Buying Off The Plan
Has the sun finally set on sunset dates and buying off the plan? New laws mean that developers selling off the plan must now act differently in setting sunset dates in contracts and progressing developments.
They must keep track and justify each and every cause of delay in completing works, and must comply with legislative requirements should they wish to rely upon sunset clauses to rescind a contract.
We have seen a rising property market in Sydney and conveyancing has been frantic. With a high demand for brand new properties, Contracts to buy off the plan have been abundant as we see infill development and rezoning to create additional space for developments, generally apartments. Drafting and negotiating contracts to buy off the plan has been a constant struggle for certainty and flexibility where the Contract may be entered into up to three years before completion of the building.
For a purchaser buying off the plan, the risk is that the Contract cannot be completed until the plan of subdivision is registered and a new lot or parcel of land has been created. It is an act of faith on the purchaser’s part that the building will be built as envisaged, and that the price is reasonable.
For developers to obtain funding for their developments, they need to have entered into enough off the plan Contracts with buyers in order to satisfy their banks. Banks require pre-sales of off the plan properties in order for the development to start. Often there may be unforeseen delays or increased costs in the development being completed giving rise to rights and opportunities to both parties as a result of sunset dates.
The position until 2 November 2015 was that if the development has not been completed with the new lot created by the sunset date either party had a right to rescind the contract and the purchaser would be refunded the deposit that they had paid. This has now changed, as the NSW Government passed amendments to the Conveyancing Act to protect purchasers. If a vendor is proposing to rescind any Contract under a sunset date, it must serve each buyer with a notice at least 28 days before the proposed rescission and specify the reasons for the delay in creating the lot being sold.
The laws are limited to residential land developments and apply for any proposed rescission after 2 November 2015, which is backdated from the date that the laws were passed, even where contracts had been exchanged a number of years prior to that date. Residential land is defined in the Conveyancing Act.
The changes also apply to any rescission that might otherwise automatically arise under the Contract, so that the Contract is deemed to be amended to require the notice, the vendor’s reasons and the purchaser’s consent. The vendor may rescind after giving the required notice but only if:
- The purchaser consents in writing; or
- The vendor obtains an order from the Supreme Court that it may rescind; or
- The reasons for the rescission are prescribed in the regulations. At this time there are no prescribed reasons.
The Supreme Court will take into account the terms of the contract, the reasons for the delay, whether the vendor has acted unreasonably, any increase in the value of the property and anything else it considers relevant. The Purchaser’s costs will generally be borne by the Vendor unless the Purchaser has acted unreasonably.
Contracts to buy off the plan are complex documents, and can have more issues than other types of conveyancing. It is important to obtain high quality advice prior to entering any Contract to buy or sell property.
If you are considering an off the plan Contract, contact our Conveyancing Team.