04 December 2019

New requirements for “Off the Plan” conveyancing

This article was written by Simonne Einfeld.

On 1 December 2019 new provisions contained within the Conveyancing Legislation Amendment Act 2018 and associated Regulations came into effect.

The new laws require a vendor of residential property which is being sold “off the plan” to attach a disclosure statement to the contract as well as a number of draft subdivision documents.

The changes are intended to provide stronger protections and greater clarity to purchasers of residential property regarding the property the subject of the contract. Although the practice of many developers to attach draft subdivision documents to contracts, the new requirements will require an overhaul by developers in their approach to the preparation of contracts and may have the effect on deferring a vendor’s ability to sell property “off the plan” until the vendor has development consent to construct a building.

Where there are changes to the disclosure statement or the draft subdivision documents in a way that will, or is likely to, adversely affect the use or enjoyment of the purchaser, the vendor is obliged to give the purchaser notice of that change at least 21 days before completion. Purchasers now have express legal rights in respect of those changes which cannot be contracted out of.

Disclosure Statement

The following documents must be attached to the disclosure statement or the contract for sale:

  • A copy of the draft plan, prepared by a registered surveyor, that includes the following information:
    • the proposed lot number of the subject lot;
    • sufficient information to identify the location of the subject lot;
    • the area of the subject lot;
    • a draft floor plan and location plan where the contract relates to a lot in a proposed strata scheme;
    • the site of any proposed easement or profit a prendre affecting the lot; and
    • the site of any proposed restriction on use of land or positive covenant affecting any part of the lot.
  • Any proposed schedule of finishes
  • Any s 88B instrument proposed to be lodged with the draft plan
  • Draft by-laws where the contract relates to a lot in a proposed strata scheme
  • Draft management statement and any proposed development contract where relevant

Purchaser’s remedy for failure to disclose

If the vendor fails to attach the disclosure statement to the contract, the purchaser may rescind the contract by notice in writing to the vendor at any time within 14 days of the contract being made (unless the contract has been completed). The requirement for a disclosure statement to be attached to the contract is not contravened because of inaccuracies in the disclosure statement at the time it is attached to the contract.

Notice of change to disclosure statement

A vendor must serve a notice on a purchaser at least 21 days before completion if the vendor becomes aware that one of the following applies in relation to the disclosure statement attached to the contract:

  • it was inaccurate in relation to a material particular at the time the contract was signed; or
  • it became inaccurate in relation to a material particular after the contract was signed.

Purchaser Remedies

If there is a material particular which was not disclosed, a purchaser has the right to rescind if the purchaser:

  • would not have entered into the contract had the purchaser been aware of the material particular; and
  • would be materially prejudiced by the change. 

Rather than rescind a contract, a purchaser may instead make a claim for compensation from the vendor for up to 2% of the purchase price of the property. A claim for compensation must be made before completion and before the purchaser’s right of rescission expires.  Service of a claim notice does not prevent completion of the contract.

A claim for compensation can be finalised by:

  • the vendor rectifying the change or inaccuracy that gave rise to the claim to the satisfaction of the purchaser; or
  • the vendor agreeing to pay the compensation claimed or a lesser amount agreed by the purchaser; or
  • an arbitrator determining the claim.

If an amount of compensation is agreed before completion, that amount is an adjustment to the purchase price under the contract. If the claim is not settled before completion, the amount claimed is held by the depositholder until the claim it is determined or withdrawn.

What is a material particular?

A “material particular” includes a change to any of the documents required to be attached to the disclosure statement including a change to the plan, a provision of a management statement or development contract that will or is likely to adversely affect the use or enjoyment of the property.

Although, the legislation excludes certain matters as not being a material particular such as a change to the costs of shared expenses under a management statement, the legislation does not prescribe what is covered by the term. On that basis, we will be guided by case law in assessing whether a change is a material particular. In Queensland similar legislation exists and the Court has held that whether or not a purchaser has been materially prejudiced by a change is an objective test but taking into account the purchaser’s circumstances (Mirvac Queensland Pty Limited v Wilson [2010] QCA 322).

Contract terms that cannot be changed

The new provisions cannot be varied or excluded by contract.

In particular clauses in contracts that give a vendor or developer the right to make amendments to the property and structures the subject of the contract and give the vendor the right to create easement, covenants and restrictions which have a detrimental effect on the property will be read down or void to the extent there is an inconsistency with the legislation.

When are the changes effective?

1 December 2019.

The changes do not operate retrospectively and will not apply to contracts arising out of exercise of options which were entered into prior to 1 December 2019.

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