By Eunice Cheung and Mitchell Evelyn
An off the plan contract is one where the buyer purchases a property before it is complete and able to be lived in. It can include a unit which has not yet been built (or where the title has not yet been registered), a residence which does not have a certificate of occupancy, or vacant land for residential purposes (where the land does not yet have its own title).
These contracts always involve risk – both for the buyer, and the seller. One of the ways that the parties manage this risk is by setting out circumstances that can allow them to ‘rescind’ (or cancel) their contracts. Often these clauses allow the seller to rescind the contract where events outside the seller’s control mean that they cannot complete the development within the terms promised in the contract.
In 2021, there was significant media coverage relating to a large number of these rescissions in the ACT. Significant litigation followed these rescissions, and many ACT law firms – Elringtons included – challenged these rescissions in the ACT Supreme Court on behalf of their clients. Some of these challenges are still ongoing.
In response to this, the ACT government introduced amendments to the Civil Law (Sale of Residential Property) Act 2003. These new rules aim to strike a balance between the rights of buyers and sellers in off the plan purchases, and protect Canberra’s off the plan buyers from having their contracts rescinded in circumstances where it is not ‘just and equitable’ between the parties.
What do the new rules do?
Under these new rules, sellers in the ACT can only rescind residential off the plan contracts in two circumstances:
- Agreement. The seller may serve a notice of their intention to rescind (and provide reasons), and the buyer can then accept that notice within 28 days.
- Through the Court. If the buyer does not accept the seller’s notice, the seller can apply to the ACT Supreme Court for an order that the rescission be upheld.
If the buyer does not agree and the seller applies to the Court, the Court will only allow the rescission if the Court is satisfied that it is ‘just and equitable’ to allow the rescission. In doing so, the Court can have regard to a wide range of circumstances, including whether the seller is acting reasonably, whether delay in the completion of the building was caused by circumstances outside the seller’s control, and the effect that the rescission would have on the buyer.
The developer will also be liable to pay the legal costs of the buyer, unless the seller can satisfy the Court that the buyer withheld their consent to the rescission unreasonably.
This change brings the ACT law in line with New South Wales and Victoria, which each have similar rules.
What does this mean for buyers?
Buyers need to be aware that being served with a rescission notice for ACT does not mean that that contract is, or will be, rescinded. You are entitled to investigate the reasons for the rescission and satisfy yourself as to whether they are legitimate or not.
Our Property Law team has experience in these rescission disputes. We can help you understand your rights, and negotiate a better outcome with the sellers. If an application is brought to the Court, we can also represent you in those proceedings.