Wednesday, 30 January 2019

What amendments are proposed to the Sale of Land Act 1962 relating to sunset clauses and sales off the plan?

The Sale of Land Amendment Bill 2018 was passed by the Victorian Legislative Assembly and introduced into the Victorian Legislative Council on 20 September 2018. However, with the Victorian state election in November 2018, the legislation lapsed. 

As the state government was re-elected (with an increased majority), I expect that the legislation will be reintroduced into the Victorian Parliament this year. 

Off the plan contracts of sale
The 2018 version of the Bill introduced provisions similar to those in New South Wales that limited the ability of a developer/vendor to rescind an 'off the plan' contract of sale because either a plan was not registered or an occupancy permit was not issued before a nominated sunset date. 

The Bill stated that it would apply to all "off the plan" contracts (regardless of when they were entered into), so that the requirement to obtain the purchaser's written consent would apply to any purported rescission after 23 August 2018. I expect that date will change once the Bill is reintroduced. 

The 2018 Bill introduced the definition of a “sunset clause” that applied only to residential contracts which provided for the contract to be rescinded if either the plan had not been registered by the sunset date or an occupancy permit has not been issued by the sunset date.

If the Bill is eventually enacted in the same form as the 2018 Bill, new sections 10A and 10B of the Act will provide that a vendor can no longer automatically rescind a contract under a sunset clause unless the vendor first obtains the written consent to the rescission of each purchaser after giving at least 28 days written notice before the proposed rescission.  The notice must state:
(a) the reason why the vendor is proposing to rescind the contract; 
(b) the reason for the delay in the registration of the plan of subdivision or the issuing of the occupancy permit; and 
(c) that the purchaser is not obliged to consent to the proposed rescission.

This right cannot be contractually removed (s 10C).

As in New South Wales, a vendor/developer would be able to obtain an order from the Supreme Court to rescind the contract if the contract contains a sunset clause, or if all the purchasers do not agree.  

The Bill listed the matters that the Court was to take into account in determining if such an order should be made, including:
  • the reasons for the delay;
  • whether the vendor has acted unreasonably or in bad faith;
  • whether the lot in question has increased in value; and
  • the effect of the rescission on the purchaser.
The Supreme Court would need to be satisfied that making the order is just and equitable in all the circumstances. If the order was granted, the Court would also be able to order that the vendor pay reasonable compensation to the purchaser. 
As a further protection for purchasers, vendors would need to pay purchasers' costs of Supreme Court proceedings, unless they satisfy the Court that the relevant purchaser unreasonably withheld consent to rescission of the contract.

Other amendments proposed in the 2018 Bill required off the plan contacts to include specific statements about a vendor's right to seek rescission under a sunset clause. 

These statements would set out the need for vendors to obtain purchasers' consent or a Supreme Court Order to rescind a contract of sale pursuant to a sunset clause and also confirm that a purchaser was not obliged to provide its consent. Failure to provide such statements in a contract of sale would attract a fine of 240 penalty units ($38,685.60) for natural persons and 1200 penalty units ($193,428) for bodies corporate.

The 2018 Bill proposed that its provisions were to come into effect on the day on which the Bill received Royal Assent.  If the provision is enacted in this form, it may mean that the Bill may apply to existing contracts.

Not surprisingly (as this is consumer legislation), there is no protection for vendor/developers against purchasers using a sunset clause to their advantage should the value of the land sold go down (noting that the property market has recently had a downturn in Melbourne).

Practitioners should note that the 2018 Bill also contained other amendments to the existing legislation, including the prohibition of:
  •     rent to buy arrangements; 
  •     terms contracts below a prescribed value; and
  •     some land banking arrangements.

It should be noted that the New South Wales Supreme Court has made at least one decision on an application pursuant to the relevant NSW provisions (see: DGF Property Holdings P/L v Butros & Ors [2018] NSWSC 344). That case sent a strong message to developers that the Court will not easily permit rescission of off-the-plan contracts, even if the vendor’s conduct cannot be said to be in bad faith or unreasonable. In that case, the developer had been in dispute with the vendors of the land to the developer, which was the main cause of delay in the registration of the plan of subdivision. Despite that, the Court only granted the application on certain specified conditions being met by the developer.

WG Stark
Hayden Starke Chambers 

No comments:

Post a comment