A contract of sale is understandably important and is at the centre of the property purchase or sale process. It lists the relevant details of the buyer and seller, terms and conditions and inclusions. The types of terms and conditions present in a contract differ between existing dwellings and dwellings yet to be constructed (off-the-plan) are different.
What is a “sunset clause”?
Until recently, most contracts of sale for off-the-plan dwellings contained a time cap on how long the developer could take to complete the development. If the developer was unable to complete the dwelling and register the plan of subdivision within the agreed time frame or by a specified date, both buyer and the developer were at liberty to terminate the contract of sale unilaterally. The estimated time was commonly referred as “sunset period” and the provision in the contract of sale permitting rescission of contract was referred as “sunset clause”.
Could it be misused?
There were concerns about the developer intentionally delaying the development and rescinding the contract at the end of sunset period. If the contract of sale is rescinded by invoking the sunset clause, the deposit is refunded to the buyer. No further compensation is payable. As a result the purchaser may have spent many years waiting for settlement to no avail. On the other hand, the developer can make gains by re-selling the dwelling at higher price
How are buyers protected from misuse?
The Victorian Government has made various provisions under the Sale of Land Amendment Act 2019 (the Act) to remove the ability of developers to exploit buyers by intentionally delaying residential development projects. The provisions discussed below are only in relation to residential off-the-plan contracts.
Restrictions imposed on power of vendor to rescind the contract under sunset clause
Under the Act:
- the vendor is required to give each purchaser at least 28 days written notice before the proposed rescission of contract;
- the written notice should set out the reason for proposal to rescind the contract and the reason for delay in registration of plan of subdivision or issuance of the occupancy permit;
- the purchaser is not obliged to consent to the proposed rescission;
- vendor can rescind the contract based on a sunset clause only with written consent from the buyer, or permission of the Supreme Court of Victoria;
- the Supreme Court of Victoria has discretion to order for reasonable compensation of the purchaser while granting vendor permission to rescind;
- vendor’s purported rescission of the contract in contravention of new provisions under the Act is a breach of that contract.
Popular terms are defined
Under the Act, popularly used terms are now properly defined. Broadly:
- “sunset clause” means a provision in a residential off-the-plan contract that provides for the contract to be rescinded if the relevant plan of subdivision has not been registered or an occupancy permit has not been issued by the sunset date;
- “sunset date” means the date specified in a residential off-the-plan contract as the latest date by which the relevant plan of subdivision must be registered or occupancy permit must be issued, and includes extension of said specified date in accordance with the terms of the contract;
- “residential off-the-plan contract” means a contract for the sale of a residential lot on an unregistered plan of subdivision.
Applicability of provisions on sunset clause
The provisions on sunset clauses under the Act are made applicable effective 23 August 2018. Therefore, regardless of when the contract was signed, from 23 August 2018 a sunset clause must be exercised in accordance with the new laws.
Conclusion
The Sale of Land Amendment Act 2019 (Vic) is now in operation. The requirements under the new law prevents developers from deliberately postponing the completion of construction work and using an existing sunset clause to end the contract with an intention to make gains by re-selling the property at a higher price.
Need further help?
Provey Legal are able to help you with all property related legal matters. For expert advice, consultation and assistance with sunset clause laws in Victoria, contact the property law experts at Provey