Property developers engineering development delays and relying on developer friendly “sunset clauses” in off the plan contracts of sale contracts (OTP Contracts) to terminate those contracts and re-sell for higher prices are being targeted by the Andrews Labor Government through proposed new legislation.
The Sale of Land Amendment Bill 2018 provides that OTP Contracts will no longer be able to be terminated by a vendor under an OTP Contract unless the purchaser consents or ordered by the Supreme Court of Victoria. Interestingly, the amending legislation, if passed, will apply retrospectively from 23 August 2018 and will affect all OTP Contracts on foot on that day.
Sunset clauses in OTP Contracts generally allow the vendor to terminate an OTP Contract after the sunset date, being a specified date by which the development must be completed. This is usually up to 5 years after the contract is signed.
Whilst any such termination entitles the purchaser to the return of their deposit, the purchaser may have lost the opportunity to buy elsewhere during the contract period, and the vendor is then entitled to re-sell that property for a higher price if it has increased in value since the original contract date.
Under the proposed legislation, the vendor will now be required to provide at least 28 days’ written notice to the purchaser and obtain the purchaser’s consent, before the OTP Contract can be terminated in accordance with a sunset clause.
It is proposed that the notice provided by vendor developers will need to include, for example:
- the reason why the vendor developer proposes to end the OTP Contract;
- the reason for the delay by the vendor developer in registering the POS;
- that the purchaser is not obliged to provide its consent.
If the vendor cannot obtain the purchaser’s consent to terminate the contract, it will require an order from the Supreme Court to do so. The Supreme Court must grant the order only if it decides that it is just and equitable in the circumstances.
We will continue to follow the passage of the Bill and keep you updated as things unfold.