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Property sales – Sunset Clauses and Prior Notice

Although it is now some years old, a 2017 Supreme Court decision highlights the need for careful attention to applicable legislation and regulation when a party (in this example, a vendor) tries to rescind a contract prior to completion of an ‘off the plan’ sale.

Briefly, vendors (Mr and Mrs McMahon) agreed to sell vacant residential land to purchaser (Mr Klein) subject to the registration of a plan of subdivision. A special condition in the contract said, in effect, that if the subdivision had not been registered within six months, the vendors could rescind. However, the contract also required the McMahons to take all reasonable steps to effect registration of the plan of subdivision within the six month period; and that a failure to do so prevented them from exercising the contractual right to rescind.

The plan of subdivision was not registered within six months and the McMahons tried to rescind the contract. One of the several arguments before the Court related to the application of section 66ZL[1] of the Conveyancing Act (‘the Act’). In broad terms, it provided that where vendors seek to rescind an off the plan contract relying on a “sunset clause” they must give 28 days prior written notice of the intention to do so, and the notice must set out the reason for the proposed rescission. The section also said that if a purchaser did not consent to rescission, the vendor could seek an order from the Supreme Court permitting rescission.

On the evidence, no written notice of intended rescission had been given so the Court ruled the contract had not been rescinded and was still on foot. The McMahons were ordered to specifically perform the contract and convey the property to Klein. There was some doubt whether they could actually do so because of a prior mortgage, but the Court still made the order.

The McMahons appeared for themselves at the final hearing although they had been represented by solicitors throughout much of the case. Whilst that possibly meant there may have been available arguments that were not have been agitated, the fact is the Court was satisfied the notice provisions under section 66ZL had not been complied with; and that specific performance was required.

The provision applies only to “off the plan” contracts involving a sunset clause, but as many apartment and other developments nowadays involve off the plan arrangements, the case is a reminder to both vendors and their advisors of the need to pay careful attention to the finer points of the legislative regime applying to property conveyancing, or else they face potentially serious consequences, including for costs: Klein v McMahon [2017] NSWSC 1531.

 
Liability limited by a scheme approved under Professional Standards Legislation

[1] The relevant provisions are now (March 2020) found in section 66ZS of the Act

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