New Rules for NSW Off The Plan Contracts Started on 1 December 2019

The NSW government introduced new rules for off the plan contracts in December 2019.

These new rules aim to improve purchasers’ rights when entering into off the plan contracts. This is important because buying off the plan can be risky. Depending on what happens during the development process, lots may change in terms of area, layout or location, easement locations may change, and so on.

Similarly, they provide purchasers some extra protections. The cooling off period has been extended to ten business days (up from five), although purchasers can still waive their rights to cooling off.

With respect to sunset clauses – the date after which parties can rescind (cancel) the contract if it hasn’t settled – vendors can only rescind with a purchaser’s written consent or an order of the Supreme Court of NSW. This means that if an off the plan purchase hasn’t settled by the sunset date but the purchaser still wants to proceed, that they can require the vendor to carry out the contract unless they succeed through the Supreme Court.

A summary of the amendments is listed below.

Purchasers will be provided with a disclosure statement

Vendors must now attach a disclosure statement to an off the plan contract setting out important information about the contract. This includes:-

  • Whether the property will be a lot in a strata scheme;
  • The completion date;
  • Whether there is a sunset date, and if so, whether it can be extended by the vendor;
  • Whether the vendor has development approval; and
  • Whether the vendor can rescind the contract if a major event happens preventing the development from going ahead.

The disclosure statement may help purchasers by acting as a sort of reference sheet to the contract’s special conditions dealing with these matters.

Disclosure statement must include a draft plan

Similarly, vendors must include with the disclosure statement a draft plan setting out:-

  • The proposed lot number of the relevant lot ;
  • Sufficient information to locate the lot;
  • The lot’s area;
  • If a strata property, the draft floor and location plans;
  • Locations of any proposed easements, restrictions on use of the land or positive covenants.

However – for buyers of a strata property – the plan does not need to include the location of
storage or parking areas.

This information is important because off the plan purchasers don’t have the opportunity to look at a property before they enter into a contract to buy it. This could be important if, for example, a purchaser wanted to build a garden shed towards the rear boundary of their property, but the draft plan shows an easement for water drainage runs along the boundary. This would alert the prospective purchaser to their inability to build the shed in that location post-settlement.

The vendor must alert the purchaser to any changes in the disclosure statement, and the purchaser may be able to rescind

The new rules also impose a positive obligation on the vendor to notify a purchaser, at least 21 days before the completion date, a notice of changes if the vendor becomes aware that the disclosure statement was either:-

  • Inaccurate in relation to a ‘material particular’ at the time the contract was signed; or
  • Has become inaccurate in relation to a ‘material particular’ after the vendor and purchaser signed the contract.

A ‘material particular’ is a change to a draft plan, or a provision of draft by-laws, easement, covenant, or schedule of finishes ‘that will, or is likely to, adversely affect the use or enjoyment of the subject lot’.

The purchaser then has limited rights to rescind the contract where they can show that they:-

  • Wouldn’t have entered into the contract if they had known of the change; and
  • Would be ‘materially prejudiced’ by the change.

In other words, a purchaser isn’t automatically entitled to rescind the contract if the vendor changes the plan. So, if a purchaser entered into a contract to buy a property which was stated in the plan to be 600m2 in area but which was later advised to be only 580m2,
the purchaser must show they wouldn’t have entered into the contract if they had known it was the smaller size and that the reduced size ‘materially
prejudices’ them.

Alternatively, where a purchaser establishes their right to rescind, they can opt instead to claim compensation from the vendor for up to 2% of the purchase price. A purchaser would want to be careful with this, however, as some contracts give a vendor the right to rescind if a purchaser claims more than a particular amount in compensation.

The purchaser’s deposit must be held on trust

Separately, the rules also require the purchaser’s deposit be held by the stakeholder – usually the real estate agent – on trust until settlement. This means a vendor can no longer request or require the deposit be released early.  In turn, this gives the purchaser some protection insofar as if the contract is rescinded – for example, because of a sunset clause – that they will get back their full deposit.

Where a deposit is released early, there is inherent risk that a purchaser will not get it back if the contract is rescinded, for example if the vendor becomes bankrupt, goes into liquidation or dies.

The takeaway

Succinctly, while the new rules improve purchasers’ rights, purchasers are likely still going to need to take steps to exercise those rights eg demonstrating their rights to rescind for changes to the disclosure statement.

On a more positive note, the new rules do make it easier for purchasers to identify key information about off the plan contracts. The disclosure statement should act as a quick guide to key contract dates which may otherwise be hidden in the contract’s special conditions.

For more information please contact Geoff Milani:

e: gmilani@elringtons.com.au | p: 02 6206 1300