With the recent news of developers rescinding (cancelling) off-the-plan contracts here in the ACT, the Government is contemplating amendments to laws to limit the ability of developers to rescind contracts.

It is worth considering the position in NSW as a point of reference.

Section 66ZS of the Conveyancing Act 1919 (NSW) governs rescission of contracts if requirements have not been completed by the Sunset Date.

Section 66ZS(3) provides:

A vendor may rescind an off the plan contract under a sunset clause, but only if

  • each purchaser under the contract, at any time after being served with the notice under subsection (4), consents in writing to the rescission; or
  • the vendor has obtained an order of the Supreme Court under this section permitting the vendor to rescind the contract under the sunset clause; or
  • the regulations otherwise permit the vendor to rescind the contract under the sunset clause

The Supreme Court may permit a vendor to rescind contracts under s66ZS(3)(b) if the court is convinced that making the order is ‘just and equitable’ in all circumstances.

In considering whether an order is ‘just and equitable’, the Court considers the following factors in Section 66ZS(7):

  • the terms of the off the plan contract
  • whether the vendor has acted unreasonably or in bad faith
  • the reason for the sunset event not occurring by the sunset date
  • the likely date which the sunset event will occur
  • whether the subject lot has increased in value
  • the effect of rescission on each purchaser
  • any other matter the Court considers to be relevant,
  • any other matter prescribed by the regulations

Most importantly, section 66ZS(5) invalidates any automatic rescission clauses in off the plan contracts. Instead, developers are required to comply with the provisions of Section 66ZS.

In particular, the existence of Section 66ZS(3)(b) prevents developers from exercising their rescission clauses unless they demonstrate to the Court that the proposed rescission was ‘just and equitable’ in the circumstances.

The legislation in NSW has counterbalanced the powerful position that developers often have with respect to the typical purchaser and rescissions.