New sunset clauses
law protects purchasers by overriding vendor rights to end
an off the plan Contract
The new sunset clauses law in NSW is proving useful to
property purchasers in a rising market by allowing them to
override the vendor’s use of the sunset clause, and to
enforce an off the plan contract.
In Klein v McMahon  NSWSC 1531 (13 November
2017), Justice Darke in the Supreme Court of New South Wales
granted a purchaser specific performance of a Contract for
the purchase of land (off the plan) long after the sunset
date had passed, after ruling that the vendor’s rescission
under the sunset clause was invalid.
By Contract for Sale dated 2 July 2015, Klein agreed to
purchase from Mr and Mrs McMahon lot 1 (with a residence
built on it) in a proposed subdivision of land into two lots
at Picton for a price of $350,000.
The Contract for Sale contained a sunset clause – a
Special Condition, similar to printed clause 28 in the Law
Society / Real Estate Institute standard form Contract for
Sale of Land. The clause conferred the right to rescind the
Contract if the subdivision plan was not registered within 6
months of the contract date.
It was more than a year later, namely on 17 August 2016,
that the Wollondilly Shire Council issued a Subdivision
Certificate, which certified that the subdivision had been
completed in accordance with the development consent.
On 25 August 2016, the vendors (the McMahons) issued a
Notice of Rescission of Contract to the purchaser (Klein) to
end the Contract immediately on the basis that the
subdivision plan had not been registered within 6 months
(that is, by 2 January 2016).
The purchaser’s solicitor did not consent to the
rescission, and pointed to a failure to comply with the
sunset clauses law requirement that a vendor must give the
at least 28 days notice in writing before the proposed
rescission that specifies why the vendor is proposing to
rescind the Contract and the reason for the delay in
creating the subject lot - Section 66ZL(4)
Conveyancing Act 1919
The vendor’s solicitor sent a lapsing notice to lapse the
purchaser’s Caveat (which the purchaser had registered on
the title). The purchaser responded by commencing
proceedings in the Supreme Court claiming that the
rescission was invalid and seeking an order that the vendor
specifically perform the Contract.
The subdivision plan was registered on 23 December 2016.
The property was valued at $515,000 in April 2017, which
provides the commercial reason why the vendor wanted to
rescind the contract – so as to keep the windfall profit of
The preliminary issue for the Court to determine was
whether the Contract was legally binding upon Mr McMahon –
because he had not signed the Contract. The Court decided
that the Contract was binding upon him because there was a
principal and agency relationship by which he had entrusted
his wife with financial dealings, he knew of the
transaction, and Mrs McMahon had signed the Contact for him
and had written ‘Vendor’s Representative’.
This illustrates why it is proper conveyancing practice
to require all vendors to sign the contract, either
personally or with proper authority such as under a Power of
The main issue was whether section 66ZL(4) applied. The
Court found it did apply because the requirements of section
66ZL(1) & (2) were satisfied:
- the land was a “residential lot”;
- it was an “off the plan contract” because the
residential lot had not been created at the time the
contract was entered into;
- the Special Condition was a “sunset clause” because
it allowed the contract to be rescinded if the plan
creating the lot has not become a registered plan by a
certain date; and
- the date was a “sunset date” because it was the
latest date for the creation of the residential lot.
The Court found that the vendor’s notice of rescission
was invalid because it did not comply with section 66ZL(4),
in that the notice was not a 28 day notice and no reason was
given for the delay in registering the subdivision plan.
Therefore the Contract for Sale remained on foot.
To obtain an order for specific performance of the
Contract for Sale, Klein gave evidence that he held loan
approval to borrow $300,000, and could pay the balance from
his personal funds. This coupled with the increased value,
was sufficient to satisfy the Court that “Mr Klein is now,
and has at all relevant times been, ready, willing and able
to perform his essential obligations under the contract”.
One matter of interest is that the Court was informed
that $411,000 was owed under the first mortgage over the
property, which was greater than the price payable. The
Court did not see that as a reason to withhold specific
performance on the ground of impossibility. The Court
speculated that “The mortgage is, presumably, registered
over both of the lots created by the sub-division”, and so
the remaining lot was available to secure the remainder of
the mortgage debt.
This decision illustrates that the sunset law applies
equally to a two lot land subdivision, as to a multi lot
high rise strata subdivision, to override the vendor’s
rights in a sunset clause.
The purchaser’s remedy of specific performance is only
available if the subdivision is registered, as it was in
this case. Otherwise, the purchaser has a claim for loss of
The reasons for delay that a vendor might use to rescind
an off the plan Contract were not explored in this case.
click The new Sunset Clauses Law passes its first test