ZS.)
This section states that a vendor may only rescind an
off-the-plan contract under a contractual sunset clause if the
buyer is given notice and consents in writing to the rescission, or
if the vendor has obtained an order from the Supreme Court
permitting the vendor to rescind the contract.
Construction delayed and vendor seeks to rescind contract under
sunset clause
The sunset date in each contract was two and a half years after
the contract date, and therefore considered more than sufficient
time to complete the building and register the plan of
subdivision.
However, the development was troubled with delays, and the plan
of subdivision was not registered by the sunset date. Ultimately,
the plan was registered nearly 13 months after the sunset date.
Less than a month after the expiry of the sunset date, the
vendor served notices to the purchasers that it was rescinding the
contracts, giving the reason as external events which caused delays
in completion of the development.
Purchasers refuse to accept rescission and vendor seeks order
from Supreme Court
The purchasers did not consent to the rescission, believing that
the vendor was trying to cancel their contracts so that it could
resell the apartments for a higher price in the rising property
market.
The vendor made an application to the Supreme Court for an order
permitting it to rescind the contracts.
It was up to the court to decide whether making such an order
was just and equitable in all the circumstances.
case a - The case for the purchasers
case b - The case for the vendor
It was the vendor's fault that the plan of subdivision was
not registered by the sunset date. The vendor failed to ensure that
appropriate finance was available. It failed to contract the
builders in a timely fashion and did not organise construction
certificates for each stage in time for commencement. It also
failed to monitor the construction of the complex with all due
expedition.
The vendor also acted unreasonably by using misleading scare
tactics to try to force us to terminate our contracts. This
included letters and notices presenting a gloomy account of future
progress and threatening that if we insisted on the contracts being
completed, our units might shrink or might never be finished.
The difference between the current market value of the
respective lots and the purchase price under our contracts is of
the order of $1.8 million. Clearly, the vendor is only trying to
rescind in order to cash in on this rising market by reselling our
lots.
Not only would rescission deprive us of an economically
valuable asset, it would also deprive us of the social benefits we
purchased, including living close to the CBD and enjoying the
café lifestyle.
We have even offered to pay a 15% uplift in value for the
contracts to settle, but the vendor has rejected the offer.
Given the vendor's behaviour and the impact of rescission
on us as purchasers, the court should deny the vendor's
application.
The purchasers knew when they signed the contracts that there
was no certainty that completion would occur. They understood that
the contract entailed a risk on us as vendor in a falling property
market, and on them as purchasers in a rising market. The
purchasers agreed to manage these risks by means of a mutual right
of rescission, which they voluntarily granted under the contract.
We are merely seeking to exercise that right.
Further, we did not cause the delays that led to failure to
register the plan by the sunset date.
National Australia Bank would only provide finance on the basis
that we first secured at least nine pre-sales. Accordingly, we
could only obtain finance, enter into a construction contract and
select a builder after we had entered into contracts with the
purchasers.
The builders could not carry out works on the site for four
months in 2015, due to the council's delay in granting a
construction certificate.
In early 2016, the builder was placed in external
administration. This was entirely outside our control. We quickly
instructed the project manager to seek tenders for a builder to
finish the job. We completed the process as soon as possible.
When the builder was placed in external administration, this
resulted in the costs to complete the development exceeding the
available funds and contributed to the strata plan not being
registered by the contractual sunset date.
Given that the purchasers voluntarily agreed to the sunset
clause and that the failure to register the strata plan by the
sunset date was due to circumstances outside our control, the court
should grant our request for an order to rescind.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
