Legislative Change to Off the Plan Contracts

In our December 2015 newsletter we wrote about the November 2015 amendments to the Conveyancing Act 1919 (NSW) regarding developers rescinding “off the plan contracts” under “sunset clauses” (as defined in that act).

The new section 66ZL of the Conveyancing Act allows the Court, on the application of a vendor, to make an order permitting the vendor to rescind an off the plan contract under a sunset clause only if the vendor satisfies the Court that making the order is “just and equitable in all the circumstances”. The Court is to consider:

(a) the terms of the off the plan contract;
(b) whether the vendor has acted unreasonably or in bad faith;
(c) the reason for the delay in creating the subject lot;
(d) the likely date on which the subject lot will be created;
(e) whether the subject lot has increased in value;
(f) the effect of the rescission on each purchaser;
(g) any other matter the Court considers to be relevant; and
(h) any other matter prescribed by the regulations.

In January 2016 the Supreme Court decided Jobema Developments Pty Limited v Zhu & Ors [2016] NSWSC 3 which is the first case to consider the new section 66ZL. The developer in Jobema Developments was unsuccessful as it failed to provide sufficient evidence to the Court that it was just and equitable in all the circumstances for the Court to make an order permitting the developer to rescind the contract.

Jobema Developments makes it clear that section 66ZL operates retrospectively to all off the plan contracts (as defined in that section) whether they were entered into before or after the commencement of the section in November 2015. Justice Black noted in his judgment that “the legislative regime has expressly not excluded existing projects from its operation”.

The developer asserted that the “current legislative regime … was unforeseeable at [the] point” that it purchased the site together with the off the plan contracts and that the developer had proceeded on advice that it was entitled to rescind the contracts.

Justice Black was unpersuaded by this argument and said, “I am not convinced that the particular possibility that the legislature might intervene, to protect the interest of off the plan purchasers of strata plan units, was unforeseeable, but in any event it seems to me that legislative change generally is a foreseeable risk of business activity”.

Emma Mancini

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