Recently the NSW Parliament approved amendments to the Conveyancing Act 1919, comprehensively strengthening protections for off-the-plan land and apartment buyers.

Victor Dominello the Minister for Innovation and Better Regulation flagged the intention to create these new laws on the 2nd November following a very brief 3-week long period of public and industry consultation. The new laws are intended to prevent ‘rogue developers’ from rescinding contracts using the sunset clause to make, in what have been limited cases, windfall profits.

The new laws while having bipartisan support are in stark contrast to the very drawn out process to review the main Strata Title legislation. That process started in 2011/12 and will not be fully legislated until mid-2016. However over recent months there has been mounting community concerns regarding the apparent abuse of sunset clauses and when a group of residents from Wolli Creek lost their court case the matter took on even greater urgency. The government soon acted to provide off-the-plan buyers with greater certainty at a time when it appeared that in some markets apartment prices were heading into the heavens, creating a political hyper-sensitive issue.

And unlike changes to the general strata title rules this was going to be an easy fix and without a doubt a popular move.

Developers who were even thinking of acting to use sunset clauses to end contracts had been put on notice. Even with such cases being very limited, the combination of apparent windfall profits being possibly made by a small number of developers was very bad news for the government and the majority of the development industry.

A Simple Solution

The solution was simple and with it being effective from 2nd November 2015, developers must now gain the consent of a purchaser before rescinding a contract using a sunset clause. Failing that consent then the developer must apply to the Supreme Court to justify the proposed termination of a land or apartment contract, and the rules the court has to consider are very specific and include some key points.

Such as the contract terms, the question of the vendor acting unreasonably or in bad faith, clear reasons why the delay in completion of the project has occurred, any increase in value and other material matters. But the increased value has been a key issue, alongside what I would suggest can be the passage of considerable time – 18 months, 2 years or in some projects longer.

Some buyers in high-profile examples had reportedly had their contracts rescinded by a developer using the sunset clause, only to then see the land or apartment re-sold soon thereafter for a higher price.

In the Minister’s statement he reported that 639 people responded to the 3-week public consultation, which closed on 14th October.

Other Key Questions

While commenting on the new laws the Minister used the word urgent and quickly a number of times, and the new protections also apply to current contracts as well as new contracts from the 2nd November. However given the importance of off-the-plan sales I think it is also worthwhile to consider the wider implications of why the changes were made so rapidly as well as other key issues that impact such buyers.

Generally buyers’ key concerns focus on the time it takes to complete a project and the quality (standards) of construction and finishes. Building projects can be delayed for legitimate reasons and so buyers should also consider price, how they will fund their purchase, changes that might be made during construction, the quality of the building (and developer’s reputation) building management, community by-laws, unit entitlements and where deposits are held and how interest is paid.

All of these points are important and are all addressed by reputable developers, it would be a mistake to only focus on one issue being sunset clauses, when it is important to consider all aspects of a purchase contract.

The recent changes in NSW do nonetheless highlight how sensitive such issues can become as more people move to live in apartments.