Recent changes to the law have strengthened the position of purchasers who enter into off-the-plan contracts.
Earlier in 2019, the Victorian government passed new Sale of Land Amendment Act 2019 to close a loophole which previously allowed developers to exploit sunset clauses to get out of contracts they had previously entered into with purchasers.
So, what do you need to know?
What is a sunset clause?
In simple terms, a sunset clause is a special condition in a contract of sale that effectively puts a time limit by when the vendor/developer must obtain registration of the plan of subdivision before either party may end the contract.
Sunset clauses are commonly found in off-the-plan contracts and are required because they deal with titles which do not formally exist yet.
Typically, these contracts are for properties which are subject to the registration of a plan of subdivision – such as townhouses, multi-level apartment buildings or vacant land lots on new residential estates.
So, let’s pretend you’ve signed an off-the-plan contract for a new townhouse today.
Now, let’s pretend that the contract has a sunset clause which expires on June 1, 2021.
If the construction of the townhouse is not completed and the plan of subdivision registered by June 1, 2021, then the purchaser or the vendor (the developer) could pull out of that contract on June 2, 2021.
If notice ending the contract is served by either party on the other when the sunset clause expires, the purchaser would be entitled to the return of their deposit.
Previously, the option to pull out of the contract existed in most circumstances for both the vendor/developer and the purchaser automatically.
However, the new law has strengthened the position of the purchaser by placing conditions around when and how the developer can exit the contract.
How has the law changed?
The Sale of Land Amendment Act 2019 has placed restrictions on when and how the developer can exit a contract once the sunset clause has expired.
Now, developers will only be able to exit a contract under a sunset clause with the written consent of the purchaser, or with the permission of the Supreme Court of Victoria.
In the absence of the purchaser’s consent, the developer will need to provide evidence to demonstrate that they are unable to complete the proposed development.
These new laws relate to contracts entered from 23 August 2018. This means that any contract entered post 23 August 2018 is affected by the new laws.
Why did the law change?
The law was changed to address a concerning trend which saw developers deliberately delaying the construction of new properties to ensure the sunset clause had passed so they can cancel contracts and sell the property for a higher price.
Tick Box Conveyancing director and experienced conveyancer Martin Galea said the changes were positive for purchasers.
“This will stop purchasers from being taken advantage of if property prices are going up,” he said.
“There were certainly examples of developers looking to delay the completion of a project if they felt the property was now worth significantly more than what they initially sold it for.
“So, in that way, these changes are good.”
Advice for purchasers with existing sunset clauses
Tick Box Conveyancing director Martin Galea said that any purchasers who signed an off-the-plan contract after 23 August 2018, may want to seek some advice on their contract.
“Anyone with any doubts or questions about their contract should certainly be seeking an independent review of their contract and relevant advice,” he said.
“If you have entered into an off-the-plan contract, it might also be worth checking the date of the sunset clause and seeking advice if you have any questions or queries.”
The benefits of buying off-the-plan include discounts on last remaining properties and units developers are trying to clear of any given development, or discounts on stamp-duty or other concessions. While purchasers should be wary of any developer offering such incentives, some of the money buyers might save on an off-the-plan sale should definitely be used in employing an off the plan conveyancing expert or solicitor who has significant legal knowledge in this area.
If you are looking to purchase a property off-the-plan, contact Tick Box Conveyancing for a thorough pre-purchase review of the contract.
With the most experienced off the plan conveyancing experts in Melbourne, you can better understand the nuances of purchasing a property with a building you can’t feel, touch or see, to unpack the deal you are getting into and the contract you are signing.
If you have recently signed an off-the-plan contract and have questions, feel free to get in touch with Tick Box Conveyancing to discuss your options.
Advice for developers
Whilst the new laws are good news for purchasers, Tick Box Conveyancing director Martin Galea said developers should be wary of existing sunset clauses.
Furthermore, they should consider how far ahead any sunset clause in future contracts are set.
“Because the laws are backdated, developers need to be wary of both past, existing and future contracts,” he said.
“While the laws stop underhanded tactics from some developers, it would be unfair to taint all developers with the same brush.”
“Unfortunately for developers, these new laws do mean that should they encounter genuine hardships and are unable to complete the project for legitimate reasons, they could find themselves in a difficult position to exit the contracts after the sunset clause has passed.
“Developers need to look at any contracts that have not been settled and have sunset clauses nearing expiry and they also need to consider the sunset clauses in any future contracts very carefully.”
Developers with questions about past, present or future developments and off-the-plan contracts should contact Tick Box Conveyancing.
With the recent changes to the law and the Victorian government having passed the new Sale of Land Amendment Act 2019, it’s important to get expert advice from the most experienced off the plan conveyancing professionals in Melbourne before signing on the dotted line. Whether you’re looking to purchase or a vendor looking to sell, contact Tick Box Conveyancing’s professional services for an accurate quotation or for just a quick chat.