The recent decision in the case of DGF Property Holdings Pty Ltd v D Federico; DGF Property Holdings Pty Ltd v Butros [2018] NSWSC 344 provides clarity and guidance as to when a court will consider it “just and equitable” to make an order allowing the vendor to rescind an off-the-plan contract with a sunset clause in accordance with section 66ZL of the Conveyancing Act 1919. It is clear from the facts of the case that the court will consider the impact on both the purchaser and vendor when making an order.
Section 66ZL of the Conveyancing Act 1919
Often, when a contract is for the purchase of a lot which is not yet created (also known as an off-the-plan contract), the contract will feature a clause known as a ‘sunset clause’ which allows either party to rescind the contract if the subject lot is not registered by the date specified in the clause. However, the introduction of section 66ZL varies that contractual right.
Section 66ZL restricts the vendor’s right to rescind an off-the-plan contract under the sunset clause if the lot has not been created by the sunset date. As per section 66ZL, the vendor may only rescind the contract if:
- the purchaser consents to the rescission of the contract; or
- the vendor has obtained an order from the Supreme Court under section 66ZL allowing them to rescind the contract under the sunset clause.
This means despite what the sunset clause states, the clause is to be read in accordance with section 66ZL.The introduction of this legislation provides protection to purchasers and means the onus has now shifted onto the vendor to commence proceedings and make an application to the Court to permit the rescission of a contract. When making an order, the Court must be satisfied that it is “just and equitable” to rescind the contract. This requires the Court to consider the following when making their decision in accordance with section 66ZL(7):
- the terms of the contract;
- whether the vendor has acted unreasonably or in bad faith;
- the reason for the delay in creating the subject lot;
- the likely date on which the subject lot will be created;
- whether the subject lot has increased in value;
- the effect of the rescission on each purchaser;
- any other matter that the Court considers to be relevant; and
- any other matter prescribed by the regulations.
The facts of the case: DGF Property Holdings Pty Ltd v D Federico; DGF Property Holdings Pty Ltd v Butros [2018]
DGF was a property developer who entered into a number of off-the-plan contracts with different purchasers prior to section 66ZL being introduced.
Various disputes arose between DGF and a third party which led to the development being delayed. The contracts each contained a sunset date allowing either party to rescind the contract, however due to the enactment of section 66ZL, DGF needed to obtain consent from the purchasers to rescind or instead obtain an order from the Supreme Court allowing for the rescission of the contracts.
After the sunset dates had passed, DGF sought orders under section 66ZL to rescind the eight contracts. The purchasers submitted that it would not be “just and equitable” to grant the rescission of the contracts in accordance with section 66ZL as the developer would experience a significant financial windfall at the purchasers expense. The purchasers further argued that DGF had failed to do everything in their power to resolve the issues that arose with the third party.
The decision
The Court took into consideration the effects on both the developer and the purchasers. As per the judgment delivered by Emmett AJA, the Court took into consideration the following:
- The financial consequences for each party;
- The detriment caused to each party; and
- The date the contracts were entered into.
The Court found that as section 66ZL had not yet come into force when the contracts were entered into, therefore the purchasers had accepted some degree of risk in relation to the rescission of the contracts.
The Court also weighed up all the evidence and the impact on both DGF and the purchasers when making the decision. It was ordered by the Court that it would be “just and equitable” for the purposes of Section 66ZL for the developer to offer a new sale contract to each purchaser the same terms and conditions as the original contracts, provided that the price payable for each lot was to be increased.
This recent decision has provided some new guidance of the circumstances in which the Court will consider it “just and equitable” to allow for the rescission of an off-the-plan contract, pursuant to section 66ZL of the Conveyancing Act.
For more information on the above, please contact Peter Crittenden or Ben Wong on (02) 4626 5077.
The contents of this publication are for reference purposes only. This publication does not constitute legal advice and should not be relied upon as legal advice. Specific legal advice should always be sought separately before taking any action based on this publication.
