Better protection for off-the-plan purchasers
Following years of complaints where contracts appear to be weighted in favour of developers, moves are being made to offer stronger protection to NSW home buyers purchasing off-the-plan properties.
The state government looks to have put an end to unscrupulous developers using sunset clawbacks to invoke the expiration date of contracts that previously allowed them to reopen to new bidders to capitalise on improved market conditions without reproach.
The Conveyancing Legislation Amendment Bill 2018 (NSW), which was passed through the State Parliament earlier this month (13 November), brings stronger protections for purchasers who buy property off-the-plan while also providing greater flexibility to parties using electronic land contracts and deeds.
Key changes to the legislation include a new mandatory disclosure regime for off-the-plan contracts which means that before the contract is signed, vendors will be required to disclose crucial information about the development, including sunset dates, proposed by-laws for strata and community properties, as well as details of easements and covenants.
Developers must also provide a schedule of finishes where building work is required as part of the contract and notify purchasers of changes likely to “adversely affect” the use of enjoyment of the lot being sold, such as changes to the size of the lot or the internal configuration of a strata unit.
The legislative changes also provides an avenue through which buyers can terminate a contract or claim compensation if they’re affected by changes to a building, with developers forced to provide a copy of the final plan 21 days before settlement.
In addition, the reforms will also mean the cooling off period for off-the-plan contracts is extended to 10 business days (from five business days for contracts relating to already constructed residential property), with any deposit to be held in a controlled account.
The state government’s Office of the Registrar General (ORG) says the number of off-the-plan sales has increased from just over 2,000 in 2006/07 to nearly 30,000 in the last financial year. They now account for about 12% of all residential property sales in NSW.
It says off-the-plan buyers have been particularly vulnerable to the actions of developers, being generally unable to inspect the property before purchase.
“The new laws address this vulnerability by creating a more transparent process, setting minimum standards of disclosure and providing statutory remedies where the final property differs from what was promised.”
Following a public outcry when concerns about sunset clauses being open for misuse were first made public, the Government introduced laws preventing developers from using sunset clauses to end contracts without an order from the Supreme Court (unless the purchaser agreed).
The ORG says the new legislation builds on this protection by extending its application to capture other events that trigger termination of the contract, like the issue of an occupation certificate. The legislation also confirms that the Court can award damages if rescission is permitted.
Regulations to support the implementation of the new laws are being developed and a Regulatory Impact Statement will be released for public consultation towards the end of 2018 and into the new year, the ORG says.
The reforms at a glance
- Buyers being provided with a copy of the proposed plan, proposed by-laws and a schedule of finishes before contracts are signed;
- Vendors providing a copy of the final plan (and notice of changes) at least 21 days before the buyer can be compelled to settle;
- Allowing buyers to terminate the contract or claim compensation if they are materially impacted by changes made from what was disclosed;
- Widening existing legislation to clarify that the Supreme Court can award damages where the vendor terminates under a sunset clause; and
- Extending the cooling off period to 10 business days with any deposit to be held in a controlled account.