New requirements for off-the-plan contracts from 1 December 2019
Changes to off-the-plan contract laws will commence on 1 December 2019.
The new laws put extra disclosure obligations on vendors so that purchasers have greater transparency, new remedies and stronger protections when they buy property off-the-plan. The requirements will apply on commencement of the Conveyancing Legislation (Amendment) Act 2018 and Conveyancing (Sale of Land) Amendment Regulation 2019.
The new laws apply to off-the-plan contracts
An off-the-plan contract is defined to mean a contract for the sale of a residential lot that has not been created at the time the contract is entered into.
New disclosure requirements: Disclosure Statement and draft documents to be attached to the contract
Vendors will have to attach a Disclosure Statement to the contract that outlines key information, like sunset dates and other conditional events. The interactive version of the approved Disclosure Statement is available here:
The Disclosure Statement must include a draft plan, prepared by a registered surveyor. This needs to show:
- the proposed lot number and area of the subject lot, and sufficient information to identify its location. For proposed strata lots, it is not necessary to show the location or area of any parking or storage area
- the site of any proposed easement or profit à prendre affecting the subject lot, and the site of any proposed restriction on the use of land or positive covenant affecting only part of the subject lot
- for lots in proposed strata schemes - the draft floor plan and draft location plan
- for lots in proposed community, precinct or neighbourhood schemes - the draft location diagram, draft detail plan and draft community, precinct or neighbourhood property plan.
Other draft documents must also be provided. These are:
- any proposed schedule of finishes
- any s88B instrument proposed to be lodged with the plan
- for lots in a proposed strata scheme, the draft by-laws
- for lots in a proposed community, precinct or neighbourhood scheme, the draft management statement and the draft of any proposed development contract
- for land that comprises or includes a lot in a proposed development scheme, the draft strata development contract
- for lots in a proposed strata scheme that relates to a part strata parcel, a draft strata management statement required under section 99 of the Strata Schemes Development Act 2015 for the registration of the strata plan,
- for land that will be subject to a building management statement under Division 3B of Part 23 of the Conveyancing Act 1919, the draft building management statement.
NOTE: For strata schemes, the location of parking and storage areas don’t need to be identified on the draft plan, and there doesn’t need to be provision for the allocation of the costs of shared expenses in a building management statement or strata management statement.
Required documents are included in the Disclosure Statement if they are attached to the contract
There is no need to attach more than one copy of the same document to the contract and the Disclosure Statement.
Purchasers can rescind the contract within 14 days of exchange if the Disclosure Statement, draft plan or relevant prescribed documents are not attached to an off-the-plan contract before it is signed.
NOTE: These new requirements are additional to the existing disclosure regime imposed by Part 2 of the Conveyancing (Sale of Land) Regulation 2017 which prescribes documents and warranties for inclusion in all contracts for the sale of land, not only off-the-plan.
Vendors to notify changes to ‘material particulars’
Changes often occur during a development, and the end product can differ from what the purchaser was originally promised. The new laws will require vendors to notify purchasers of changes that make what was disclosed inaccurate in a ‘material particular’. These are changes that will adversely affect the use or enjoyment of the lot being sold, and may include changes to:
- the draft plan
- schedule of finishes
- easements or covenants
- a strata management statement or building management statement
- a management statement for a community, precinct or neighbourhood scheme
- a development contract or strata development contract.
However, some things are not ‘material particulars’ and notification of changes is not required. These include:
- changes to the proposed lot number or street name
- a change to, or the inclusion of, a provision for the allocation of the costs of shared expenses in a building management statement or strata management statement;
- for lots in a proposed strata scheme—a change to, or the inclusion of the specific location or area of the parking or storage area, but only if the change or inclusion is made according to the terms of the contract
Vendors must notify changes using the approved form:
Purchasers can rescind or claim compensation for some changes to material particulars
In some cases, purchasers will be able to rescind the contract because of a change to a ‘material particular’. This relief will only be available to purchasers who can show that they would not have entered into the contract had they been aware of the change, and that they are materially prejudiced by the change.
This might happen when the purchaser is notified of a change as outlined above, or because the purchaser is served with a registered plan that reveals a change to a material particular. Service of the registered documents is discussed below.
As an alternative to rescission, purchasers may choose to remain in the contract but claim compensation (up to 2% of the purchase price) for the change. If the parties cannot agree to resolve a compensation claim, the claim can be referred to arbitration. The arbitrator’s decision is final, and the purchaser is no longer able to rescind the contract because of the change to the material particular.
Affected purchasers must exercise their rights to rescind or claim compensation within 14 days of being notified of the change to a material particular, or of being served with the registered plan that reveals the inaccuracy, as the case may be.
10-Business-Day cooling-off period for off-the-plan contracts
The new laws extend the cooling off period for off-the-plan contracts to 10 business days (from 5). The cooling off period for contracts relating to established homes is not changed.
To reflect the longer cooling off period, the cooling off warning notice form, prescribed by Schedule 5 Conveyancing (Sale of Land) Regulation 2017, will also change. The Law Society of NSW is updating the standard form Contract for Sale of Land to include the new form of warning notice. Eventually, the new form will need to be used in all contracts for sale that during a transitional period, either form will be allowed, as follows:
- All contracts for sale of land may use either the old form or new form of warning notice until 30 November 2019;
- Contracts for established properties (i.e. not off-the-plan) may use the old form or new form of warning notice for 6 months after commencement.
From 2 June 2020, all contracts for sale (whether for off-the-plan or established properties) will need to use the new form of cooling off warning notice.
Purchaser to be given registered plans 21 days before settlement
Developers will be required to provide purchasers with a copy of the final registered plan, and any associated documents, at least 21 days before settlement. Purchasers cannot be compelled to settle within that 21 day period.
If the registered plan and associated documents reveal an inaccuracy in a material particular that the developer has not notified, rescission and compensation rights still apply. A materially impacted, purchaser who would not have entered the contract had they known about the change, may rescind or claim compensation within 14 days of being served with the registered documents.
Deposit to be held in trust
From 1 December 2019, any money paid by the purchaser by way of deposit or installment under the contract must be retained by the stakeholder in a trust or controlled money account during the contract period. These monies cannot be released to the vendor before settlement. The new requirement will ensure deposit and installment monies are protected in the event of the developer’s insolvency.
Changes to how the deposit is held will not prevent the use of a bank guarantee or deposit bond in lieu of a cash deposit.
Stronger sunset clause protections
In 2015, the Government introduced laws preventing developers from using sunset clauses to end contracts without an order from the Supreme Court (unless the purchaser agrees). Sunset clauses allow either party to terminate an off-the-plan contract should a certain event, like the registration of the plan, not occur by a specified date.
The new laws now extend the definition of a sunset clause to capture other events which trigger termination of the contract, like the issue of an occupation certificate. Changes also confirm that the Court can award damages if the vendor is permitted to end the contract under a sunset clause. These changes are contained in new Section 66ZS introduced by the Conveyancing Legislation (Amendment) Act 2018.
Who do the changes apply to?
The new disclosure regime and statutory remedies will apply to residential off-the-plan contracts entered into from 1 December 2019.
The disclosure regime does not apply to contracts that arise from option deeds that were exchanged before commencement. This specific exclusion protects the enforceability of the contracts that come from these options.
New sunset clause provisions (new section 66ZS discussed above) will apply to all off-the-plan contracts, irrespective of whether they were signed before or after commencement.
As noted above, changes to the prescribed form of cooling off warning notice will affect all contracts for the sale of residential property, not only off-the-plan, from 1 December 2019. However, transitional arrangements will allow contracts that are not off-the-plan to use either the current or new form of warning notice up to (and including) 1 June 2020.
Why is this changing?
In November 2018, the Government approved the Conveyancing Legislation (Amendment) Act 2019 in response to community concerns about the vulnerability of off-the-plan buyers. The legislation creates a more transparent contractual process, setting minimum standards of disclosure and providing statutory remedies where the final property differs from what was promised.
Before these reforms could commence, regulations had to be developed to set out the detail of the new disclosure and compensation regime.
In July 2019, the Office of the Registrar General published a discussion paper seeking comment on a draft Conveyancing (Sale of Land) Amendment Regulation 2019. We received 16 submissions from key industry stakeholders, as well as individual developers and legal practitioners.
Regulation has been refined to take into account feedback, which centred on these issues:
- Disclosure information – stakeholders identified information that would be difficult to disclose in a draft plan with any certainty at the time contracts are signed, like the precise location of parking and storage areas within basement levels. Purchasers can still ensure specific requirements are met by negotiating special conditions in contracts, but as a result of this feedback, the Regulation does not require the plan to contain this information.
- Compensation claims – the Regulation prescribes compensation as an alternative to rescission where purchasers are materially prejudiced by changes to what was disclosed. If the parties cannot agree, an arbitrator can resolve the claim. The Regulation was revised to confirm that an arbitrator can make an award relating to costs of arbitration and that the decision of an arbitrator is final, in response to consultation feedback.
- Exemptions – the Regulation excludes contracts arising from option deeds exchanged before commencement, which was an issue identified during consultation. This specific exclusion protects the enforceability of the contracts that come from these options.
- Miscellaneous changes – the Regulation also removes the potential for duplication of disclosure documents included in the contract and removes paper-specific requirements like font sizes in warning notices, replacing these with a media-neutral legibility requirement to align with 2018 electronic contract reforms.
For more detail about the new requirements, please see the Conveyancing (Sale of Land) Amendment Regulation 2019 and Conveyancing Legislation (Amendment) Act 2018. The Act and Regulations will commence on 1 December 2019.
Discussion paper – Off-the-plan contracts: Conveyancing (Sale of Land) Amendment Regulation 2019
Alternatively, please contact the Office of the Registrar General.
NOTE: This announcement was originally published on 11 October 2019. The content of this announcement was updated on 25 October 2019 following the publication of the Proclamation to commence the Conveyancing Legislation (Amendment) Act 2018 and the Conveyancing (Sale of Land) Amendment Regulation 2019 on the NSW legislation website. The content was further updated on 27 November 2019 to include the approved Notice of Changes form.