The Facts

Vendor and purchasers enter off-the-plan contracts containing sunset clause

In 2014, the vendor and several purchasers entered into contracts for the sale of residential units in a building that was yet to be constructed.

The purchasers were unable to inspect a display unit, so they instead exchanged residential off-the-plan contracts with the vendor, relying on the information and documentation provided in the contracts.

Each contract was in substantially the same terms and was for the sale of a proposed lot in an unregistered plan of subdivision.

The contracts contained a sunset clause, stipulating that if the unregistered plan of subdivision was not registered by 31 December 2016 (the "sunset date"), then the parties were each legally entitled to rescind the contract (ie walk away from it).

The contractual sunset clause was subject to section 66ZL of the NSW Conveyancing Act 1919. (The relevant part of the current legislation is section 66ZS.)

This section states that a vendor may only rescind an off-the-plan contract under a contractual sunset clause if the buyer is given notice and consents in writing to the rescission, or if the vendor has obtained an order from the Supreme Court permitting the vendor to rescind the contract.

Construction delayed and vendor seeks to rescind contract under sunset clause

The sunset date in each contract was two and a half years after the contract date, and therefore considered more than sufficient time to complete the building and register the plan of subdivision.

However, the development was troubled with delays, and the plan of subdivision was not registered by the sunset date. Ultimately, the plan was registered nearly 13 months after the sunset date.

Less than a month after the expiry of the sunset date, the vendor served notices to the purchasers that it was rescinding the contracts, giving the reason as external events which caused delays in completion of the development.

Purchasers refuse to accept rescission and vendor seeks order from Supreme Court

The purchasers did not consent to the rescission, believing that the vendor was trying to cancel their contracts so that it could resell the apartments for a higher price in the rising property market.

The vendor made an application to the Supreme Court for an order permitting it to rescind the contracts.

It was up to the court to decide whether making such an order was just and equitable in all the circumstances.

case a - The case for the purchasers

case b - The case for the vendor

  • It was the vendor's fault that the plan of subdivision was not registered by the sunset date. The vendor failed to ensure that appropriate finance was available. It failed to contract the builders in a timely fashion and did not organise construction certificates for each stage in time for commencement. It also failed to monitor the construction of the complex with all due expedition.
  • The vendor also acted unreasonably by using misleading scare tactics to try to force us to terminate our contracts. This included letters and notices presenting a gloomy account of future progress and threatening that if we insisted on the contracts being completed, our units might shrink or might never be finished.
  • The difference between the current market value of the respective lots and the purchase price under our contracts is of the order of $1.8 million. Clearly, the vendor is only trying to rescind in order to cash in on this rising market by reselling our lots.
  • Not only would rescission deprive us of an economically valuable asset, it would also deprive us of the social benefits we purchased, including living close to the CBD and enjoying the café lifestyle.
  • We have even offered to pay a 15% uplift in value for the contracts to settle, but the vendor has rejected the offer.
  • Given the vendor's behaviour and the impact of rescission on us as purchasers, the court should deny the vendor's application.
  • The purchasers knew when they signed the contracts that there was no certainty that completion would occur. They understood that the contract entailed a risk on us as vendor in a falling property market, and on them as purchasers in a rising market. The purchasers agreed to manage these risks by means of a mutual right of rescission, which they voluntarily granted under the contract. We are merely seeking to exercise that right.
  • Further, we did not cause the delays that led to failure to register the plan by the sunset date.
  • National Australia Bank would only provide finance on the basis that we first secured at least nine pre-sales. Accordingly, we could only obtain finance, enter into a construction contract and select a builder after we had entered into contracts with the purchasers.
  • The builders could not carry out works on the site for four months in 2015, due to the council's delay in granting a construction certificate.
  • In early 2016, the builder was placed in external administration. This was entirely outside our control. We quickly instructed the project manager to seek tenders for a builder to finish the job. We completed the process as soon as possible.
  • When the builder was placed in external administration, this resulted in the costs to complete the development exceeding the available funds and contributed to the strata plan not being registered by the contractual sunset date.
  • Given that the purchasers voluntarily agreed to the sunset clause and that the failure to register the strata plan by the sunset date was due to circumstances outside our control, the court should grant our request for an order to rescind.

So, which case won?

Cast your judgment below to find out

Merrill Phillips
Stacks Law Firm

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