Changes to the Sale of Land Act: off-the-plan contracts

What are the new laws?

Recent changes to the Sale of Land Act 1962 (Vic) (“Act”) by the Sale of Land Amendment Act 2019 (Vic) apply retrospectively to residential off-the-plan contracts and sunset clauses. This means that any residential off-the-plan contract with sunset clauses entered on or after 23 August 2019 must follow the new laws. [1]

What should you know about sunset clauses?

Generally, sunset clauses are clauses that permit a vendor or purchaser to end a contract if a plan of subdivision is not registered, or an occupancy permit is not issued, by a specific date.

An issue that emerged from the property boom was developers exercising sunset clauses to end contracts with purchasers in the hope of reselling off-the-plan properties at higher prices. This kind of behavior was labelled by the Victorian Parliament as “opportunistic”. [2]

What was the problem?

Normally, a purchaser pays a developer a deposit for an off-the-plan property and then waits for its construction. Unfortunately, some developers were ending off-the-plan contracts in accordance with the sunset cause, as construction was not yet complete. While the deposit is returnable to the purchaser in these circumstances, it is easy to imagine the disappointment experienced by the purchaser for losing out on securing their new home. Not to mention the deposit paid back is likely not enough for a deposit on the same property, or a similar property, due to the increase in property price during the construction period.

The amendments aim to fix these kinds of situations.

What must a vendor know?

Before a vendor may end a residential off-the-plan contract under a sunset clause, it will be required to take a number of steps:[3]

• obtain written consent of the purchaser to the rescission of the off-the-plan contract;

• provide written notice at least 28 days before the proposed rescission and stating:

• the reason why the vendor is proposing to rescind the off-the-plan contract;

• the reason for the delay; and

• that the purchaser is not obliged to consent to the proposed rescission.

If written consent is not provided by the purchaser, then the vendor may apply to the Supreme Court of Victoria for an order to rescind the off-the-plan contract.[4] However, before making its decision, the Court must have regard to a number of factors, including:[5]

• the likely date that a plan of subdivision or occupancy permit is issued;

• the reason for the delay in registering a plan of subdivision or occupancy permit;

• the effect that a rescission will have on a purchaser;

• the terms of the off-the-plan contract;

• whether the vendor has acted unreasonably or in bad faith;

• whether the land has increased in value; and

• any other matters that the Court considers relevant.

Fortunately for purchasers, the Court will only make an order to rescind if the Court considers that it is just and equitable.[6] For example, if a developer intentionally exercises the sunset clause because they may receive a higher value if the property is re-sold, then the Court may not allow the developer to end the contract.

What other amendments were made?

Terms contracts

Prohibitions were introduced making it an offence to knowingly advertise, arrange, broker or sell residential land (other than residential land that is agricultural land) under a terms contract if the sale price is less than the prescribed amount. [7]

Rent-to-buy arrangements

Prohibitions were introduced making it an offence to knowingly advertise, arrange, broker, or sell residential land under a rent-to-buy arrangement. The exceptions are rent-to-buy arrangements with the Director of Housing, a registered housing associated, or a prescribed class / person.[8]

Disclosure obligations

It was an offence to “fraudulently” conceal a material fact to induce a person to buy land. The amendments have lowered the threshold requirements of the offence by changing “fraudulently” to “knowingly” conceal a material fact. [9]

What should I do now?

As a developer:

• ensure that you understand the new procedural requirements for exercising sunset clauses;

• consider the type of contracts entered into with purchasers; and

• if you are still unsure about what to do next, then you should consider getting legal advice to ensure that your contract of sales are up to date.

As a purchaser:

• carefully read the off-the-plan contracts that you are considering signing; and

• obtain legal advice.

How can DSA Law help?

If you have a commercial law issue and believe you could benefit expert legal assistance, please Contact Us or one of our Commercial Lawyers at DSA Law on (03) 8595 9580.

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[1] Sale of Land Amendment Act 2019 (Vic)  

[2] Victoria, Parliamentary Debates (Hansard), Legislative Assembly, 21 March 2019, Marlene Kairouz, Minister for Consumer Affairs, Gaming and Liquor Regulation, 1168.

[3] Sale of Land Act 1962 (Vic) s 10B.

[4] Ibid s 10E.

[5] Ibid.

[6] Ibid.

[7] Ibid ss 29EA-EC.

[8] Ibid ss 29WA-WG.

[9] Ibid s 12.