The Facts
Property buyer and property sellers enter into contract for sale of residential land
The parties entered into a conveyancing transaction for off-the-plan (unregistered) residential land in Picton, NSW.
The vendors were husband and wife. The wife signed the contract of sale on behalf of her husband. The purchaser signed the counterpart contract and the contracts were exchanged on 2 July 2015.
The contract contained several special conditions, one of which provided that the plan of subdivision must be registered within six months from the date of the contract (commonly referred to as a “sunset date”). If the vendor did everything reasonably necessary to register the plan of subdivision but failed to do so within this time, it would enable either party to rescind – that is, terminate the contract.
Vendors send Notices of Rescission to buyer after sunset date
On 25 August 2016 and again on 20 October 2016, over 12 months from the date of exchange, the sellers sent a Notice of Rescission to the legal representative of the purchaser.
The Notices of Rescission highlighted that since the plan of subdivision was not registered within the relevant time frame, namely six months, the vendors were exercising their right to terminate the contract.
Property buyer does not consent to termination of contract and lodges caveat over property
The purchaser did not consent to the termination of the contract and made reference to the statutory requirements of section 66ZL(4) of the NSW Conveyancing Act 1919, which requires at least twenty-eight days’ notice in writing specifying the reason for delay in registering the plan of subdivision and why the vendor is proposing to terminate the contract.
Consequently, the purchaser lodged a caveat over the property and brought an action of specific performance to the Supreme Court of NSW, in order to force the vendors to complete the sale of the land to him.
The plan of subdivision was subsequently registered on 23 December 2016.
Expert commentary on the court's decision
Supreme Court rules in favour of buyer
In the case of Klein v McMahon [2017] NSWSC 1531, the Supreme Court of NSW made an order for specific performance to enforce the sale of the property by the vendors, Mr and Mrs McMahon, to the buyer, Mr Klein, even though the sunset date had passed.
Was there a legally binding and enforceable contract?
The court first considered whether a binding agreement existed between the parties.
It was accepted by both parties that Mr McMahon did not sign the contract for sale as vendor. However, a number of concessions were made during the course of cross examination, including that he and his wife wished to subdivide their property and sell the property in question for $350,000.
While Mr McMahon never gave express permission for his wife to sign the contract, he was aware that a contract had been entered into with a buyer. Mr McMahon conceded that he had left everything of a financial or business nature in the transaction to his wife, as was apparently customary. His subsequent behaviour showed that he was satisfied for the sale to proceed.
Wife found to have represented husband with his approval in sale of property
The judge inferred from the evidence that a relationship of principal and agent arose between the Mr and Mrs McMahon. The court concluded that Mrs McMahon was placed in a position of a representative in the sale transaction with the knowledge and approval of her husband.
Consequently, signing on behalf of her husband was an act done within the scope of the authority conferred upon her to create a legally binding and enforceable contract between the parties.
Does section 66ZL of the Conveyancing Act apply to this contract?
The termination of a contract by a vendor under a sunset clause for an off-the-plan sale is affected by section 66ZL of the Conveyancing Act. This section was introduced into the act by the Conveyancing Amendment (Sunset Clauses) Act 2015 (NSW). The section applies both retrospectively and to existing contracts.
Subsections 66ZL (3) and (4) operate to restrict the circumstances in which a vendor may terminate an off-the-plan contract under a special condition if the subject lot has not been created by the sunset date.
Under the Conveyancing Act, such an action requires written notification twenty-eight days before the proposed termination of the contract, specifying why the vendor is proposing to terminate it and the reason for the delay and including the consent in writing to the termination of the contract from the purchaser.
The sellers of the property did not validly terminate the contract pursuant to the Act. As such the Notices of Rescission were not effective and therefore allowed the agreement to remain on foot between the parties.
Orders by the court for vendors to pay costs of purchaser
At all times the purchaser was ready, willing and able to complete the transaction. The court made an order for specific performance of the contract so that the sale of the property could be completed.
Mr and Mrs McMahon were also ordered to pay Mr Klein’s legal costs.
Contracts containing sunset clauses must conform with statutory obligations to be validly terminated
This case sets out the requirements for a vendor to terminate an off-the-plan contract. Unless the termination of the contract conforms with statutory obligations, a Notice of Rescission will be ineffective and the seller will be obliged to complete the contract.
Alternatively, the seller is required to make an application to the Supreme Court for termination of the contract, provided it is just and equitable in all the circumstances.