New sunset date laws and how they work in court: s 66ZL of the Conveyancing Act

New sunset date laws and how they work in court: NSW Supreme Court considers for the first time a leave application under s 66ZL of the Conveyancing Act for the rescission of contract by a vendor

As many people are aware the NSW Government at the behest of Minister Victor Dominello introduced a new piece of legislation requiring a vendor to "seek leave" (i.e. permission) of the NSW Supreme Court to rescind an Off the Plan contract for the sale of land, whereby the vendor seeks to rely on the expiration of the sunset date, unless the purchaser agrees with the vendor’s rescission.

This legislation was brought in by an amending Bill, the Conveyancing Amendment (Sunset Clauses) Bill 2015, which inserted a new section into the Conveyancing Act 1919: s 66ZL.

For the vendor to be allowed to rescind, the Court must be satisfied that the order is "just and equitable in all the circumstances" [s 66ZL(6)].

This new section took effect on 2 November 2015, and applies to all off the plan contracts; even those entered into before that date.

For the first time, the NSWSC has heard an application under s 66ZL in the case of Jobema Developments Pty Limited v Zhu & Ors (2016) NSW ConvR 56-357.

Jobema Developments

When determining whether the application meets the 'just and equitable' criterion, the court must have regard to the matters listed in subsection (7), namely:

(a) the terms of the off the plan contract,

(b) whether the vendor has acted unreasonably or in bad faith,

(c) the reason for the delay in creating the subject lot,

(d) the likely date on which the subject lot will be created,

(e) whether the subject lot has increased in value,

(f) the effect of the rescission on each purchaser,

(g) any other matter that the Court considers to be relevant,

(h) any other matter prescribed by the regulations.

The application was made inter alia on the basis that there were delays in construction (remediation of contamination, and issues with the sewer main).

The purchaser did not consent to the application, and indeed did not make an appearance in court to make submissions. It was then left to the Court to determine whether the vendor had established the requirements of the application.

In this matter, a developer (Xycom Pty Limited [“Xycom”]) entered into a contract in 2013 for the sale of an off the plan unit in Dora Street, Hurstville, to Mr Wu. The sunset date was 31 December 2015.

In 2014, Xycom sold the site to Jobema Developments with all three parties entering into a Deed of Assignment, assigning Xycom's original rights and obligations as vendor to Jobema Developments.

As the sunset date loomed, Jobema Developments had not registered the Strata Plan, and sought to rescind the contract by sending a fax to the purchaser, relying primarily on issues of 'construction finance' as well as "increased construction costs" and seeking to lay the blame on the previous developer Xycom's inaction.

Black J. was left unimpressed, particularly with Jobema Developments arbitrarily extending the sunset date for other purchasers but not Mr Wu (see para [16]).

The applicant further argued the legislative change was 'unforeseeable'. Black J rejected this notion, and held in any event that legislative change is a business risk and that did not satisfy the just and equitable test for rescission.

Whilst the court found that Jobema Developments had not acted unreasonably or in bad faith, the court did conclude that the previous developer's delay did not give Jobema a just and equitable ground to rescind as it knew this to be the case when it purchased from that developer.

Jobema Developments further sought to argue that the increase in value of the unit should be a factor, but Black J held that this factor rather counted against them, as it would be unjust to deprive Mr Wu of his good bargain (see para [25]).

The court accepted the position that completion would likely be mid-2017, but abstained from concluding whether that this factor would favour or be against the application for rescission.

Finally and perhaps most importantly, the application did not adduce the appropriate evidence to establish that there indeed was an increase in construction costs sufficient to satisfy the just and equitable test in the circumstances. Accordingly the application was dismissed and the vendor was bound to proceed with the contract.

It appears then that as it stands the bar for the applicant to succeed under s 66ZL is a high one.

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