When a Plan Comes Together: Reforms to Off-the-Plan Contracts to Commence Before Christmas

After much industry consultation, reforms to the conveyancing laws governing off-the-plan contracts will (finally) commence in New South Wales on 1 December 2019.  An ‘off the plan contract’ is defined under the Conveyancing Act 1919 (NSW) (‘Act’) to mean a contract for the sale of a residential lot that has not been created at the time the contract is entered into.  Commonly, the lot will be part of an apartment building that is yet to be built by a developer.  A buyer in that situation will therefore be purchasing the lot based solely on concept plans (hence the term ‘off the plan’).

This image has an empty alt attribute; its file name is 2-hands-holding-1-jigsaw-puzzle-piece-each-164531-1024x683.jpg

Since 2012, the number of off-the-plan contracts in NSW has grown at around 20% per annum.[1]  Despite often negative media attention, it seems that buyers (particularly first home buyers) are still attracted to new developments.  The reforms aim to protect these buyers and mitigate some of the risks inherent in purchasing a lot that a buyer cannot yet inspect with their own eyes and may take many months (or even years) to be completed.

What follows is a summary of some of the key items of reform under the Conveyancing Legislation (Amendment) Act 2018 (NSW) and Conveyancing (Sale of Land) Amendment Regulation 2019 (NSW):

Longer cooling-off period

Currently, purchasers of residential property in New South Wales (and some other States and Territories) receive the benefit of a five business day cooling off period subject to certain legislative exceptions (e.g. auction sales).  This period allows the buyer to rescind (i.e. cancel) the contract for any reason and their only penalty will be 0.25% of the price, which is often forfeited from the initial deposit paid.

The reforms have extended the cooling off period for off-the-plan contracts to 10 business days.  In order to ensure buyers are made aware of this extended cooling off period, the prescribed warning statement that must appear in all contracts of sale has been amended to make reference to it.

While contracts for the sale of existing properties can continue to use the current warning statement until 1 June 2020, off-the-plan contracts must contain the new warning statement from 1 December 2019.  A failure to include the correct warning statement will entitle the buyer to cancel the contract under section 66X of the Act at any time before settlement (unless the buyer waived the cooling off period).

Disclosure Statement

In addition to the usual documents that a vendor must attach to a contract of sale (e.g. Title search, registered plans and dealings) before it is exchanged, a vendor under an off-the-plan contract must now attach a disclosure statement under new section 66ZM of the Act.  This disclosure statement has a prescribed form and must include the following:

  • Details of the settlement timeframe;
  • Details of the Sunset Date;
  • Confirmation whether development approval has been obtained;
  • A copy of the draft plan prepared by a registered surveyor (including the location, area and floor plan of the lot).  However, the plan does not need to show the location or area of any proposed parking or storage areas;
  • The proposed schedule of finishes;
  • Any instrument under section 88B of the Act (e.g. easements, restrictions etc.) that are proposed to be lodged with the plan;
  • The draft by-laws (if in a strata scheme);
  • Any proposed development contract; and
  • Any proposed strata or building management statement.

If the disclosure statement and accompanying documents are not annexed to the contract before it is signed, the purchaser can cancel the contract within 14 days of exchange.

Notice of changes

One of the bigger risks of purchasing a property off-the-plan is that the developer may make changes to the plans and other important documents before settlement.  A vendor under an off-the-plan contract must now notify a buyer of any changes to a ‘material particular’ at least 21 days before settlement under new section 66ZN of the Act.  This notice must be in the approved form.  A ‘material particular’ is defined under section 66ZL of the Act to include the following changes that will, or will likely, adversely affect the use or enjoyment of the subject lot:

  • a change to the draft plan;
  • a provision of draft by-laws;
  • an easement or covenant;
  • changes to the schedule of finishes;
  • a strata management statement; and
  • a (strata) development contract.

However, the new regulations specify that inter alia a change in lot number, street name or parking/storage area location will not be a ‘material particular’.

If after receiving notice of such changes, the buyer can cancel the contract within 14 days under new section 66ZO of the Act if they would not have entered into the contract had they been aware of the change AND would be materially prejudiced by the change.  If the buyer so cancels the contract, they will receive a full refund of the deposit paid.

Copy of registered plan and dealings

Similarly, a vendor under an off-the-plan contract must serve a copy of the registered plan (and any other documents that were registered with it) on the buyer at least 21 days before settlement under new section 66ZP of the Act.

After receiving these documents, if it becomes apparent that the disclosure statement now contains an inaccuracy in relation to a material particular such that the buyer would not have entered into the contract had they been aware of the inaccuracy AND would be materially prejudiced as a result, then the buyer can cancel the contract within 14 days with the deposit refunded in full to the buyer.

Claims for compensation

A buyer who is entitled to cancel the contract under section 66ZO or 66ZP of the Act may instead choose to make a claim for compensation from the vendor of up to 2% of the purchase price.  Like the right of rescission, this claim must be made within 14 days of receiving the notice of change or registered plan (and before settlement).

If, after the purchaser serves such claim, the vendor does not rectify the change or pay the compensation claimed within one month of service, the claim will be determined by arbitration.  Once a claim is determined by an arbitrator, the purchaser can no longer cancel the contract.

It is worth noting that the 2019 Law Society Contract provides that if a purchaser makes a claim under the new regulations, he or she will be prevented from making a claim under standard clause 7.

Professional Depositholders

Under new section 66ZT of the Act, the deposit under an off-the-plan contract can now only be held in the trust account of a real estate agent, law firm or licensed conveyancer.  This change will prevent buyers from losing deposits paid to developers who later become insolvent.  However, this new requirement does not affect deposits paid by deposit bond or bank guarantee.

If you require assistance with a property development or conveyancing transaction, please contact HPL Law Group on (02) 9905 9500.


[1] NSW Office of the Registrar General, Off-the-plan contracts for residential property, Discussion Paper (2017) 6.

Comments are closed.