An off-the-plan contract is used to sell property that does not yet exist. It is a popular way for buyers to enter the property market as they can commit to purchasing a property which will not be settled for some time while construction occurs, allowing them to lock in the purchase at today’s prices and also additional time to save funds for the purchase. Off-the-plan buyers have however been vulnerable to the actions of developers.
In late 2015, the NSW Government introduced legislation (the Conveyancing Amendment (Sunset Clauses) Bill 2015, which inserted a new section 66ZL into the Conveyancing Act 1919), to protect purchasers of residential property under off-the-plan contracts from developers delaying construction and then rescinding contracts for failure to meet timelines in a rising property market.
The 2015 legislation requires a vendor to “seek leave” of the Supreme Court to rescind an off-the-plan contract whereby the vendor seeks to rely on the expiration of a sunset date, unless the purchaser agrees with the vendor’s rescission. In order for the Court to grant leave, it must be satisfied it is ‘just and equitable’ in all the circumstances.
In late 2018, the NSW Government passed further legislation (the Conveyancing Legislation (Amendment) Act 2018) to give off-the-plan purchasers greater certainty about what they are buying and builds on the 2015 reforms. The new laws create a more transparent process, setting minimum standards of disclosure and providing statutory remedies where the final product differs for what was promised. The key changes introduced by the new laws include:-
- A new mandatory disclosure regime for off-the-plan contracts – before the contract is signed, developers will be required to disclose key information and documents about the development in a mandatory disclosure statement;
- Notification of changes – developers will be required to notify purchasers of changes to a ‘material particular’ during the development. These are changes which will adversely affect the use or enjoyment of the property being sold.
- Statutory remedies where purchasers are materially prejudiced by changes – if a purchaser is materially prejudiced by a change to a material particular, they will be able to rescind the contract or claim compensation.
- Registered documents to be given to purchasers before settlement – developers will need to provide purchasers with copies of final registered documents at least 21 days before settlement.
- Sunset clauses – the legislation builds on the 2015 reforms to sunset clauses by extending its application to other events that trigger rescission of the contract. It also confirms that the Court can award damages if rescission is permitted.
- Cooling off period and deposits – the cooling off period for off-the-plan contracts is extended to 10 business days and deposits must be held in a controlled money or trust account.
The Office of the registrar General has issued draft Regulations and a discussion paper regarding the new laws, which are proposed to commence 1 September 2019. The discussion paper however flags the possibility that this date may be delayed to allow the conveyancing and property industry sufficient lead time to prepare for the changes.