Buy­ing prop­er­ty off-the-plan can be fraught with finan­cial and con­trac­tu­al risk, par­tic­u­lar­ly if you don’t have a com­pre­hen­sive agree­ment in place that pro­tects you from the major pit­falls that can, and do, occur.

At the end of last year Par­lia­ment approved new con­veyanc­ing laws in response to an increase of sce­nar­ios where pur­chasers of off-the-plan prop­er­ties had been let down by devel­op­ers.

The Con­veyanc­ing (Leg­is­la­tion) Amend­ment Act 2018 (passed by Par­lia­ment on 13 Novem­ber 2018) will pro­vide stronger pro­tec­tion for off-the-plan prop­er­ty pur­chasers by intro­duc­ing key changes to manda­to­ry dis­clo­sures, noti­fi­ca­tion of changes, reg­is­tered doc­u­ments, sun­set claus­es and cool­ing off peri­ods.

Manda­to­ry Dis­clo­sure Regime

Devel­op­ers are now man­dat­ed to dis­close cru­cial infor­ma­tion about the prop­er­ty devel­op­ment includ­ing; sun­set dates, pro­posed plans with details of ease­ments and covenants, pro­posed by-laws and a sched­ule of fin­ish­es before the con­tract is signed.

Noti­fi­ca­tion of Changes

If you are pur­chas­ing prop­er­ty off-the-plan, as a buy­er you, your deci­sion to buy can only be based on the ‘planned’ con­struc­tion for the prop­er­ty. You can review con­struc­tion blue­prints or artist ren­der­ings, how­ev­er there is no phys­i­cal prop­er­ty or dis­play unit to assess.

As any­one who has had any involve­ment in build­ing or ren­o­va­tion, you will know how often even the best plans will change.

Under the new leg­is­la­tion, devel­op­ers will have to noti­fy pur­chasers of changes to a ‘mate­r­i­al par­tic­u­lar’ dur­ing the devel­op­ment. These are changes that will adverse­ly affect the use or enjoy­ment of the lot being sold, such as the size of dwelling or inter­nal con­fig­u­ra­tion. If the pur­chas­er is ‘mate­ri­al­ly prej­u­diced’ to sug­gest­ed change and believe that if they had of known of that par­tic­u­lar change, then they would not have pur­chased the prop­er­ty, they may be able to rescind the con­tract.

While mate­r­i­al prej­u­dice has not been defined in the leg­is­la­tion, the phrase has been con­sid­ered exten­sive­ly by the Queens­land courts. They have decid­ed that:

  1. the test is objec­tive, hav­ing regards to the buyer’s cir­cum­stances;
  2. there must be a causal rela­tion­ship between the inac­cu­ra­cy and the prej­u­dice of the buy­er;
  3. there must be pro­por­tion­al­i­ty between the inac­cu­ra­cy and the prej­u­dice;
  4. the leg­is­la­tion is con­sumer pro­tec­tion leg­is­la­tion, so will be con­strued to assist the buy­er.

Reg­is­tered Doc­u­ments

Devel­op­ers will need to pro­vide the pur­chas­er with a copy of the final reg­is­tered plans at least 21 days before set­tle­ment. Pre­vi­ous­ly a pur­chas­er would typ­i­cal­ly receive a copy of the reg­is­tered plan at set­tle­ment.

Sun­set Claus­es

One of the major ben­e­fits for buy­ers of off-the-plan prop­er­ty is the finan­cial gain they can poten­tial­ly make by buy­ing the prop­er­ty in cur­rent day prices to then realise an increased prop­er­ty val­ue by the time that the con­struc­tion is com­plete, sub­ject of course to the fluc­tu­a­tions of prop­er­ty mar­ket.

The con­trac­tu­al terms of sun­set claus­es allow either par­ty to ter­mi­nate an off-the-plan con­tract should a cer­tain event hap­pen, such as the plan not being reg­is­tered by a spe­cif­ic date.

In the past, there have been many cas­es where the sun­set clause has seen buy­ers lose out to devel­op­ers who, for what­ev­er rea­son rescind the con­tract. The buy­er (who’s deposit has helped fund con­struc­tion) gets a refund, and then the devel­op­er sells it for a high­er price to some­one else. The buy­er is then left with no prop­er­ty and no finan­cial ben­e­fit.

To help pre­vent this sce­nario, the cur­rent leg­is­la­tion builds on laws that were intro­duced by the Gov­ern­ment in 2015 and pre­vent devel­op­ers from using sun­set claus­es to end con­tracts with­out an order from the Supreme Court (unless the pur­chas­er agrees).

The new leg­is­la­tion extends that appli­ca­tion to cap­ture oth­er events that trig­ger ter­mi­na­tion of the con­tract, like the issue of an occu­pa­tion cer­tifi­cate. It also con­firms that the Court can award dam­ages if rescis­sion is per­mit­ted.

Cool­ing Off Peri­od

The cool­ing off peri­od for off-the-plan con­tracts has been extend­ed from five busi­ness days to ten busi­ness days.

The extra 5 busi­ness days will assist the pur­chas­er by allow­ing more time to obtain finance approval from their bank, dis­cuss the Con­tract with their lawyer and takes a lit­tle bit of the pres­sure off a pur­chas­er before they become legal­ly bound by the Con­tract.

NB The off-the-plan pro­vi­sions are not yet in force and will com­mence on a date to be pro­claimed. 

While the new con­veyanc­ing laws pro­vide off-the-plan buy­ers with more pro­tec­tion around their pur­chase, each con­tract is vast­ly dif­fer­ent from anoth­er. We high­ly rec­om­mend that you seek legal advice before enter­ing into any con­trac­tu­al arrange­ments for this type of real estate invest­ment.

Scott Williams is a Part­ner with Dono­van Oates Han­naford. He has a wealth of expe­ri­ence in pro­vid­ing advice on Prop­er­ty Law and Con­veyanc­ing.

If you would like to dis­cuss any issues you may have with respect to off-the-plan prop­er­ty con­tracts or you would like to find out more infor­ma­tion about how these changes may affect you, please con­tact Scott on 02 6583 0427 or swilliams@dohlaw.com.au

Source: NSW Gov­ern­ment Office of the Reg­is­trar Gen­er­al, Nov 2018

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