New laws affecting off-the-plan contracts for the sale of residential property in NSW
Amendments to conveyancing legislation have been passed by the New South Wales Parliament and will commence soon to create stronger protections for off-the-plan purchasers of residential properties.
These are the key reforms under the new legislation:
- It will be an offence under the Conveyancing Act 1919 for a vendor to advertise for sale a residential property (being a strata unit, house, town-house or vacant land zoned to allow for at least one residence) which is yet to be created under a plan of subdivision (i.e. an off-the-plan sale), unless a disclosure statement in the prescribed form is available for inspection by prospective purchasers;
- The disclosure statement must include a copy of the relevant draft plan of subdivision (e.g. a strata plan) prepared by a registered surveyor;
- The disclosure statement must be attached to all off-the-plan contracts before exchange of contracts can occur;
- A purchaser will not be required to complete their purchase under an off-the-plan contract earlier than 21 days after the vendor serves on the purchaser a copy of the registered plan and any other document registered with the plan, such as strata bylaws and any instrument creating easements, covenants and restrictions over lots or the common property.
- Vendors will need to serve on off-the-plan purchasers a notice of changes at least 21 days before completion of an off-the-plan contract, where the draft plan attached to the disclosure statement and contract becomes inaccurate in relation to “a material particular” affecting the relevant lot or lots being sold;
- Purchasers will have a right of rescission (termination) of their off-the-plan contract if: (a) the purchaser would not have entered into the contract had the purchaser been aware of the change, and (b) the purchaser would be “materially prejudiced by the change” including a change to the plan which will or is likely to adversely affect the purchaser’s use and enjoyment of the property.
- The cooling-off period for off-the-plan contracts will be 10 business days instead of the usual 5 business days;
- Deposits paid under off-the-plan contracts must be held as trust money by a real estate agent or a licensed conveyancer or as trust money or controlled money by a solicitor.
- The existing statutory limitation on a vendor’s right to unilaterally rescind an off-the-plan contract because of the expiry of a sunset date has been expanded to cover a broader range of sunset clauses. It will now affect clauses that purport to give a vendor a right of rescission for failure to create a lot or receive an occupation certificate before a sunset date and the legislators have reserved to themselves the right to prescribe by regulation additional types of sunset clauses to be affected.
So, the main change is a new obligation to provide a disclosure statement with all off-the-plan contracts for residential properties, which must include a draft plan prepared by a registered surveyor. Architects’ plans will no longer suffice. Changes to the draft plan must be disclosed at least 21 days before completion and a copy of the registered plan and any other document registered with the plan must also be provided to purchasers at least 21 days before completion. Special conditions in an off-the-plan contract will no longer be able to dictate what is and is not to be considered a materially prejudicial change. In the future, this will be determined by judicial application of the legislation to particular circumstances.
For the most part, the new legislation will only apply to contracts for sale and purchase exchanged after the commencement date of the legislation, which is imminent but not yet proclaimed. However, there is an ambiguity in the legislation which suggests that some provisions may apply retrospectively. We will be monitoring this aspect.
The legislators have also used this as an opportunity to introduce some clarifications around the legality of electronically transacted conveyances and electronic signatures under current provisions of the Real Property Act. These changes will be subject to a future Madison Marcus E-Alert from us.
Madison Marcus will be assisting its developer clients to review their standard off-the-plan contracts and practices to ensure compliance with the new requirements.
For more information, please contact:
David Voet – Partner, Real Estate & Developments
Denis Hall – Director/ National Head of Property