Property & Leasing Disputes provides a regular analysis and commentary on a handful of selected issues which may be of interest to those whose professional lives involve dealing with property, leasing, property development, planning or conveyancing. The focus is upon matters that have found their way into the upper reaches of the court system, and some guidance is offered on dealing with similar issues as they may arise.
In this edition
This edition looks at:
- How the court is likely to approach new legislation where a developer wants to rescind an off-the-plan contract in NSW where a lot is not registered by a sunset date?
- When is an easement 'reasonably necessary'?
- A lesson in how to prove that a developer has used reasonable endeavours in trying to complete a development by a sunset date.
Restrictions on rescission under a sunset clause
Sunset dates, rescission and the Conveyancing Act
As should by now be fairly well known, in November 2015 the Conveyancing Act 1919 was amended by including a provision which restricted a vendor's ability to rescind an off-the-plan contract for the sale of a residential lot in circumstances where a sunset date for the creation of the relevant lot has passed.1 The substance of the restriction is that if the purchaser does not also agree to the rescission, then the vendor must seek the court's leave in order to lawfully rescind the contract.
The court is only entitled to make an order allowing rescission if it is "just and equitable in all the circumstances". The legislation then sets out the matters which the court is to take into account in determining whether rescission would be just and equitable. These include things such as the terms of the contract, the vendor's conduct, the reason for delay in registration of the lot, when the lot is likely to be registered, whether the lot has increased in value and the effect of the rescission on the purchaser.
Could the developer rescind?
In January this year, the NSW Supreme Court considered the first case under the new legislation.2 In this case, a developer (Jobema) acquired a site from another developer. This first developer had entered into numerous off-the-plan contracts but had delayed in progressing the development. Jobema seemingly took over the original developer's obligations under all off-the-plan contracts on the basis that it would not be able to register the lots by the sunset date, but would instead rescind many of the contracts and resell the lots. Jobema saw this as being beneficial to it because the lots had increased in value since the exchange of the contracts, and Jobema would be able to use this increase in value to increase the amount it could borrow from its financiers, which in turn would enable it to finish the development.
However, prior to the sunset date expiring in 2015, the legislation (which also applies to contracts entered into prior to the amendment) changed. One purchaser did not agree to a rescission of his contract and Jobema approached the court seeking orders allowing the rescission to take place.
What does the court consider?
Because the purchaser did not appear before the court, and the decision was dealt with on an urgent basis in January 2016, the decision does little more than hint at the way in which the court will approach this legislation in a more fully argued application. Nonetheless some points capable of being taken out of the judgment include:
- The court did not agree with Jobema that it was just and equitable to allow the rescission because the market price of each unit had increased since exchange, and further that if Jobema could rescind and enter into a new contract for the relevant unit at a higher price (including potentially by reselling to the current purchaser), then Jobema would be able to obtain the finance which would assist in completing the project. The court took the view that an increase in the market price of a unit may factor against the court granting leave for a rescission, on the basis that this would adversely affect a purchaser who would be losing the benefit of their bargain; and
- The court rejected an argument by the developer that the change in legislation caught it off-guard. The developer's position was that when it obtained the site, it banked on being able to rescind several of the contracts, and given the increase in land value, obtain more finance. If the court did not allow the rescission, then this plan would be upset. The court's view was that, and particularly with a large residential development, a change in legislation which may adversely affect a developer was part of business risk which the developer had assumed.
How future matters will be approached remains to be seen. However, it seems reasonably clear that the court will not be overly willing to assist a developer who submits that a reason to allow rescission is to allow a developer to take advantage of an increase in market price if this could undermine the purchaser's original bargain, even if this is for purposes of completing the development.
Easements – whether a right of way is reasonably necessary
Two neighbours at the end of a cul-de-sac fell into a dispute over a shared driveway.3 The owner on one side (Neighbour A) had a long concrete driveway on his land. His neighbour (Neighbour B) had an easement over the first section of Neighbour A's driveway which she used to access her garage.4 Neighbour A also had an easement over Neighbour B's land adjacent to the driveway. However, when Neighbour B built her house, she did not extend the driveway over her land, partly due to it being quite steep. Instead, she put in a garden and used Neighbour A's driveway. In other words, Neighbour Brelied upon Neighbour A's driveway for access to her garage, and although Neighbour A had an easement over the place on Neighbour B's land where a driveway would be constructed, no such driveway existed.
Neighbour A eventually got into the habit of parking a car on the part of the driveway not covered by the easement. Neighbour A did this because this was a level section of the drive on what was otherwise very steep land. Unless Neighbour A's car was parked particularly close to the wall on the side of the driveway - which was inconvenient to Neighbour A - this prevented all but the smallest car from using the driveway to access Neighbour B's garage.
Neighbour B became annoyed, a dispute arose and litigation was commenced. Neighbour B asked that the court impose an easement along the whole of Neighbour A's driveway pursuant to s88K of the Conveyancing Act 1919 (NSW). Under that section, an easement can be ordered where it is "reasonably necessary for the effective use ... of other land that will be benefited by the easement." A condition of granting a s88K easement is that the party to be burdened by it (here Neighbour A) "can be adequately compensated for any loss or other disadvantage that will arise from the imposition of the easement".
Neighbour A resisted the order on the basis that Neighbour B could have, but didn't, extend the driveway across her land when she built her house. Instead she expected to be able to use Neighbour A's land for access. The solution to the problem, so Neighbour A argued, was not to impose a s88K easement burdening Neighbour A, but instead for Neighbour B to remove the garden, build a retaining wall (to deal with the steepness of the land), grade a section of the land and extend the driveway across her own land - which may have cost Neighbour B as much as $150,000.
The court refused Neighbour B's application on the basis that an easement, although preferable to Neighbour B when compared to the expense in extending the driveway, was not "reasonably necessary" for the following reasons:5
- The court needs to consider if there is an alternative reasonable use available for the land to be benefited by the easement, with the consequence that the imposition of the proposed easement may not be reasonably necessary in comparison to the alternative. In the present case, the court considered that Neighbour B extending the driveway over her garden was a reasonable alternative use meaning that the proposed easement was not reasonably necessary;
- The court also needs to consider the burden that will be imposed on the 'servient tenement' (here Neighbour A's land). If the imposition of an easement would preclude a reasonable use of the servient tenement, the court will not be quick to grant an easement unless a strong case of reasonable necessity is shown. In this regard, the court regarded extending an easement over Neighbour A's, so that Neighbour A was not able to park his car on that part of the driveway that was not originally burdened by the easement, was significant. It would also have prevented Neighbour A from building a carport or garage on the level part of the driveway, which was suitable for this purpose;
- While the financial burden of an alternative to an easement is relevant, including when compared to the amount of any compensation that may be payable to the owner of the servient tenement, it is up to the applicant to lead evidence of these matters. Neighbour B failed to do this (including evidence of whether a driveway over the garden would increase the value of Neighbour B's land), so that the court was not able to be satisfied that the widening of the driveway was not a feasible financial alternative.
It remains important to bear in mind that even though a s88K easement, to be 'reasonably necessary', need not be 'absolutely necessary', before litigation is embarked upon careful consideration of alternatives must be undertaken. Litigation is never cheap and being unsuccessful is never fun.
Applicants also need to ensure that they are able to produce evidence showing what the alternatives are and why, when compared with the proposed easement, these alternatives are not preferable, including for financial reasons. In this respect, the experience and quality of their legal teams is vital. The present plaintiff (Neighbour B) essentially lost the argument on whether the financial burden of the alternative was such as to make the s88K easement preferable by not leading any evidence on that issue. This is not to say that the court would have found to the contrary had such evidence been marshalled, but it was a significant hole in Neighbour B's case that could have been pre-empted.
Reasonable endeavours and extending sunset dates
Late last year the NSW Supreme Court had to consider a case whether a vendor-developer had been entitled to rescind 34 off-the-plan contracts, on the basis that the lots had not been registered by the sunset date.6 The rescissions occurred prior to the change in legislation referred to above.
Reasonable endeavours and evidence
The relevance of this case is not so much about the rescission itself, but whether the vendor was in a position to rescind the contract. This is because the sunset date clause provided that the vendor could only rescind if the vendor had used its reasonable endeavours in having the relevant strata documentation registered prior to the sunset date.
The point of interest is the way in which the court weighed the evidence placed before it. In particular, the vendor attempted to show that it exercised reasonable endeavours through evidence given by contractors who were on-site and able to explain what happened in particular situations. This evidence was led to enable the court justifying a conclusion that there was no argument to say reasonable endeavours had not been used.
In contrast the purchasers, who bore the onus of having to prove reasonable endeavours had not been used, were mostly reliant upon expert witnesses giving their views on how long particular parts of the construction should have taken etc. In most instances, the court preferred the evidence given by the person on site over the speculation and opinion of expert witnesses who were not.
An important lesson from this case is to appreciate that a purchaser (or indeed anyone) bearing an onus of showing that a party did not use reasonable endeavours needs to be particularly careful as to how this can be shown, and how that party will overcome any disadvantage that they were divorced from the day to day events that they contend show that reasonable endeavours were not used. This will usually need to be determined on a case by case basis, where some instances may be relatively easy to prove (for example if the issue is whether reasonable endeavours were used to obtain finance, subpoenas to banks etc may assist, but if the issue is delays in construction, it may be considerably more difficult). Once again, prior to litigation being embarked upon, some initial enquiries should be made.
1 Section 66ZL of the Conveyancing Act 1919 (NSW).
2 Jobema Developments Pty Limited v Zhu  NSWSC 3.
3 Govindan-Lee v Sawkins  NSWSC 328.
4 This description simplifies the actual facts. In reality there were a number of separate easements that together gave access along the driveway.
5 Generally following Moorebank Recyclers Pty Limited v Tanlane Pty Limited  NSWCA 445 at -.
6 Wang v Kaymet Corporation Pty Ltd  NSWSC 1459.
This publication does not deal with every important topic or change in law and is not intended to be relied upon as a substitute for legal or other advice that may be relevant to the reader's specific circumstances. If you have found this publication of interest and would like to know more or wish to obtain legal advice relevant to your circumstances please contact one of the named individuals listed.