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Legislative update

The Conveyancing Amendment (Sunset Clauses) Bill 2015 introduced on 2 November 2015 by Victor Dominello MP, Minister for Innovation and Better Regulation, has now been passed by the NSW Parliament. The Bill inserts s 66ZL in the Conveyancing Act 1919, which applies to the sale of residential strata units and lots in a proposed residential land subdivision. The Bill primarily intends to prevent developers from unjustly benefitting at the expense of the purchaser.

Under the new section, a developer may only rescind a contract if they have given the purchaser 28 days' written notice of the vendor's intention, explained the reasons for delay and rescission, and either:

  • the purchaser has provided their consent in writing, or
  • the vendor obtains an order of the Supreme Court permitting them to rescind the contract under the sunset clause.

If the vendor seeks an order from the Supreme Court, the vendor must satisfy the Court that the rescission is just and equitable in all circumstances. The Court is required to consider a number of factors to determine whether rescission is "just and equitable", including:

  • the terms of the contract
  • whether the vendor has acted in bad faith or unreasonably
  • the reason for delay
  • the likely date the lot will be created
  • whether the subject lot has increased in value
  • the effect of rescission on each purchaser
  • any matter prescribed by regulations, and
  • any other matter the Court considers relevant.

In the Second Reading speech, Minister Dominello noted that a major factor to be considered by the Court is the increase in value of the subject lot and suggests that "if the value of the lot has increased significantly, the exercise of the sunset clause is prima facie unfair". This factor is not included in the specific terms of the Bill but, upon interpretation considering the Minister's comments, this may pose a significant issue for developers in the current market.

The new legislation is hot on the heels of the recent case of Kaymet v Wang, which confirmed the prior position that the onus was on the purchaser to prove that a developer's delay in registering plan documents was unreasonable. The Bill reverses this onus, requiring the vendor to substantiate the delay instead of the purchaser and to seek the purchaser's consent before rescission is allowed or, failing this, to seek an order of the Court.

Where vendors seek orders of the Court they will be liable to pay the purchaser's costs of proceedings, unless the purchaser's refusal to consent is considered unreasonable by the Court.

The provisions have a retrospective application and developers are bound by the new requirements from 2 November 2015, regardless of when a contract was entered into.

We would like to acknowledge the contribution of Ellen Locke and Emanuel Oros to this article.
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