Developers/Vendors beware – extension clauses may be invalid

In relation to sales “off the plan”,  sunset clauses for registration of the plan of subdivision must be for a fixed time and cannot be extended.

For many years, it has become common for ‘off the plan’ contracts of sale to include clauses granting the vendor a reasonable extension of time to register the plan of subdivision upon giving notice to the purchaser.

The recent case of Clifford & Anor v Solid Investments Australia (“Clifford“) suggests that such extensions are invalid.

Clifford concerned a contract which fixed the registration of the plan of subdivision at 30 months after the date of the contract of sale. This date could be extended by the vendor giving notice to the purchasers in certain circumstances as set out in the contract. The vendor served three notices, extending the date for registration by four (4) months. Before the last notice was served, the purchasers gave a notice of rescission, which the vendor refused to accept. The purchasers then issued an originating motion challenging the right of the vendor to extend the plan of registration beyond the original 30 month deadline.

The Court found that as the contract of sale did not comply with section 9AE of the Sale of Land Act 1962 (Vic), the purchasers’ rescission was valid.

Section 9AE(2) confers on purchasers the power to rescind a contract if the plan of subdivision is not registered within 18 months of the date of the contract, or where the contract provides for another specified period, before the end of that period.

Justice Bongiorno held that the purpose of section 9AE was to create certainty for purchasers about the date after which they can exercise their right to rescind if the plan of subdivision has not been registered. To allow the vendor to rely upon the contractual provisions would deprive purchasers of their unqualified right to rescind a contract under section 9AE.

The vendor developer argued that each extension created a new specified period. The Court rejected this argument as being inconsistent with the purpose of section 9AE. Furthermore the Court reiterated that “specified period” means a period which was fixed, definite and certain.

Furthermore, his Honour held that the right to rescind under section 9AE was unqualified, and arguments of election, waiver and estoppel could not be used to defeat the purchasers’ right to rescind.

This case reiterates the function of section 9AE, in conferring an unqualified right of rescission on purchasers of off-the-plan developments.

The decision has been appealed.  Whilst the decision of the Court of Appeal is awaited, it would be prudent for vendors and developers to avoid reliance on extensions.

Furthermore, based on the decision in Clifford, extension clauses thought to be valid may not be and developers/vendors selling off the plan should consult their legal practitioners to review their contracts of sale.

Our Commercial Property lawyers can assist you with any questions you might have in this regard.

Authors: Louise Tolson and Evelyn Marcou