The NSW Government has previously announced a public consultation on the use of sunset clauses in off-the-plan contracts.

Sunset clauses allow either the buyer or the developer to rescind a contract after a certain date, commonly referred to as the sunset date.

Usually, a sunset clause provides that if the project is not completed by sunset date, the contract may be rescinded by the vendor or purchaser and the only remedy the purchaser is entitled to, is a refund of the purchaser's deposit.

Such sunset clauses have caused some controversy recently whereby developers have been able to manipulate these clauses to delay or withhold completing the property until the sunset date is reached and then rescinding the contract, refunding the deposit and reselling the property at substantially higher price than what was contracted with the original buyer, leaving the original buyer without any compensation.

Under current laws, parties are free to negotiate the terms of an off the plan contract and there is no legislation to prevent a developer from delaying completion of the property to such an extent that the vendor is able to manipulate the sunset clause and rescind the contract.

On 10 November 2015, the Conveyancing Amendment (Sunset Clauses) Bill 2015 was introduced into the NSW Parliament Legislative Assembly to amend the Conveyancing Act 1919 (NSW) to prevent developers from unreasonably rescinding off the plan contracts for a residential lot under a sunset clause.

Under the proposed amendments to the Conveyancing Act 1919 it will be a term of an off the plan contract that a vendor proposing to rescind the contract under a sunset clause give the purchaser notice in writing at least 28 days beforehand giving its reasons for rescission and delay in creating the lot.

The vendor can then only rescind the off the plan contract if:

  1. after the relevant notice is given to the purchaser, the purchaser consents in writing to the rescission; or
  2. the vendor has obtained an order of the Supreme Court permitting the vendor to rescind the off the plan contract under the sunset clause; or
  3. the regulations otherwise permit the vendor to rescind the contract under the sunset clause.

The Supreme Court may make an order permitting the vendor to rescind only if the vendor satisfies the Court that making the order is just and equitable in all the circumstances. The proposed amendments set out the factors the Court is to take into account in making its determination.

The vendor is also liable to pay the purchaser's costs in relation to the Supreme Court proceedings unless the vendor satisfies the Court that the purchaser unreasonably withheld consent to the rescission.

Surprisingly, the proposed amendments will apply to existing contracts and any rescission by a vendor on or after 2 November 2015 will be taken not to have been done in accordance with the contract unless the required notice was given to the purchaser and the rescission occurred in accordance with the amended provisions.

The Bill is expected to be debated shortly and some minor changes are likely to the proposed legislation to clarify a number of provisions.