The NSW Government has announced changes to off-the-plan contract laws which are set to take effect from 1 December 2019. These changes will apply on the commencement of the Conveyancing (Sale of Land) Amendment Regulation 2019 and Conveyancing Legislation Amendment Act 2018. The key changes are listed below.
Disclosure Statement
The new laws will require vendors to attach a “Disclosure Statement” and draft documents to all “off plan” contracts issued on and from 1 December 2019.
The Disclosure Statement outlines the key features and critical aspects of the development, important dates, whether the development has been approved and other conditional events.
Vendors must also attach the following to the disclosure statement where applicable:
- the draft plan showing the proposed lot number and area of the property
- any proposed schedule of finishes
- any proposed by-laws, management statement and development contract and draft strata development contract
- for lots in proposed strata schemes, the vendor must attach the draft floor plan and draft location plan for the property
- for lots in proposed community or neighbourhood schemes the vendor must attach the draft location diagram, draft detail plan and draft community, precinct or neighbourhood property plan
Purchasers can rescind or claim compensation for some changes to material particulars
The development of an off-the-plan lot is not easy and as a result the finished lot can sometimes differ from what the purchaser was initially promised. Under the new laws, vendors must notify the purchaser of changes which are of a “material particular”. These are changes that will adversely affect the use or enjoyment of the lot and include changes to the following:
- the draft plan;
- by-laws;
- schedule of finishes;
- easements or covenants;
- a strata management statement or building management statement;
- a management statement for a community, precinct or neighbourhood scheme; and
- a development contract or strata development contract.
However, vendors will not be required to notify the purchaser for any of the following changes:
- a change to a lot number
- a change in the street name
- a change to, or the inclusion of a provision for the allocation of the costs of shared expenses under a management statement, subject to ensuring “the fair allocation of the costs of shared expenses relating to parts of the building”
- a change to the location of a strata parking or storage area, but only if the change is made in accordance with the terms of the contract
In some circumstances, purchasers may be able to rescind the contract if they can show that they would not have entered into the contract had they been aware of the change, and that they are materially prejudiced by the change. Alternatively, purchasers may choose to remain in the contract but claim compensation of up to 2% of the purchase price. The claim must be made within 14 days of the purchaser becoming aware of the relevant matter.
Cooling-off periods
Under the new legislation the cooling off period for “off plan” contracts has been extended from 5 business days to 10 business days and the contract for sale will need to include an updated cooling off warning notice form in ALL contracts for sale not just “off plan” contracts.
The updated 2019 edition of the standard Law Society of NSW contract for sale contains the updated warning notice.
Registered Plans
Developers will be required to provide purchasers with a copy of the final registered plan and any other relevant documents at least 21 days before settlement. If the plan reveals a discrepancy, and the developer has not notified the purchaser, then the purchaser may be able to rescind the contract or claim compensation under the new laws.
Deposits
All deposits or instalments to the purchase price must be held in a trust or controlled monies account and cannot be released to the vendor until settlement. This requirement will ensure that deposit and instalment monies are protected in the event that the developer becomes insolvent.
Changes to Sunset Clauses
A vendor may rescind an “off plan” contract under a sunset clause where the lot has not been created by the sunset date if:
- each purchaser under the contract consents in writing;
- an order has been obtained from the Supreme Court; or
- the regulations otherwise permit it.
The vendor must give written notice at least 28 days before proposing to rescind the contract under a sunset clause. The vendor must specify why they are proposing to rescind the contract and the reason for the sunset event not occurring by the sunset date.
It is critical that developers are completely prepared to follow the new legislation to ensure that purchaser’s rescissions are kept to a minimum and so as to ensure that construction lenders who vet their contracts as a pre condition to finance approval do not form the view that exchanged contracts are not “qualifying” due to the risk of rescission by purchasers for failure to comply with the new legislative regime.
This post originally appeared on Kydonsegal.com.au