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Board of Directors
Off-the-plan: the need for reform
3 August 2018
The Office of the Hon. Victor Dominello MP, Minister for Finance, Services and Property, recently made statements regarding proposed reforms for off-the-plan contracts.
High density living and an increase in strata development has led to a dramatic rise in the number of properties sold off-the-plan.
The number of off-the-plan contracts has increased from 2,148 in 2006/07 to 29,022 in the last financial year. These sales now make up 11.5 per cent of all residential sales in NSW.
In 2015, the Government introduced emergency legislation to prevent the misuse of sunset clauses by developers.
REINSW submitted recommendations on this issue
and the reforms were widely applauded by the community. However, there is an expectation for further change to protect consumers as off-the-plan sales continue to increase.
Greater protection and transparency
NSW has a robust vendor disclosure regime for already constructed residential properties. The proposal will supplement the existing regime by providing off-the-plan buyers with further protections and bringing greater transparency to transactions.
Other Australian states regulate off-the-plan contracts. Queensland and Western Australia both have comprehensive off-the-plan regimes.
Government calls for response from industries
The response from conveyancing practitioners to the Discussion Paper released in December 2017 supported the introduction of mandatory vendor disclosure in off-the-plan contracts. They also called for statutory remedies for purchasers where there have been changes in the development from what was promised.
Developer groups showed general acceptance of the need for a specific vendor disclosure regime but stressed the need to retain flexibility during the development process.
Answering calls for action in the public consultation process, the Government intends on drafting legislation that will introduce an additional vendor disclosure regime specific to off-the-plan contracts (residential schemes only), using the Queensland regime as a precedent.
The draft legislation will prescribe a simple Disclosure Statement that identifies key features of the subdivision, like whether development approval has been granted, the proposed completion date and whether the contract is conditional on finance.
The Disclosure Statement will include a copy of the proposed plan (including details of easements and covenants), as well as proposed by-laws for strata and community properties, and a schedule of finishes where there is construction to be completed.
The introduction of statutory remedies will enable termination of a contract by a purchaser (or compensation) if they are materially impacted by errors in the disclosure documents.
The proposed legislation will also permit purchasers an extended cooling off period of 10 days and deposits to be held by a stakeholder in a controlled money account.
Vendors must notify purchaser of proposed changes
Additionally, the proposed legislation will require vendors to notify the purchaser of changes made to the proposed subdivision during development.
This means the vendor will need to give a copy of the registered plan documentation (and notice of changes) 21 days before the purchaser can be compelled to settle.
The definition of ‘sunset clause’ will also be widened in the current legislation to prevent developers exploiting a loophole to avoid the legislation that allowed them to rescind the contract for sale on the sunset date and resell the property for a higher price. It will also clarify that the Supreme Court can award damages where the vendor terminates under a sunset clause.
Do you have questions about this or any other issue?
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REINSW's submission on sunset clauses
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