Could a developer rescind off-the-plan contracts to cash in on a rising property market? Which case won?
Vendor and purchasers enter off-the-plan contracts containing sunset clause
In 2014, the vendor and several purchasers entered into contracts for the sale of residential units in a building that was yet to be constructed.
The purchasers were unable to inspect a display unit, so they instead exchanged residential off-the-plan contracts with the vendor, relying on the information and documentation provided in the contracts.
Each contract was in substantially the same terms and was for the sale of a proposed lot in an unregistered plan of subdivision.
The contracts contained a sunset clause, stipulating that if the unregistered plan of subdivision was not registered by 31 December 2016 (the “sunset date”), then the parties were each legally entitled to rescind the contract (ie walk away from it).
This section states that a vendor may only rescind an off-the-plan contract under a contractual sunset clause if the buyer is given notice and consents in writing to the rescission, or if the vendor has obtained an order from the Supreme Court permitting the vendor to rescind the contract.
Construction delayed and vendor seeks to rescind contract under sunset clause
The sunset date in each contract was two and a half years after the contract date, and therefore considered more than sufficient time to complete the building and register the plan of subdivision.
However, the development was troubled with delays, and the plan of subdivision was not registered by the sunset date. Ultimately, the plan was registered nearly 13 months after the sunset date.
Less than a month after the expiry of the sunset date, the vendor served notices to the purchasers that it was rescinding the contracts, giving the reason as external events which caused delays in completion of the development.
Purchasers refuse to accept rescission and vendor seeks order from Supreme Court
The purchasers did not consent to the rescission, believing that the vendor was trying to cancel their contracts so that it could resell the apartments for a higher price in the rising property market.
The vendor made an application to the Supreme Court for an order permitting it to rescind the contracts.
It was up to the court to decide whether making such an order was just and equitable in all the circumstances.