In a recent case before the NSW Supreme Court (352 Bourke Street Pty Limited as Trustee for 352 Bourke Street Unit Trust v Kerry Gai Rhall), Emmett J was tasked with determining the scope of the nascent “sunset date” provisions introduced in November 2015.

While the case ultimately settled prior to judgment, his honour questioned whether section 66ZL of the Conveyancing Act 1919 (NSW) permitted the judiciary to award compensation to purchasers if the Court allowed the developer’s rescission of the contracts.

Sunset Date clauses - rescission

In a previous article we discussed the legislative changes, which provide greater protection to consumers who purchased off-the-plan contracts for residential properties.

The controversial provisions in these off-the-plan contracts permits either party to rescind the contract if the subject lot has not been completed by the specified “sunset date”. The intention is to protect both parties from unforeseen delays by affording each party an opportunity to end the contract and pursue other options.

The amendments that were introduced following intervention by the Minister for Innovation and Better Regulation at the time, Victor Dominello MP, were in response to concerns raised by aggrieved purchasers affected by exploitative practices of developers cashing in on the rising property values by rescinding contracts and selling the properties at significantly higher prices at the same time.

The “sunset date” provisions under section 66ZL of the Conveyancing Act 1919 (NSW). compels the developer to obtain a Court order allowing the rescission if the purchaser does not agree to rescind the contract once the sunset date has been reached.

The developer must demonstrate that they have taken all the required steps to:

  • prove that the delay was beyond their control; and
  • that rescission is just and equitable in all the circumstances.

However, the sunset clauses in typical off–the plan contracts only give the purchaser the limited remedy of a refund of the deposit paid, raising the question whether an order for compensation payable to purchasers is permitted or otherwise warranted under the legislation.

The first test - Jobema Developments Pty Limited v Zhu & Ors [2016] NSWSC 3

The first case to test the new legislation was Jobema Developments Pty Limited v Zhu & Ors [2016] NSWSC 3 which concerned a development site for an off-the-plan lot that was sold by the original developer to another developer (Jobema). Jobema assumed the original developers obligations and prior to the sunset date offered to extend the sunset date if the purchaser accepted an increased price to reflect its current market value.

The Court found against the developer and refused the developer’s application for rescission on the basis that it was not “just and equitable” in all the circumstances.

Recent NSW Supreme Court Decision – 352 Bourke Street

The recent 352 Bourke Street case concerned purchasers of lots in a 22-unit block in Surry Hills. The developer-builder sought to rescind the contracts because of constant delays. 11 purchasers refused.

In an attempt to raise the price of the units, before the Court proceedings, the developer made an offer to the purchasers which would have allowed the contracts to continue if they agreed to pay half of the developer’s costs incurred because of the unavoidable delays.

Understandably, the purchasers refused to pay any additional costs and the case proceeded to Court for determination of the developer’s application to rescind the contracts.

His honour Emmett J questioned whether he had the power to award compensation to the purchasers under section 66ZL. Before a decision could be reached, the parties settled the case.

Section 66ZL does not provide the Court with the requisite power to order compensation to purchasers given the limited power for rescission, putting the parties back in the position they were in before the contract (and not an order for termination of the contract which would give rise to a claim for damages).

Purchaser’s limited remedy

In both cases the developers put pressure on the purchasers to pay a higher price than that agreed.

This recent case illustrates the Court’s concern that if the Courts allow the developer to rescind contracts under the sunset clauses, the legislation may not adequately protect purchasers under these off-the plan contracts in circumstances where the result is that purchasers are left only with the limited remedy of a refund of the deposit paid.

This outcome does not account for the price difference the purchaser may pay for an alternative comparable property in a rising market.

Perhaps the Minister may need to consider Emmett J’s concern and consider amending the Conveyancing Act to give the Court the additional discretionary power to award a purchaser reasonable compensation in exceptional circumstances if the Court grants an order for rescission to address the inadequate remedies for a purchaser.

Court questions the power to order compensation to purchasers of off-the plan contracts for rescission under sunset clauses

In a recent case before the NSW Supreme Court (352 Bourke Street Pty Limited as Trustee for 352 Bourke Street Unit Trust v Kerry Gai Rhall), Emmett J was tasked with determining the scope of the nascent “sunset date” provisions introduced in November 2015.

While the case ultimately settled prior to judgment, his honour questioned whether section 66ZL of the Conveyancing Act 1919 (NSW) permitted the judiciary to award compensation to purchasers if the Court allowed the developer’s rescission of the contracts.

Sunset Date clauses - rescission

In a previous article we discussed the legislative changes, which provide greater protection to consumers who purchased off-the-plan contracts for residential properties.

The controversial provisions in these off-the-plan contracts permits either party to rescind the contract if the subject lot has not been completed by the specified “sunset date”. The intention is to protect both parties from unforeseen delays by affording each party an opportunity to end the contract and pursue other options.

The amendments that were introduced following intervention by the Minister for Innovation and Better Regulation at the time, Victor Dominello MP, were in response to concerns raised by aggrieved purchasers affected by exploitative practices of developers cashing in on the rising property values by rescinding contracts and selling the properties at significantly higher prices at the same time.

The “sunset date” provisions under section 66ZL of the Conveyancing Act 1919 (NSW). compels the developer to obtain a Court order allowing the rescission if the purchaser does not agree to rescind the contract once the sunset date has been reached.

The developer must demonstrate that they have taken all the required steps to:

  • prove that the delay was beyond their control; and
  • that rescission is just and equitable in all the circumstances.

However, the sunset clauses in typical off–the plan contracts only give the purchaser the limited remedy of a refund of the deposit paid, raising the question whether an order for compensation payable to purchasers is permitted or otherwise warranted under the legislation.

The first test - Jobema Developments Pty Limited v Zhu & Ors [2016] NSWSC 3

The first case to test the new legislation was Jobema Developments Pty Limited v Zhu & Ors [2016] NSWSC 3 which concerned a development site for an off-the-plan lot that was sold by the original developer to another developer (Jobema). Jobema assumed the original developers obligations and prior to the sunset date offered to extend the sunset date if the purchaser accepted an increased price to reflect its current market value.

The Court found against the developer and refused the developer’s application for rescission on the basis that it was not “just and equitable” in all the circumstances.

Recent NSW Supreme Court Decision – 352 Bourke Street

The recent 352 Bourke Street case concerned purchasers of lots in a 22-unit block in Surry Hills. The developer-builder sought to rescind the contracts because of constant delays. 11 purchasers refused.

In an attempt to raise the price of the units, before the Court proceedings, the developer made an offer to the purchasers which would have allowed the contracts to continue if they agreed to pay half of the developer’s costs incurred because of the unavoidable delays.

Understandably, the purchasers refused to pay any additional costs and the case proceeded to Court for determination of the developer’s application to rescind the contracts.

His honour Emmett J questioned whether he had the power to award compensation to the purchasers under section 66ZL. Before a decision could be reached, the parties settled the case.

Section 66ZL does not provide the Court with the requisite power to order compensation to purchasers given the limited power for rescission, putting the parties back in the position they were in before the contract (and not an order for termination of the contract which would give rise to a claim for damages).

Purchaser’s limited remedy

In both cases the developers put pressure on the purchasers to pay a higher price than that agreed.

This recent case illustrates the Court’s concern that if the Courts allow the developer to rescind contracts under the sunset clauses, the legislation may not adequately protect purchasers under these off-the plan contracts in circumstances where the result is that purchasers are left only with the limited remedy of a refund of the deposit paid.

This outcome does not account for the price difference the purchaser may pay for an alternative comparable property in a rising market.

Perhaps the Minister may need to consider Emmett J’s concern and consider amending the Conveyancing Act to give the Court the additional discretionary power to award a purchaser reasonable compensation in exceptional circumstances if the Court grants an order for rescission to address the inadequate remedies for a purchaser.