In brief - Both vendors and purchasers have right to rescind if strata subdivision not registered by sunset date
An off-the-plan contract for sale of an apartment normally includes a provision that if a strata subdivision (creating title to the apartment) is not registered by a certain date (the "sunset date"), either party may rescind the agreement.
Strata subdivision not registered by sunset date and purchaser issues notice of rescission
A recent NSW Supreme Court case, Cong Xu v Austino Property Development, involved an off-the-plan sale contract where a strata subdivision sunset date had passed without registration of the subdivision. Neither party immediately rescinded or even discussed rescission.
On or very shortly after the sunset date, the building had been completed, an occupation certificate had been issued, registration of the strata subdivision plan was imminent, the purchaser had inspected the property and asked for a few minor defects to be fixed (which was apparently agreed) and the purchaser had asked for a licence to move in (which was also agreed).
A few days after receiving the licence, however, the purchaser obviously changed its mind and issued a notice of rescission based on non-registration of the strata subdivision by the sunset date. Supreme Court Justice Darke upheld the purchaser's right to do so.
A particularly unfair aspect of this case was that the vendor developer was entitled to extend the sunset date by about six months. It purported to exercise this right after receiving the notice of rescission but, having found that the contract was validly rescinded, the Court had no regard to this.
Developer rescinds contract after purchaser refuses to pay increased sale contract price
The decision in Cong Xu v Austino was not unusual. For example, in the 2001 NSW Supreme Court case of Kristiansen v Klepac, an off-the-plan contract subdivision sunset date had also passed without registration of the subdivision. Shortly after the sunset date, the purchaser requested and the developer installed a deadlock, tiles and pavers at the purchaser's cost (because those items were not included in the sale contract schedule of finishes).
After installing these additional items, and now about one month after the sunset date, the developer advised that it would "pull out of the contract" unless the purchaser agreed to the sale contract price being increased by $20,000. The purchaser immediately refused. Six weeks after the purchaser refused (and just six weeks before the strata division was registered), the developer rescinded. Supreme Court Justice Young upheld the developer's right to do so.
Developers should review sunset date provisions carefully before issuing first contracts
In each case, the judge stated that his decision turned on the facts of the case and, in different fact situations, he might determine that a party could not rely on a sunset date provision to terminate a contract.
What is clear from both cases, however, is that neither a purchaser nor a developer may confidently assume that an agreement to waive a sunset date condition can be implied from any action or inaction of the other party, and off-the-plan apartment developers should always ensure that their standard contract sunset date provisions are carefully reviewed before the first contracts are issued.
Mark Morgan
mem@cbp.com.au
Property acquisition, development and sale
Colin Biggers & Paisley