Significant changes to the legislative regime regulating off-the-plan contracts will commence on 1 December 2019.
These changes will limit the flexibility of a developer to change or adjust key elements in the development over the life of the project, such as the title and governance structure, the timing of when facilities become available and limitations on how the lot can be used.
Developers may now need to dedicate more time and resources at the beginning of a project in order to improve the accuracy of the contract disclosures and reduce the likelihood that material changes to key elements of the project will be required.
Background to the changes
The core of the legislative regime regulating the sale of property in NSW is found in the Conveyancing Act 1919 (NSW) (Conveyancing Act) and the Conveyancing (Sale of Land) Regulations 2017 (NSW) (Regulations).
In November 2015, the NSW Government announced changes to the Conveyancing Act that restricted a vendor from unilaterally rescinding an off-the-plan contract if the plan creating the title to the lot being sold was not registered by the 'sunset date'.
The Government also announced that they would undertake a broad review of the legislative regime regulating off-the-plan contracts and that further changes to this regime could be expected.
On 17 October 2018, the Conveyancing Legislation Amendment Bill 2018 (Amendment Bill) was introduced into Parliament. This gave MPs the opportunity to voice the concerns of their constituencies that the law as it applied to purchasers of properties off-the-plan was unfair and favoured the developers.
MPs highlighted that purchasers were unable to see, touch or inspect the property sold to them off-the-plan. Nor could purchasers review final registered documents, such as by-laws, that might restrict their use and enjoyment of the property after completion of the contract. This uncertainty was compounded by the perception that developers might 'game the system' by including clauses in their contracts which unfairly restricted purchasers claiming for compensation or rescinding contracts where a detrimental change occurred to the property or the title between exchange and completion of the contract.
The Amendment Bill was passed by Parliament in November 2018 as the Conveyancing Legislation Amendment Act 2018 (NSW) (Amendment Act). However the Amendment Act was only part of the new regime. The other part comprised the changes that needed to be made to the Regulations. These were yet to be drafted. As such, the parts of the Amendment Act dealing with the new regime would not start to operate until the changes to the Regulations had been drafted, issued for public consultation and finalised. This would take another year.
On 25 October 2019, almost a year to the day that the Amendment Bill was introduced, the Government released to the public the final version of the Conveyancing (Sale of Land) Amendment Regulation 2019 (NSW) (New Regulations). Prior to their release, the Government had engaged with stakeholders for feedback. This included the Law Society of NSW, Urban Development Institute of Australia and the Property Council of Australia.
The Amendment Act and New Regulations are due now to commence on 1 December 2019.
What is an off-the-plan contract?
The Amendment Act defines an off-the-plan contract as a contract for the sale and purchase of a lot where the lot:
- is 'residential lot' (a defined term under the Conveyancing Act); and
- does not exist at the time that the contract is entered into.
This means that the sale of a commercial property off-the-plan will not be caught by the new regime. It also means that the sale of a residential lot will not be caught if it is sold at the point at which the title is registered but an occupation certificate has not been issued.
What changes apply to an off-the-plan contract from 1 December 2019?
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 and any instalment must be held in a trust account
A deposit or any other instalment paid by the purchaser under an off-the-plan contract must be held in the trust account of a solicitor, conveyancer or real estate agent until completion. This means that developers can no longer look to negotiating the release of a purchaser's deposit to use in funding their development.
Purchaser not required to complete until 21 days after receiving registered plan and documents
A purchaser will not be required to complete an off-the-plan contract earlier than 21 days after receiving copies of the registered plan and other documents registered with the plan. Two issues are worth noting in respect of this change:
- it has been common practice for developers to require purchasers to complete within 14 days or 10 business days from the date on which the purchaser is given written advice that registration has occurred. Many developer's financers also stipulate this as a maximum timeframe to be included in qualifying pre-sale contracts. This practice will need to change; and
- in order for the 21 day period to commence, developers must ensure that full copies of the registered strata plan or deposited plan, plus all other documents registered with the plan, are obtained and given to the purchasers. There can be a delay however between the date on which a registration occurs and the date on which Land Registry Service makes available a copy of the registered plan or document.
New disclosure statement
A disclosure statement in the approved form must be attached to an off-the-plan contract before it is signed by the purchaser. The disclosure statement must include:
- a copy of a draft plan prepared by a registered surveyor
- any proposed schedule of finishes
- any section 88B instrument that is intended to be lodged with the draft plan;
- if the contract relates to a lot in a strata scheme:
- a copy of the draft by-laws; and
- if the development is intended to be staged, a copy of the draft strata development contract
- if the contract relates to a lot in a neighbourhood, precinct or community scheme, a copy of the draft management statement and 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 relat es 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.
Requirement to notify a purchaser if the disclosure statement is inaccurate in respect of a material particular
A developer will be required to serve a notice of changes on the purchaser, in the approved form, if they become aware that the disclosure statement attached to the contract:
- 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.
A material particular includes any change to the draft documentation attached to the disclosure statement which will, or is likely, to adversely affect the use and enjoyment of the subject lot but does 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 he allocation of costs complies with the legislation; or
- in respect of strata scheme, the location or area of the parking or storage for the lot but only if the change is made in accordance with the terms of the contract.
If there is a change which the developer considers would be a material particular then the developer must serve the notice of changes at least 21 days before completion of the contract.
What can the purchaser do if there is an inaccuracy in respect to a material particular?
The purchaser will have the right to rescind the contract or make a claim if the purchaser:
- receives a notice of change from the developer identifying an inaccuracy in respect to a material particular; or
- reviews the registered documentation and becomes aware that there is an inaccuracy between what was disclosed in the disclosure statement (or any notice of change served after the disclosure statement) in respect to a material particular; AND
- would not have been entered into the contract had the purchaser been aware of the inaccuracy; AND
- is materially prejudiced by the inaccuracy.
The purchaser must make any claim for compensation or serve notice of rescission within 14 days after the purchaser has been served a notice of changes or is given the registered documentation, as applicable. The right to make a claim or rescind the contract is lost after this period.
What does materially prejudiced mean?
The legislative regime regulating off-the-plan contracts in Queensland has applied the term materially prejudiced for over 20 years. Queensland Courts have said that whether a purchaser has been materially prejudiced is an objective having regard to the purchaser's circumstances in the particular case. Examples of where Queensland purchasers were held to have properly terminated their contracts include:
- a list of completed common property finishes served on the purchaser by the vendor inadvertently omitted reference to "CCTV cameras and security monitoring equipment". This reference had been included in the contract on the date of signing. The purchaser was able to establish that security was important to her and her husband and the Court held that the purchaser was materially prejudiced by the change. Despite the fact that the equipment in question had been installed by the vendor, the Court held that the purchaser could only rely on the information contained in the list served by the vendor; and
- the contract included a plan that indicated that the lot being purchased would be in the same stage as the swimming pool. The plan, once registered, showed that the swimming pool would be in the next stage, due for completion in about a month later. The Court held that the purchaser had been materially prejudiced because he had expected to have access to the swimming pool on completion of the contract and intended to rent the apartment on that basis.
However, unlike Queensland, the NSW Government has included an additional test that may give some comfort to developers being the requirement for a purchaser to show that "the purchaser would not have been entered into the contract had the purchaser been aware of the inaccuracy".
Developers have less than a month to prepare for the new legislative regime and to update their off-the-plan contracts.
This publication does not deal with every important topic or change in law and is not intended to be relied upon as a substitute for legal or other advice that may be relevant to the reader's specific circumstances. If you have found this publication of interest and would like to know more or wish to obtain legal advice relevant to your circumstances please contact one of the named individuals listed.