Between 22 August and 14 September 2022, as part of the Queensland Government’s Property Law Review, the Queensland Government sought submissions and consultations from developers and purchasers as to the use of sunset clauses by property developers and sellers to terminate residential ‘off-the-plan’ contracts,.
This issue has become increasingly common throughout Southeast Queensland post-pandemic, as potential home-owners who had signed off-the-plan contracts a number of years ago have had developments fail to materialise due to various delays associated with either the pandemic, inclement weather, labour and material shortages, Council approval processes or a combination of those and many other factors.
While delays in residential developments can be frustrating for all parties, developers in Queensland have recently relied on the “sunset clauses” included in off-the-plan contracts to terminate the contract and leave the potential purchaser without a property nor any right to demand completion.
The law relating to “sunset clauses” around Australia differs between each States and Territory. Most notably, the sellers of off-the-plan lots in Queensland currently have less restrictive rights of termination than those subject to Victorian or New South Wales legislation.
Sunset dates and sunset clauses
A lot will be sold ‘off-the-plan’ where the lot is still in the process of being developed and the survey plan of the as-constructed lot is therefore yet to be sealed and capable of legal title. For example, an apartment in a proposed tower or a vacant block of land in a proposed subdivision.
In some states, such as Queensland and Victoria, there is a legislative “sunset date” by which the development and the survey plan must be complete and registered for title. Depending on whether the lot is strata or non-strata, this sunset date in Queensland can be up to 18 months for non-strata lots and up to 5.5 years for strata lots after the date of signing of the contract. In Victoria, the legislative sunset date is 18 months.
In New South Wales, there is no legislative sunset date and the parties are to rely on a sunset date incorporated into the contract, if any.
A sunset clause is a clause which allows either or both of the parties to the contract the right to terminate the contract if the lot is not completed and the survey plan is not registered by the sunset date. The buyer may want to exercise this right, for example, where it appears that the development will be significantly delayed and it would prefer to recover its deposit and invest elsewhere.
Restrictions to Developers’ Rights
In Victoria, sections 10B and 10E of the Sale of Land Act 1962 (Vic) requires the seller to obtain the written consent of each purchaser at least 28 days before the proposed rescission or an order from the Supreme Court. The Supreme Court can only make an order to rescind the contract if the Court is satisfied that it would be just and equitable in all the circumstances to do so.
In New South Wales, it is section 66ZS of the Conveyancing Act 1919 (NSW) that states that the seller can only terminate the contract if it obtains the written consent of the purchaser at least 28 days before the proposed termination or an order from the Supreme Court, again that it is just and equitable in all the circumstances to make such an order. If the seller seeks to rescind the contract without complying with section 66ZS, the rescission has no effect.
In Queensland, however, there is currently no legislative restriction on a seller (developer) of an off-the-plan lot to terminate after the sunset date. However, both Victorian and New South Wales legislation provide limitations on the seller’s ability to rely on a sunset clause.
There has been calls in Queensland to introduce similar restrictions, following termination of multiple contracts by developers (including by Metacap Developments of the Hillview Estate development at Maudslaund).
Legislative Reform on the horizon
On 9 September 2022, the Queensland Government published the Public Exposure Draft for the Property Law Bill 2022 (Draft Bill).
The Draft Bill was released for public comment 5 days prior to the close of submissions regarding the use of sunset clauses by sellers to terminate ‘off-the-plan’ purchases, and the Draft Bill is also expressed to be intended as “an Act to consolidate and provide for the law relating to property, to repeal the Property Law Act 1974, and to amend this Act, the Land Title Act 1994, the Limitation of Actions Act 1974 and the Property Occupations Act 2014”.
Thus, it presently remains silent on any amendments to the Land Sales Act 1984 (Qld), which contains Queensland’s legislative sunset dates and would be the anticipated legislation for any restriction on a seller’s right to terminate as a result of the expiry of such sunset dates.
While the Draft Bill also deals with a seller’s right to retain a deposit paid under an off-the-plan contract (capping it at 20% of the purchase price) as a result of the buyer’s breach, the Draft Bill goes no further with regard to off-the-plan contracts, yet.
We say ‘yet’, because the Draft Bill will no doubt undergo further amendment following public consultation, which may or may not include provisions regarding termination after sunset dates. It is clear that legislative reform to seller’s rights of termination are on the horizon in Queensland, given the narrow scope of consultation sought by the State Government which was opened on 22 August and only closed on 14 September 2022, after release of the Draft Bill.
We will be watching this space, but if you require any advice specific to your circumstances in relation to any of the matters discussed in this article, please do not hesitate to contact our team.
1 https://www.qld.gov.au/law/laws-regulated-industries-and-accountability/queensland-laws-and-regulations/fair-trading-services-programs-and-resources/consultation-regulatory-reform/2022-reviews-and-consultations/sunset-clauses-early-release-deposits2Land Sales Act 1984 (Qld), s. 14(1); Body Corporate and Community Management Act 1997 (Qld), s. 217B.3Sale of Land Act (Vic), 9AE(2).4 https://www.news.com.au/finance/real-estate/brisbane-qld/young-home-buyers-lose-gold-coast-land-to-developers-on-technicality/news-story/0fc07a222e658760e1b549680c5c342e
