Update on rescission rights in off the plan contracts!

06 SEPTEMBER 2016 PROPERTY LAW & CONVEYANCING
white plan of off the plan apartment

Update on Vendor’s rescission rights in off the plan contracts

Section 66ZL was inserted into the Conveyancing Act 1919 to regulate when a vendor may rescind an off the plan contract under a sunset clause. The amendment applies to all rescissions of off the plan contracts after 2 November 2015, irrespective of when the off the plan contract was entered into.

Section 66ZL provides that a vendor may rescind an off the plan contract under a sunset clause if the subject lot has not been created by the sunset date, but only if

  • each purchaser under the contract, at any time after being served with the prescribed notice, consents in writing to the rescission, or
  • the vendor has obtained an order of the Supreme Court permitting the vendor to rescind the contract under the sunset clause, or
  • the regulations otherwise permit the vendor to rescind the contract under the sunset clause.

The prescribed notice is a notice in writing served on each purchaser at least 28 days before the proposed rescission that specifies why the vendor is proposing to rescind the contract and the reason for the delay in creating the subject lot.

The Supreme Court may make an order permitting the rescission of an off the plan contract pursuant to a sunset clause only if the Court is satisfied that it is just an equitable to do so. In determining whether it is just and equitable, the Court may take into account matters such as:

  • whether the vendor has acted unreasonably or in bad faith
  • the reason for the delay in creating the lot
  • the likely date on which the lot will be created
  • whether the lot has increased in value
  • any other matter the Court thinks relevant.

he new section was tested in Jobema Developments Pty Ltd v Zhu & Ors [2016] NSWSC 3. In that case, a purchaser neither consented to a proposed rescission of an off the plan contract, nor objected to it. The vendor was required to seek an order from the Supreme Court permitting it to rescind the contract. The prescribed notice had been given by the vendor, which set out various grounds for wishing to rescind the contract, including that construction costs had increased, the funding requirements were no longer met and the purchaser did not take up the offer to pay a higher purchase price for the lot to offset the increased construction costs. Further, no construction work had taken place for a period of approximately 10 months.

Justice Black held:

  • the change in legislation was a foreseeable business risk
  • an application for consent to rescind is not only determined by looking at whether the vendor has proceeded with diligence
  • while there was no evidence of an increase in value of the lot, if the lot had in fact increased in value, it may tend against granting leave to rescind where the delay was not attributable to the purchaser’s fault.

The vendor’s application for leave to rescind the contract was dismissed.

The effect of the legislation and the decision in the Jobema Developments case is that it is now much harder for a vendor under an off the plan contract to rescind a contract pursuant to a sunset date clause due to delays. The onus to show that it is just and equitable to rescind the contract now lies with the vendor.