Sunset Clause Law bites
If you are a property developer who is thinking of using a
sunset clause to rescind an off the plan contract for a
property which has risen in value, think twice because the
Sunset Clause Law can come back to bite.
In the recent decision of Silver Star Fashions Pty Ltd v
Dal Broi  NSWSC 1445 (26 September 2018) (the
Principal Decision), Justice Darke in the NSW Supreme Court
dismissed an application by Silver Star Fashions (the
property developer) for permission to rescind nine off the
plan Contracts for the sale of residential apartments in
what is now ironically called the “Harmony” Apartments at 22
Mary Street, Surry Hills.
To add insult to injury, Justice Darke ordered Silver Star
Fashions to pay some of the purchasers’ legal costs on an
indemnity basis – Silver Star Fashions Pty Ltd v Dal Broi
(No 2)  NSWSC 1697 (8 November 2018) (the Costs
This is summary.
Between 13 June and 28 October 2014, Silver Star Fashions
(the vendor) entered into the nine Contacts for the sale of
apartments in a mixed use development with retail space at
ground level and 16 residential units on the six levels
above. Each Contract contained a sunset clause, that either
vendor or purchaser could rescind if the Strata Plan was not
registered by 31 December 2016.
At the time, the period of 2 ˝ years was considered more
than adequate to complete the building.
On 28 January 2017, Silver Star served notice of rescission
of the Contracts, giving as its reason external events which
caused delays in completion of the development, and giving
notice that an application would be made to the court for
permission to rescind.
The building was completed in late 2017 and the Strata Plan
was registered on 23 January 2018.
The Sunset Clause Law is s 66ZL of the Conveyancing Act
1919 (NSW) which states that a vendor cannot rely on a
sunset clause to automatically rescind an off the plan
contract for the sale of a residential lot when the sunset
date has passed.
Instead, the vendor must apply to the court for permission,
and satisfy the court that it is just and equitable in
all the circumstances to rescind the Contract (s 66ZL
(3), (4), (5) & (6)).
Over the course of the 4 day hearing, the main issue was
whether the vendor was responsible for the delay, or were
external events to blame. Note: Special condition 54.2 of
the Contract (cl 54.2), imposed an obligation on the vendor
to carry out the building work with ‘all due expedition’:
The Vendor must cause the Development Activities to
be carried out with all due expedition in a proper and
workmanlike manner substantially in accordance with the
Development Approval and the Plans.
How has s 66ZL changed the law?
s 66ZL took effect on 2 November 2015. It was introduced to
give a purchaser protection against a vendor rescinding an
off the plan contract. According to Justice Darke, it works
in this way:
s 66ZL relieves a purchaser under an off the plan
contract from needing to challenge the exercise by the
vendor of a right of rescission under a sunset clause.
For example, it is no longer necessary [to] establish
that breaches by the vendor relevantly caused the event
that gave rise to the right to rescind [in this case, it
was not necessary to show a failure to comply with cl
54.2]. [paragraph 121]
The Seven Factors in s 66ZL(7)
Justice Darke provided this overview:
Section 66ZL(7) specifies matters that must be taken
into account. It does not specify the weight, or
relative weight, that ought be given to those matters.
Those issues are left to the discretion of the Court,
which must be exercised judicially [paragraph 124]
Factor 1: s 66ZL(7)(a) the terms of the off the
Were the delays within the vendor’s control (in breach of cl
54.2), and did they cause the strata plan to not be
registered by the sunset date? Justice Darke said:
In my opinion, at least some of the delays that
occurred in the carrying out of the development can be
seen to have been caused by failures on the part of the
vendor to cause the Development Activities to be carried
out with all due expedition as required by cl 54.2.
[paragraph 135] [but]
I am unable to conclude that breaches by the vendor
of cl 54.2 relevantly caused the failure to have the
Strata Plan registered by 31 December 2016. [paragraph
Factor 2: s 66ZL(7)(b) whether the vendor has
acted unreasonably or in bad faith
Did the vendor act unreasonably in sending letters to the
purchasers before the sunset date which presented a gloomy
account of future progress and invited the purchasers to
rescind (which led to the other 7 of the 16 purchasers
agreeing to rescind). Justice Darke said:
[the letters and notices] contained misleading
statements [paragraph 163] and
[the vendor] acted unreasonably … by failing to
discharge its obligations under cl 54.2 of the
contracts, with the result that the development was
significantly delayed. [paragraph 164]
Factor 3: s 66ZL(7)(c) the reason for the delay in
creating the subject lot
Justice Darke said:
delays totalling about 9 months can be attributed to
[the vendor’s] failures. That is a significant delay in
the context of a project which in July 2014 was
estimated to involve a construction period of little
more than 12 months. [paragraph 166]
Other delays were caused by external events outside of the
vendor’s control, particularly a 5 month delay attributable
to the builder being placed into external administration in
Factor 4: s 66ZL(7)(d) the likely date on which
the subject lot will be created
The fact that the subject lots have been created is relevant
in that the Contracts can be completed
Factor 5: s 66ZL(7)(e) whether the subject lot has
increased in value
The subject lots had increased in value since the date of
contract to July 2018 by between $165,000 and $321,000. The
total over the nine contracts was about $1.86 million.
Factor 6: s 66ZL(7)(f) the effect of the
rescission on each purchaser
Justice Darke said:
[if the contracts were rescinded, each purchaser]
would lose the benefit of a contract to purchase the
subject lot for a price well below the current market
value of the lot. The purchaser would instead receive a
refund of the deposit paid, together with interest
earned upon the deposit. [paragraph 171]
losing the benefit of the contract would also cause
considerable disappointment … the purchasers have waited
a long time for the building to be constructed.
For a number of the purchasers, this was their first
property purchase. Many of the purchasers are concerned
that if their contract is rescinded they will face
greater difficulty in finding a suitable replacement now
that the market has moved higher. [paragraph 173]
[as against the vendor’s argument the purchasers were
sophisticated purchasers] for most of the purchasers,
the contract was more than a financial transaction …
entry into the contract was rather a means of pursuing
social as well as economic goals, or what might be
referred to as “lifestyle” choices. In a society where
property ownership is highly valued and affords status
to those who attain it, these considerations cannot be
dismissed as insignificant or trivial. [paragraph 175]
Factor 7: s 66ZL(7)(g) other relevant matters
One relevant matter in this case was that after the builder
failed, the vendor entered into a Project Delivery Agreement
in August 2016 under which a third party undertook to pay
the vendor an agreed amount, took the risks of completing
the development including costs, and took the benefit of the
higher sale prices for lots if Contracts were rescinded. It
was the third party which sought to rescind and undertook
the proceedings (in the name of the vendor).
Conclusion – Is it just and equitable in all the
circumstances to order that the vendor may rescind?
This was Justice Darke’s conclusion:
In my opinion it would not be just and equitable to
permit the vendor to rescind any of the contracts,
particularly in light of the vendor’s conduct that made
a considerable contribution to the delay in the
development, the loss to the purchasers of the valuable
benefit of the contact if rescission was permitted, and
the fact that the vendor would not itself suffer any
financial detriment if rescission was not permitted.
s 66ZL(8) provides that the vendor pays the legal costs of
the purchaser if the purchaser is successful in the
The normal order is to pay legal costs on an ordinary basis,
which exclude solicitor/client costs (incurred for advice,
settlement negotiations, etc.).
In this case, the purchasers succeeded in obtaining an order
that the vendor pay legal costs on an indemnity basis (i.e.
including solicitor/client costs) as from 23 March 2018, on
the basis of a Calderbank offer of compromise which included
an offer to pay 15% of the uplift in value for the
apartments to settle the proceedings. The Court considered
that it was unreasonable for the vendor to have rejected
This is only the second decision by the NSW Supreme Court
since the Sunset Clause Law was introduced 3 years ago.
Other applications have been threatened or made to the
court, but these settled, possibly because purchasers were
prepared to pay a little more, and possibly because the
purchasers and the vendors wanted to avoid the uncertainty,
risks and legal costs of litigation.
In this case, the purchasers offered to settle by paying a
little more than the Contract price. But it is not known why
the property developer decided not to settle.
Perhaps the property developer was confident that it could
show that it was ‘a victim of circumstances’, that external
events delayed the project beyond the sunset date. That
confidence was well placed in that the Court accepted that
this was not a case where a developer had manipulated events
or manufactured delays so as to obtain a commercial
But the deciding factor in this case was not delay. It
was the adverse effect on the purchasers if the Contracts
were to be rescinded, not only because they had economic
value, but also social benefits.
The property developer did not counter this by tendering
evidence that by completing the contracts, it would be at
adversely affected financially.
And so, the Court decided it was just and equitable to
refuse permission to the property developer rescind, which
allowed the purchasers to complete their Contracts.