Australia: A setting sun – The use of sunset clauses in residential off-the-plan contracts in Victoria

Last Updated: 29 August 2019
Article by Natashia Ackroyd and Nikhi Wagstaff

Most Read Contributor in Australia, August 2019

Earlier this year we reported on the key changes proposed by the Sale of Land Amendment Bill 2019 (Vic) (the Bill).

The Bill sought to implement a number of reforms to the Sale of Land Act 1962 (Vic) in order to address some ongoing issues in the Victorian property market.

Since the publication of our article, the Bill received royal assent on 4 June 2019. As such, we refer to the Bill as the "Amendment Act" in this update.

Sunset clauses

In the context of residential off-the-plan contracts, the objective of the Amendment Act is to prohibit a vendor from terminating a contract under the guise of a sunset clause for a non bona fide reason, including to re-market a property during a market upswing.

Key changes

The key changes introduced by the Amendment Act to sunset clauses in residential off-the-plan contracts (for the sale of lots on plans of subdivision) are set out below.

  • Written consent from purchaser: In order to rescind a residential off-the-plan contract under a sunset clause, a vendor must obtain the written consent of a purchaser after giving the purchaser a written notice at least 28 days before the proposed rescission. The notice must set out:
    • the reason why the vendor is proposing to rescind the contract
    • the reason for the delay in registering the plan of subdivision or in the issuing of the occupancy permit
    • that the purchaser is not required to consent to the proposed rescission.

This applies to all residential off-the-plan contracts on and from 23 August 2018.

  • Supreme Court order: A vendor under a residential off-the-plan contract that contains a sunset clause may apply to the Supreme Court of Victoria for an order permitting the vendor to rescind a contract under the sunset clause. In determining whether to make such an order, the Court must have regard to a number of factors, including:
    • whether the vendor has acted unreasonably or in bad faith
    • the reason for the delay in registering the relevant plan of subdivision or in the occupancy permit being issued
    • the effect of the rescission on the purchaser
    • any other matter that the Court considers to be relevant.

Ultimately, the Court may make an order permitting the vendor to rescind if the Court is satisfied that making the order is just and equitable in all the circumstances.

This applies to all residential off-the-plan contracts on and from 5 June 2019.

  • Prescribed statement: By 1 March 2020, all sunset clauses in residential off-the-plan contracts must include a prescribed statement that:
    • the vendor is required to give notice of a proposed rescission of the contract under the sunset clause
    • the purchaser has the right to consent to the proposed rescission but is not obliged to consent
    • the vendor has the right to apply to the Supreme Court of Victoria for an order permitting the vendor to rescind the contract
    • the Court may make an order permitting the rescission of the contract if satisfied that making the order is just and equitable in the circumstances.

A vendor may incur the following penalties for failing to include such a statement in the sunset clause of the contract:

  • if the vendor is a natural person, 240 penalty units (being approximately $39,652.80); or
  • if the vendor is a body corporate, 1,200 penalty units (approximately $198,264.00) on the basis that the current value of a penalty unit is $165.22 (as at 1 July 2019).

Key takeaways

If you are a vendor or a developer, now is the time to carefully review and update your pro forma residential contracts of sale in consultation with your lawyer.

As a general comment, the reforms under the Amendment Act (other than those relating to sunset clauses) will be implemented on or before 1 March 2020. We will continue to monitor and provide updates as the changes come into effect.

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.

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