The sun sets on test case

25 Sep 2017

Kemp Strang recently acted in an important case on the new laws relating to sunset clauses under off the plan contracts for sale. The case settled during the course of the final hearing. The matter was set to be only the second case to examine the ground-breaking laws that now require a developer to seek the Court's permission to rescind off the plan contracts for the sale of apartments under the sunset date.

The case was a large and complex piece of litigation involving two plaintiffs being the developers and 18 defendants being purchasers who entered into off the plan contracts for sale with the developers in relation to a development in Surry Hills. Kemp Strang acted for some of the purchasers.

The developers commenced the proceedings to seek the permission of the Court to rescind the contracts for sale as is required under the new legislation, being section 66ZL of the Conveyancing Act. The legislation was brought in to prevent developers intentionally delaying the registration of plans past the sunset date. The sunset date being the date in an off the plan contract for sale that allows either party to rescind the contract if the plans aren't registered by that date. Historically, the result of developers unfairly taking advantage of such clauses meant that:

  1. the developer was free to rescind (walk away from the contract) without any consequences and sell the property at a higher price; and
  2. purchasers were left without a property (often several years after entering into a contract) and were forced to try and re-enter a property marked facing significantly higher prices.

Whilst this matter has settled it is worthwhile considering the matters that a Court will take into account when determining whether a developer will be entitled to rescind a contract for sale under the legislation.

A vendor seeking the Court's permission to rescind a contract will need to satisfy the Court that the rescission is "just and equitable" in all the circumstances. In determining whether a rescission is "just and equitable" the Court will have regard to including but not limited to the following:

  1. the terms of the off the plan contract,
  2. whether the vendor has acted unreasonably or in bad faith,
  3. the reason for the delay in creating the subject lot (in this case there was comprehensive evidence about the reasons for the delay and reply expert evidence in relation to the legitimacy of the delays alleged)
  4. the likely date on which the subject lot will be created,
  5. whether the subject lot has increased in value (there was broad valuation evidence in this case that valued the building as a whole (including retail spaces and common areas) rather than just the subject lots); and
  6. the effect of the rescission on each purchaser (there was evidence in these proceedings from the defendants that dealt with, among other things, whether this was their first opportunity to get into the property market and in the event that the contracts were rescinded whether they would be prevented from re-entering the property market).

Given there is only one case on this area of the law where the developer was not permitted to rescind due primarily to the conduct of the previous developer in not diligently progressing the development (Jobema Developments Pty Limited v Zhu & Ors [2016] NSWSC 3) it will be interesting to see how the Courts will deal with a developer who leads comprehensive evidence explaining the delay and weigh that against the rights of the purchasers.

For further background click here to see a recent media article dealing with the case prior to it settling.

For further information please contact roppolos [at] kempstrang [dot] com [dot] au (Sarina Roppolo), Partner or rodgersj [at] kempstrang [dot] com [dot] au (Jacob Rodgers), Senior Associate.

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