New laws designed to protect people buying off the plan will require developers to provide much more detailed information about the property and any changes to plans. They will give buyers the right to cancel a contract when changes are against their interests, and they will limit developers’ ability to use sunset clauses to back out of contracts.
The Conveyancing (Legislation) Amendment Act 2018, passed by the New South Wales Parliament late last year, gives purchasers greater protection when they buy property off the plan.
Vendors are required to provide purchasers with a disclosure statement attached to the contract for sale. The disclosure statement must include a copy of the draft plan prepared by a registered surveyor, a schedule of finishes and a list of proposed bylaws.
These requirements are designed to give buyers greater certainty about their purchases. The Victorian Government has plans to introduce similar law.
An off-the-plan contract is one where a strata property that has not yet been built is sold. Buyers have been vulnerable because they are not able to inspect the property before buying.
In the event that any material particulars included in the disclosure statement are, or become, inaccurate, vendors must provide purchasers with a notice of changes to the disclosure statement at least 21 days prior to completion.
“Material particulars” include a change to the draft plan, a provision of the draft by-laws, an easement or covenant or changes to the schedule of finishes.
Vendors will also have to give the purchaser a registered plan, plus any document registered with the plan, prior to completion.
Purchasers can rescind an off-the-plan contract within 14 days of receiving the notice of changes and registered plan. In the following circumstances:
- If the purchaser would not have entered into the contract had they been aware of the changes or inaccuracies of the material particulars; and
- If the purchaser would be materially prejudiced by the changes or inaccuracies of the material particulars.
The new law also extends the cooling-off period for off-the-plan purchases from five to 10 days. Deposits must be held in a controlled account or trust account during the cooling-off period.
The new law also addresses the use of sunset clauses, which are contractual terms that allow either party to terminate an off-the-plan contract should a certain event not occur by a specified date. In 2015, the NSW Government introduced laws preventing developers from using sunset clauses to end contracts without an order from the Supreme Court (unless the purchaser agrees).
Developers have exploited sunset clauses by deliberately delaying their projects before terminating contracts to take advantage of rising prices.
The new law builds on this protection by extending its application to capture other events that trigger termination of the contract, such as the issue of an occupation certificate.
Regulations to support the implementation of the new laws are being developed.
In Victoria, changes to legislation will focus on sunset clauses.