Legal Insights

Termination Rights in Off-The-Plan Sales – The Latest Position on Developer Rights

By Nick Sparks, Tom Pasco

• 21 August 2023 • 4 min read
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Transformer Development Group Pty Ltd vs Tait Street Investments Pty Ltd

The Sale of Land Act 1962 (Vic) was amended in 2020 to include new provisions that limited a vendor’s ability to rescind residential off the plan contracts of sale under plan registration sunset clauses without the consent of the purchaser.

What about other vendor termination rights? An issue that remained to be tested was whether a purchaser could argue that its consent was also required for other termination rights? The recent Victorian County Court case of Transformer Development Group Pty Ltd v Tait Street Investments Pty Ltd [2023] VCC 878 considered that very issue.

The facts

The case was brought by Transformer Development Group Pty Ltd, as purchaser under 18 residential contracts of sale in a development proposed to be carried out by the vendor, Tait Street Investments Pty Ltd.

The contracts of sale were each drafted to be conditional upon the vendor obtaining approval from any necessary authority to construct services such as electricity, gas, water and sewerage within each lot in the subdivision, and that such approval was to be on terms acceptable to the vendor and be provided within 24 months from the day of sale under the contracts. The vendor was ultimately unable to procure such services approvals on terms acceptable to it, and a dispute arose when the vendor suggested the contracts be cancelled pursuant this contractual term. The purchaser argued that the contractual condition was void as it was, in its opinion, a sunset clause that was inconsistent with the Sale of Land Act 1962 (Act), and should follow the same process for purchaser consent as a plan registration sunset date clause.

Plan Registration Sunset Clause Refresher

The sunset clause regime, that has been introduced into the Act, operates so that if a vendor wishes to terminate a contract of sale because a proposed plan of subdivision is not registered by a sunset date, it may only do so with the agreement of a purchaser, or alternatively the vendor must attempt to seek a court order. The Act provides that any provision of a residential off the plan contract that is inconsistent with this regime is of no effect. It goes further to say that any rescission of a residential off the plan contract in contravention of the division containing the relevant sections of the Act is in and of itself a breach of that contract.

Crucially, the regime in the Act defines a ‘sunset clause’ as meaning:

a provision of a residential off-the-plan contract that
provides for the contract to be rescinded if -
a) the relevant plan of subdivision in respect
of the lot has not been registered by the sunset date; or
b) an occupancy permit has not been issued in respect
of the lot by a sunset date,

and the definition of ‘sunset date’ under the legislation also expressly references registration of a plan of subdivision and the issuing of an occupancy permit.

The Court Ruling

Ultimately, the relatively narrow definitions of ‘sunset clause’ and ‘sunset date’ in the legislation were the decisive factors in this case. The court held that that it remains possible for vendors to include unilateral termination regimes in off the plan contracts in some circumstances. In dismissing the purchaser’s application, the court held that:

  • the definitions in the legislation were clear on their terms;
  • the relevant special condition in the contract relating to the approval of authorities for the construction of services dealt with a different subject matter to those contemplated by the ‘sunset clause’ and ‘sunset date’ concepts in the Act; and
  • accordingly, no inconsistency existed between the two.

The takeaway

The case demonstrates that it remains possible for vendors to include unilateral termination rights in residential off the plan contracts of sale in certain circumstances, but highlights the need for careful contractual drafting to ensure that conditions that are included are not inconsistent with the Sale of Land Act.

This is an area of law worth watching, particularly in circumstances where market conditions change after a contract is executed by the parties. It is worth noting that at the time of writing, the purchaser, in this case, has not appealed the decision. It will also be interesting to see whether the market experiences additional challenges to off the plan termination conditions when changes to the unfair contract terms regime are introduced nationally under the Competition and Consumer Act 2010 (Cth) in November this year.

If you have any questions on vendor termination rights or this case, feel free to contact a member of the Maddocks development team.

Read more from The Lot - August 2023 edition.

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