New South Wales has introduced laws for off-the-plan residential property contracts to foster improved transparency and protection for purchasers.
The reforms amend the Conveyancing Act 1919 (NSW) and Conveyancing (Sale of Land) Regulation 2017 and commenced on 1 December 2019.
Purchasers, vendors and developers should take note of the key changes, explained below.
Additional disclosure requirements for vendors
Off-the-plan contracts usually contain numerous conditions, with many elements of the ‘finished product’ subject to change during the construction phase. Additional disclosure requirements are anticipated to give greater certainty to purchasers who must rely on the written information provided by a vendor when making decisions.
A disclosure statement, in the approved form, together with prescribed documents must now be attached to an off-the-plan contract before it is signed.
The disclosure statement highlights key information such as the sunset date, whether the development has been approved and other conditional events, and identifies the relevant clauses in the contract for further explanation.
The disclosure statement must include a draft plan prepared by a registered surveyor setting out details such as the proposed lot number, the area and its location, the site of any proposed easements affecting the lot and details of any restrictions on the use of the land or covenants affecting all of part of the lot.
A draft floor plan and location plan must be included for strata schemes and a draft location diagram, detail plan and community, precinct or neighbourhood property plan, as relevant, for these types of developments.
Other disclosure documents include:
- any proposed schedule of finishes;
- details of proposed section 88B instruments;
- draft by-laws for lots contained in a strata scheme;
- draft management statements and any proposed development contracts for lots contained in a community, precinct or neighbourhood scheme;
- draft strata management statements or building management statements, as relevant.
If the contract does not contain the disclosure statement and prescribed attachments before it is signed, the purchaser may rescind (cancel) the contract within 14 days of exchange.
Vendors should note that these requirements are in addition to those prescribed documents and warranties already imposed for contracts for the sale of residential land.
Vendors to give notice of material changes with potential compensation (including termination rights) available to purchasers
Off-the-plan contracts generally allow for changes in the construction, design and other aspects of the development. Although sometimes necessary to satisfy legal requirements and for practical reasons, significant changes can leave purchasers feeling short changed.
Purchasers now have additional rights in circumstances where certain material changes are made.
Vendors must give notice to purchasers, in the prescribed form, of any changes that would make a ‘material particular’ disclosed in the contract inaccurate, either at the time it was signed or after.
A ‘material particular’ includes, but is not limited to changes to a draft plan, draft by-laws or schedule of finishes that will, or is likely to adversely affect the use and enjoyment of the subject lot; or the creation of an easement or covenant that will, or is likely to adversely affect the use or enjoyment of the subject lot.
The Regulations may prescribe other matters that will be considered a ‘material particular’, as well as certain excluded matters, such as changes to lot numbers or proposed street names.
Purchasers who can prove they are materially disadvantaged by a change in a material particular and would not have entered the contract had they been aware of the change, may have rescission rights. These rights may arise at the time the relevant notice is served, or after being served with a registered plan that reveals a change in a material particular.
Alternatively, purchasers may choose to complete the contract, despite the change, and claim compensation capped at 2% of the purchase price.
Purchasers must exercise their rights within 14 days of service of the notice of change or registered plan.
Minimum settlement timeframe of 21 days
Vendors must provide purchasers with a copy of the final registered plan at least 21 days before the purchaser is required to settle. Purchasers retain their right to rescind or to claim compensation, as noted above, should the final plan reveal a change in material particular.
Extension of cooling-off period to 10 days
Generally, purchasers of residential property have statutory cooling-off rights which allow them to rescind a contract within five business days of exchange. In doing so, the purchaser will forfeit .25% of the purchase price. These cooling-off provisions have been extended to ten business days for off-the-plan purchases.
Vendors must ensure the prescribed cooling-off warning notice is included in all contracts.
Deposit and instalments under the contract to be held in trust
The reforms mandate that any deposit or instalment paid under the contract be held in a trust or controlled money account until completion. Earlier release of these funds to the vendor / developer will not be permitted.
The reforms aim to minimise uncertainty and provide greater protection for purchasers of an off-the-plan residential property by increasing disclosure and providing remedies for those adversely affected by certain changes to the development.
Vendors and developers should consider these reforms carefully and may need to give greater thought to the planning phase of their projects to ensure contracts are compliant with the new laws.
This article is intended to provide general information only. You should obtain professional advice before you undertake any course of action.
If you or someone you know wants more information or needs help or advice, please contact us on (02) 9602 2535 or email [email protected]