Approval Conditions & Sunset Clauses – Is there a difference?

Transformer Development Group Pty Ltd v Tait Street Investments Pty Ltd [2023] VCC 878.

 In Victoria, the recent case of Transformer Development Group Pty Ltd v Tait Street Investments Pty Ltd [2023] VCC 878 confirms that pre-conditions to completion of an off the plan development are not necessarily to be interpreted as sunset clauses. The case considers the extent to which section 10 in the Sale of Land Act 1958 (Vic) (the SLA) applies in such circumstances.

Transformer Development Group Pty Ltd (the Purchaser) entered into 18 contracts of sale with Tait Street Investments Pty Ltd (the Vendor) for 18 lots in an off-the plan development in Bonshaw, Victoria. All contracts were materially the same, and each provided that the contract was subject to and conditional upon the vendor obtaining approval from any necessary authority to construct services such as electricity, gas, water, and sewerage within each lot in the subdivision.  The dispute arose when the Vendor was unable to procure such approvals and required the contracts be rescinded pursuant to the contractual terms.

The Vendor’s right to rescind

The special conditions made provisions for the Vendor’s right to rescind. Specifically, special condition 5.2 stated that construction approval was required to be “on terms acceptable to the Vendor in its absolute discretion” and procured within 24 months from the day of sale and if it was not procured in such time, the Vendor had the right to rescind. The Vendor engaged in ongoing and continued discussions with relevant authorities to obtain approval to construct services to enable completion of Stage 8 as per the Plan of Subdivision. The original intention was to provide services via construction of infrastructure within the development, and at the time of entering into the sale contracts with the Purchaser, the relevant authorities were supportive of this. The authorities later indicated they would not approve this approach and on this basis the Vendor was ultimately unable to procure such service approvals and would have the right to rescind under the contracts.

The Purchaser’s position

The Purchaser contended that the Vendor was unable to rely on the contractual right to rescind as it was wholly inconsistent with section 10 of the SLA, which restricts a developer’s ability to rescind a residential off the plan contract without either consent from the Purchaser or approval from the Supreme Court. The Purchaser also argued that special condition 5.2 had the effect of shortening the sunset date by a year and sidestepping the rescission scheme mandated by section 10 of the SLA.

The Court’s decision

The Court held that the SLA and the contract were not inconsistent. The Court affirmed that the definition of a sunset clause is strictly a provision in a residential off the plan contract which allows for the contract to be rescinded if the plan of subdivision has not been registered by the nominated sunset date. In contrast, the contractual provisions in contention relate to the requirement to obtain approvals from authorities to allow developments to proceed, not a failure to register the plan of subdivision by a certain date. As a result, the subject matter of the special conditions and the definition of “sunset clause” are different and there are no inconsistencies between the two.

What does this mean for developers?

This is fantastic news for developers in Victoria and may be encouraging for developers in NSW as well. It confirms that the sunset clauses legislation in Victoria is specifically for dealing with sunset clauses, and pre-conditions such as clauses pertaining to obtaining necessary approvals are not covered by the sunset clauses legislation and parties are therefore permitted to negotiate contractual provisions. As the legislation in NSW and Victoria is relatively similar on this point, the courts in NSW may use this case as a guide to interpret the similar s 66ZS contained in the Conveyancing Act 1919 (NSW).

As a final note of caution, this judgement may be overturned in the future by superior courts with differing interpretations. But for now, and with an impeding increase in development projects, this case provides developers with comfort that they may launch projects with off-the plan contracts which are subject to conditions being met without the fear that Courts will hold such provisions unenforceable.

If you have any questions, please contact the team at Keighran Legal + Advisory.