The addition of section 66ZL of the Conveyancing Act dealing
with sunset dates ("New Sunset Clause Law") has attracted
a lot of attention, particularly in light of the recent decision of
Jobema Developments Pty Limited v Zhu & Ors  NSWSC 3.
A sunset clause within a Contract of Sale specifically addresses
the final date ("sunset date") a developer has to
complete the project. The inclusion of this clause protects
developers who may experience common delays such as problematic
weather and financial availability. If the developer has failed to
complete the project by the Sunset date, each party is given the
opportunity to rescind the contract within 14 days.
Prior to the New Sunset Clause Law, developers were well within
their rights to rescind a contract on the expiration of the sunset
date. Some property developers exploited this loop hole by
rescinding contracts for off-the-plan purchases, only to re-list
the same property later at the significantly higher current market
price. The new law seeks to protect buyers by placing certain
requirements on developers in respect of rescinding the contract.
Developers must now express their intention to rescind the contract
in writing, by no later than 28 days before the sunset date,
including detailed reasons as to why they wish to rescind. If both
parties can't agree to rescind, developers must then obtain a
court order from the Supreme Court.
Before granting an order, the courts will consider factors such
as the terms of the contract, whether the Vendor acted in bad faith
and the reasons for the delay in project completion. Courts will
also consider the likely completion date of the development,
whether the development has increased in value since the
commencement date of the contract, and above all else, the likely
effect that rescission will have on purchasers.
The Government's response was recently tested in the matter
of Jobema Developments Pty Limited v Zhu & Ors  NSWSC 3,
and appears to have been successful in protecting buyers from
Mr Wu was one of many buyers who entered into a contract with
the Developer, Xycom, on 6 December 2013. A sunset date of 31
December 2015 was set for the registration of the Strata Plan.
Having carried out minimal work on the project despite having
Development Approval, Xycom sold the entire development to the
plaintiff, Jobema Developments, in early January 2015. Jobema
commenced work instantly, predicting that the project would be
completed in April 2017 with registration to take place in July of
that same year. The plaintiff approached Mr Wu and other buyers to
see if they would agree to rescind the contract - Mr Wu rejected
this offer. Complying with their new obligations as per the New
Sunset Clause Law (specifically 66ZL(4)), Jobema issued Mr Wu a
Notice of Intent to rescind the contract on 1 December 2015. Mr Wu
and Jobema failed to mutually agree to rescind the contract and
consequently, Jobema made an application for an order from the
Supreme Court of New South Wales.
Questions for the court to consider
Is it just and equitable for the court to grant leave to rescind
the Contract of Sale between Mr Wu and Jobema?
Jobema argued they weren't responsible for Xycom's lack
of progress in the project which resulted in the failure to have
the Strata Plan registered by the sunset date of 31 December 2015.
The Court struck out this argument, claiming that Jobema assumed
the responsibilities of Xycom when it acquired the development.
Jobema also argued that the New Sunset Clause Law took effect
after they acquired the development and that the change in
legislature was unforeseeable. The court refuted this claim with
Justice Black stating "I am not convinced that the particular
possibility that the legislature might intervene, to protect the
interests of off the plan purchasers of strata plan units, was
unforeseeable, but in any event it seems to me that legislative
change generally is a foreseeable risk of business
The court ruled against Jobema, unsatisfied that granting the
application was just and equitable in respect of 66ZL of the
Conveyancing Act 1919. If you're a developer, it's a
reminder that you shouldn't rely on sunset clauses as a means
to rescind a contract.
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.
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