By John Turnbull, Partner and Sophie Caldwell, Law Graduate
You may remember we previously sent you an update on the possible effect on commissions where a developer relies on a sunset clause in an off-the-plan contract of sale to terminate an existing contract.
Sunset clauses are contractual terms in off-the-plan contracts of sale permitting a developer to terminate if a plan of subdivision is not registered or an occupancy certificate is not issued within a specified time. There has been concern about developers relying on these terms to terminate existing contracts as some developers then resell the properties at higher prices. Current litigation in the Supreme Court of Victoria, where a purchaser is attempting to prevent the developer relying on a sunset clause, has highlighted the need for greater protection for purchasers.
The Victorian Government have recently decided to follow the example set by the New South Wales Government and have proposed changes to the Sale of Land Act1962 (Vic) that will increase protection for purchasers of off-the-plan property.
Under the proposed changes, a developer will not be able to terminate an existing contract of sale unless they obtain written consent from the purchaser under the existing contract of sale. To obtain consent, the developer must provide the existing purchaser with a written notice at least 28 days prior to the proposed termination of the contract explaining the reasons for the proposed termination and any delays in the registration of plans or issuing of the occupancy certificate.
The purchaser is not required to consent to the existing contract being brought to an end by the developer.
Alternatively, a developer who wishes to rely on a sunset clause may apply to the Victorian Supreme Court for an order terminating the existing contract of sale. In most cases, the developer will be liable to pay for the costs of these proceedings, as purchasers will only be liable for costs if the court is satisfied they unreasonably withheld consent.
What does this mean for you?
The proposed changes do not clarify what the effects on your commission are in the event the developer is able to successfully terminate a contract. Therefore, this will remain a contractual issue.
We recommend reviewing your authorities to confirm whether you would be entitled to:
- your full commission;
- a partial commission; or
- no commission;
if the developer successfully terminates before settlement.
Despite this, the proposed changes will probably be a good thing for agents, as they make it more difficult for developers to rely on sunset clauses to terminate existing contracts of sale. This means the risk to your commission from a developer’s reliance on sunset clauses should also decrease. Ultimately, the proposed changes are a step in the right direction for regulation of sunset clauses in Victoria.
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