When the market was hot, developers were able to sell properties off the plan with little to no negotiation of contract terms, and some developers then sought to terminate contracts that had passed their “sunset” date before registration of the plan of subdivision so that they could re-sell the property at a higher price.

Now that the market has cooled, what should developers do?

First and foremost, developers will now have to consider how much flexibility they try to incorporate into their contracts. Purchasers have more ability to negotiate terms in the present market and are likely to resist unreasonable contract provisions giving developers the right to terminate contracts.

No doubt, the recent changes to the Sale of Land Act will have an effect. Even though a sunset date has passed, a developer must give 28 days’ notice requesting the purchaser’s consent to terminate a contract including details of the reasons why there has been a delay in registering the plan of subdivision or issuing an occupancy permit and why the vendor proposes to rescind the contract. Further, the vendor must advise the purchaser that they are not obliged to consent to a termination.

If the purchaser does not consent, the vendor may seek an order from the Supreme Court. There are various factors that the Court must take into account and the Court has a variety or orders which it can make including the vendor paying the purchaser’s costs and “reasonable compensation”.

However, the type of sunset clause covered by those provisions involves “sunset dates” related to the date by which the plan of subdivision must be registered or an occupancy permit issued. A developer may still be able to sell a lot off the plan conditional on other events. Sensible conditions for developers might be related to planning permit conditions, the developer obtaining finance or reaching a certain proportion of pre-sales. Each of these, seems to be a relevant issue for a developer to take into account when selling off the plan.

A developer could potentially go further and, for example, seek to include the ability to terminate if the market moves upwards by a certain amount. However, all of these conditions will be considered by purchasers. If they are not considered “fair”, then purchasers are unlikely to buy. Purchasers are also likely to seek amendments to unreasonable conditions inserted by developers.

So what should developers do?

• Be reasonable when inserting conditions into off the plan sale contracts. Carefully consider what flexibility is really required but give as much certainty to the contract and the purchaser as possible.
• Use the sunset provisions of the Sale of Land Act only when absolutely necessary.
• Guard your reputation. As the market shifts, those developers with a proven track record for delivering a quality product, but also for reasonable and principled conduct will continue to thrive whilst those regarded as opportunistic and unscrupulous may suffer.

Call our office  on 9613 6555 to speak to one of our experienced property lawyers to assist you with advising and negotiating this area of law. This article is intended for general information only.