On 22 November 2018 the Conveyancing Legislation Amendment Act 2018 (“Act”) commenced. This Act contemplated a raft of changes to be detailed in updated Regulations. On 25 October 2019 the Conveyancing (Sale of Land) Amendment Regulation 2019 (“Regulations”) was published.
The changes are intended to reflect “best practice” to provide stronger protections and greater transparency to purchasers of residential property off-the-plan contracts. This consumer protection focus requires all participants in the residential property industry, including developers, vendors, financiers and real estate agents to review their current approach to the sale, design, construction and finance of residential off the plan product – and in particular the provisions of their master residential off the plan contract for sale.
What you need to know
- The changes apply to residential off the plan contracts for sale only.
- The changes are effective from 1 December 2019. The legislation is not retrospective.
- The changes do not apply to contracts arising out of the exercise of an option deed that was entered into before 1 December 2019.
- The Contract for the Sale and Purchase of Land 2019 Edition will be released next week.
- Disclosure Statements – A key change to the conveyancing process for residential off the plan contracts for sale is the inclusion of a disclosure statement.
- A disclosure statement needs to be attached to an off the plan contract before the contract is signed by the purchaser. A failure to attach a disclosure statement entitles the purchaser to rescind the contract within 14 days of the contract date.
- The disclosure statement is in an approved form and comprises a one page summary of prescribed details of the lot the subject of the off the plan contract and must attach copies of the prescribed documents (eg. the draft plan, schedule of finishes etc).
- Plans attached to the disclosure statement must be prepared by a registered surveyor.
- Plans and documents attached to the disclosure statement must be in substantial compliance with the applicable lodgement rules under the Real Property Act 1900 or any other Act. Strata plans do not need to include details of the location or area of any parking or storage area.
- Draft strata management statements and building management statements are not required to include a provision for the allocation of costs for shared expenses.
- The Regulations do not require that the schedule of unit entitlements be included. The strata legislation requires that unit entitlements must be apportioned by a valuer on a market value basis no more than 2 months before application is made for the strata certificate. Obviously, this timing prevents the unit entitlements being provided at the time an off the plan contract is exchanged.
- Service of Notices of Change –
- The vendor must serve at least 21 days prior to completion a Notice of Change if the vendor becomes aware the disclosure statement was inaccurate in relation to a “Material Particular” at the time the contract was signed or has become inaccurate in relation to a Material Particular after the contract was signed. What constitutes a “Material Particular” is set out below.
- The Notice of Change must be in an approved form. The form of the Notice of Change has not been provided but a recent update from the Registrar General indicates that the form will be released shortly.
- Other than the obligation on the vendor to serve a Notice of Change at least 21 days prior to completion there is no statutory obligation on the vendor to serve Notices of Change at the time the vendor actually becomes aware of an inaccuracy in relation to a Material Particular.
- Service of a Notice of Change may trigger a purchaser’s right to rescind or claim compensation as detailed below.
- Service of Registered Documents –
- The vendor must serve, at least 21 days prior to completion, a copy of the registered plan and any other document that was registered with that plan.
- Service of the registered plan and associated documents may trigger a purchaser’s right to rescind or claim compensation as detailed below.
- Material Particulars – The Act and the Regulations set out what constitutes a Material Particular:
- Purchaser’s right to rescind –
- If the vendor serves a Notice of Change and following the service of the registered plan and documents the purchaser may rescind the contract if the change notified in the Notice of Change or, in the case of the registered plan and documents it transpires that the disclosure statement includes any inaccuracy in relation to any Material Particular such that the purchaser:
- would not have entered into the contract had the purchaser been aware of the inaccuracy (the subjective test); and
- would be materially prejudiced (the objective test).
- The purchaser can rescind within 14 days from the date of receiving the Notice of Change or the date of receiving the registered plan and documents respectively.
- If the purchaser does not rescind within 14 days, the disclosure statement is taken to be amended to include the information notified in the Notice of Change or the registered plan and documents respectively.
- This statutory test for whether a purchaser may rescind a contract is broader than many current residential off the plan contracts for sale given the introduction of the subjective test, which will be difficult for vendor’s to discern ahead of serving a Notice of Change or copies of the registered plan and documents.
- Purchaser may claim compensation instead of rescission –
- If the purchaser has a right to rescind, the purchaser may instead claim for compensation for an amount capped at 2% of the purchase price.
- The purchaser can serve a “claim notice” on the vendor to make a claim for compensation within 14 days from the date of receiving the Notice of Change or the date of receiving the registered plan and documents respectively.
- Service of a claim notice does not prevent completion of the contract. If the claim is resolved prior to completion the compensation amount is paid as an adjustment to the purchaser price. Otherwise, the depositholder must hold the claim amount pending determination.
- A claim for compensation is finalised if:
- the vendor rectifies (to the satisfaction of the purchaser) the change or inaccuracy that give rise to the right to rescind;
- the vendor agrees to pay the amount of compensation claimed by the purchaser or another agreed amount; or
- an arbitrator determines the claim.
- A claim for compensation can be determined by an arbitrator. An arbitrator may also make an award of costs.
- Cooling off Periods - The cooling off period in the case of an off the plan contract is extended from 5 business days to 10 business days. The cooling off period remains 5 business days for all other contracts and for residential options. Both cooling off periods can still be waived if the purchaser gives the vendor a 66W certificate.
Prior to the Regulations being passed, Corrs facilitated numerous workshops seeking input on the draft Regulations from a large cross-section of the property industry, including property developers, banks, non-bank lenders, surveyors, project managers, builders and real estate agents.
We welcome the opportunity to discuss the changes and share the insight gained as a result of those workshops with you.