A recent landmark judgement in the NSW Supreme Court gave off-the-plan apartment buyers a major victory over developers who use their sunset clause to try to renege on a contract.

A developer of a new building in Sydney's inner suburbs took 12 of its apartment buyers to court, arguing it was within its rights to rescind the contracts because problems had pushed the building's completion deadline beyond the sunset clause date.

The buyers argued that the developer was trying to cancel their contracts so it could resell the apartments for a higher price in the rising market.

This has become increasingly common in apartment block developments, where developers have delayed completion and then used sunset clauses to cancel off-the-plan contracts, only to resell them days later for a significant profit.

Protection for buyers who purchase properties off the plan

This was a significant test case for government legislative changes made in 2015 to the NSW Conveyancing Act 1919 under section 66ZL that require each purchaser to consent in writing to the rescission of a contract, or the vendor to obtain an order of the Supreme Court to rescind the contract.

In a statement released in November 2015, Off The Plan Protections Secured, Finance, Services and Property Minister Victor Dominello said, "The new laws are intended to prevent rogue developers from rescinding contracts using the sunset clause to make windfall profits. Any developers who are thinking of acting unethically should know that their behaviour will no longer be tolerated."

Landmark court decision upholds off-the-plan buyer rights

The court heard that the 12 off-the-plan buyers had put deposits down on their apartments in 2014 and had been battling the developer to keep their contracts for two years. It was also found that the developer had sent a series of "scary" letters to the owners telling them their units might shrink or might never be finished.

An evaluator told the court the apartments had risen in value over four years by around $200,000 each since they were bought off the plan.

In the case Silver Star Fashions Pty Ltd v Dal Broi [2018] NSWSC 1445, Justice Rowan Drake ruled that the developer had not acted justly or equitably in trying to rescind the contracts and dismissed the developer's bid to tear up the off-the-plan contracts. In addition, he ordered the developer to pay the legal costs of the 12 apartment buyers.

Minister Victor Dominello stated that this was an important landmark decision. "It should give future off-the-plan buyers confidence their rights will be upheld."

Can a vendor purchasing land from a developer use the sunset clause to make a profit?

In a significant case in the Supreme Court of NSW, a vendor made an application for an order permitting the vendor to rescind off-the-plan contracts for sale under a sunset clause pursuant to section 66ZL of the Conveyancing Act 1919 (NSW).

The vendor had bought land from a developer via a novation agreement and had agreed to assume the development and other obligations under the existing off-the-plan contracts. (See Jobema Developments Pty Limited v Zhu & Ors [2016] NSWSC 3.)

The vendor claimed it had a right to rescind due to the following reasons.

  • The developer had carried out little or no physical work for the project and had not advanced the project at the time of the vendor's acquisition.
  • The contract did not meet the financial requirement for funding of the project.
  • Construction costs had increased significantly.
  • The property's market value had increased and the vendor had an opportunity to sell the property at a higher price.

The court ruled that the vendor had accepted the developer's obligations, with the knowledge that a lack of physical work had been carried out, which resulted in a delay on the project. He therefore put aside the vendor's application for leave under section 66ZL.

The judge also could not find any evidence to establish that construction costs or the value of the property had increased, so he dismissed the vendor's application.

Be wary of all suspect moves by developers

These court victories demonstrate the importance of seeking expert legal advice when purchasing an off-the-plan property. Aside from the sunset clause, developers and builders have been known to make other suspect moves, including altering the size and shape of apartments, while the building is under construction.

To ensure you are getting exactly what you signed up for, consult an experienced certified practising conveyancer who works within a law firm and has immediate access to lawyers.

Merrill Phillips
Stacks Law Firm

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.