Changes to Off-The-Plan Contracts

Significant changes to legislation governing off-the-plan contracts commenced on 1 December 2019. These changes were set out in the Conveyancing Legislation (Amendment) Act 2018 (New South Wales) and the Conveyancing (Sale of Land) Amendment Regulation 2019 (NSW). 

From a Developer’s perspective the flexibility to change or alter the development over the inception to construction and then finalisation of the project will be dramatically reduced. The legislation has introduced comprehensive vendor disclosure obligations to allow for purchasers of off-the-plan contracts greater certainty and transparency on what they are purchasing together with a greater range of remedies and protections.

Reasoning for changes

The reasoning for the changes was that purchasers of off-the-plan contracts were unable to view or inspect the property being sold to them. There were no final registered documents showing what they were purchasing including exact floor space measurements and no supporting documents, such as by-laws, that may restrict the purchasers use and enjoyment of the property post-completion. Further, purchasers felt as though the developers held an unequal measure of power by including clauses in contracts that restricted the rights of the purchaser from claiming compensation or limiting the ability for rescission when a detrimental change was made to what they had initially purchased versus what the property was on completion.

Off-the-plan contract

An off-the-plan contract is defined in the Amendment Act as a contract for the sale and purchase of a lot where the lot:-

• is a residential lot (defined in the Conveyancing Act); and
• the lot does not exist at the time that the contract is entered into.

Note – commercial off-the-plan contracts are not affected by these changes and if the lot is residential land, but the plan is registered, even if the occupation certificate has not been issued, it will also not be covered by this legislation.

There will now need to be further time and resources utilised by developers at the beginning of a project to allow for the requirements of the legislation and its disclosure regime and to decrease the possibility of changes being required to the project.

Changes

New disclosure obligations

A vendor under an off-the-plan contract is required to attach a disclosure statement in the approved form to the contract before it is signed by the purchaser.

The disclosure statement must include a copy of the draft plan prepared by a registered surveyor and contain the following information:

• the proposed lot number, area and sufficient information to identify the location of the subject lot;
• a section 88B instrument that is intended to be lodged with the plan showing the site of any proposed easement, restriction on use or positive covenant affecting the subject lot;
• a proposed schedule of finishes;
• if the contract relates to land that comprises or includes a lot in a proposed strata scheme:-
  • the draft floor plan and draft location plan
  • a copy of the draft by-laws
  • a draft strata development contract if there is a proposed development lot
• if the contract relates to land that comprises or includes a lot in a proposed community, precinct or neighbourhood scheme — the draft location diagram, draft detail plan and draft community, precinct or neighbourhood property plan, the draft management statement and the draft of any proposed development contract;

• if the contract relates to a lot that will be a part strata parcel (i.e. a “stratum lot”), a copy of the draft strata management statement; and
• if the contract relates to a lot that will be the subject of a building management statement, a copy of the draft building management statement.

Failure to attach a disclosure statement, or a document required to be attached to the disclosure statement, will mean that the purchaser can rescind the contract within 14 days after the contract is entered into.

10 business day cooling off period

A purchaser under an off-the-plan contract will receive a 10 business day cooling off period rather than the usual five business days. This period can still be waived or shortened if the purchaser gives the vendor a certificate under section 66W of the Conveyancing Act.

Deposit

The deposit or any other instalment paid must be held by the agent or vendor’s solicitor in a trust account or controlled money account. It cannot be released to the vendor before settlement and therefore cannot be used to fund the development.

Purchaser not required to complete until 21 days after receiving registered plan and documents

It was previously an industry standard to require purchasers to complete on the contract 14 days from the date the purchaser was notified in writing that the plan had been registered. Following the changes, the purchaser will not be required to complete an off-the plan contract until at least 21 days’ after written notice from the date the plan is registered, and the purchaser is provided with a copy of the registered plan and associated documents.

Obligation on vendor to notify purchasers of a change to a material particular

The vendor must serve purchasers with a notice of changes, in the approved form, if they become aware that original disclosures were inaccurate at the time of disclosure in relation to a material particular or have become inaccurate in relation to a material particular. These include changes which will, or is likely to, adversely affect the purchaser’s use or enjoyment of the lot. These however do not include a change to the:

• address of the lot;
• lot number;
• proposed allocation of costs of shared expenses under a strata management statement or building management statement provided that the allocation of costs complies with the legislation; or
• in respect of a strata scheme, the location or area of the parking or storage if the contract allows this to be changed.

Purchaser’s rights of rescission and compensation

The vendor is required to notify the purchaser, at least 21 days before completion if the vendor becomes aware the disclosure statement was inaccurate in relation to a material particular at the time the contract was signed, or has become inaccurate in relation to a material particular after the contract was signed.

The purchaser will then have a right of rescission under the Act if the change is such that the purchaser:

• would not have entered into the contract had the purchaser been aware of the change; and
• would be materially prejudiced by the change.

The purchaser also has a right of rescission, if after receiving the registered plan and other documents, the disclosure statement includes any inaccuracy in relation to a material particular. Once again, it will need to be demonstrated that the purchaser would not have entered into the contract had they been aware of the change and they would be materially prejudiced by the change.

The purchaser must make any claim for compensation or serve a notice of rescission within 14 days from the date they are served with the notice of change of material particulars or the registered documents. The right to make any claim or rescind the contract is lost once this timeframe lapses.

If a purchaser does not wish to exercise a rescission right outlined above, they may as an alternative, claim compensation from the vendor of up to 2% of the purchase price.

Sunset Clauses

The amendments also include an extension to the definition of a sunset clause so as to include the non-issuance of an Occupation Certificate as an event which may trigger a termination of the Contract by the purchaser if it is not issued by the date stipulated in the Contract.

A vendor can only rescind under a sunset clause if:-

• each purchaser consents; or
• the vendor gets an order from the Supreme Court.

Further, it widens existing legislation to clarify that the Supreme Court can award damages to the purchaser where the vendor terminates under a sunset clause.

If you require assistance, please contact us at Turnbull Hill Lawyers.