Property 101: NSW buying off the plan

“Buying off the plan” refers to buying property in a plan of subdivision that has not been registered, or a unit that has not been built.

Buyers enter into a contract with a developer to buy property in a development which may not be completed for some years.

Marketing and selling property off the plan can enable land to be developed in an efficient, cost-effective way. Buying property in this way can also allow buyers to future-plan their housing. However, there are particular risks in this type of sale.

Contracts between the buyer and seller usually contain a number of conditions. These conditions may outline matters including:

• the agreed time-frame for the developer to complete the project;
• the agreed standards to which the project should be delivered; and/or
• how the contract can be varied or terminated, and by who.

Legislation has recently been amended to provide additional protection for purchasers of property, off the plan. Learn more about these changes and the consultation process, below.

What change has been made to the law? 

The law has been strengthened to help stop developers from unreasonably using sunset clauses, provided in their contracts for off the plan residential property sales, to bring those contracts to an end. 

Under the Conveyancing Amendment (Sunset Clauses) Act 2015, a developer that is the vendor under a contract is now required to give notice to each purchaser under the contract, before ending the contract. This notice must state why the developer proposes to end the agreement and give reasons for delay with the project.

For the contract to be terminated, the purchaser would need to agree.

If the purchaser does not agree, and the lot has not been created before the sunset date, then the developer will need to obtain an order from the Supreme Court permitting the contract to be rescinded.

The new legislation will apply to all off the plan contracts that have not been completed - that is, contracts that are still in operation on 2 November 2015; and, also, to any off the plan contracts entered into on or after 2 November 2015.

So, for example, if a developer has sought to use a sunset clause to rescind a contract made on or after 2 November 2015, the contract would attract the protection of the new law and the developer would need to obtain a Supreme Court order to end that contract.

More information is available at www.lpi.nsw.gov.au.

Why was this change needed? 

Amendments to legislation have been passed by the NSW Parliament to protect consumers in response to an emerging concern that certain developers may be terminating contracts specifically for financial gain, through the use of ‘sunset clause’ provisions.

A sunset clause can be used by either party to end the contract, if the project is not completed on time. This clause in a contract can help buyers by giving them the right to end a contract and pursue other property options, if the building project is delayed.

However, some NSW consumers have reportedly had their contracts rescinded by developers using sunset clauses, only for the land or apartment that has been the subject of those contracts to be re-sold shortly after, for a higher price.

In some other instances, developers have used delay with a project to activate the sunset clause.

This practice creates uncertainty and disappointment for would-be buyers, who may have been waiting to settle the purchase for many months or years.

To respond to these concerns, NSW Fair Trading and NSW Land and Property Information (LPI) consulted on the extent of the problem and considered a range of measures to address this issue. Those consultations have resulted in the new legal procedures outlined here and as set out more fully in the Conveyancing Amendment (Sunset Clauses) Act.

Response to the buying property off the plan survey 

In considering changes to the current laws, the NSW Government conducted a survey to obtain feedback about off the plan property sales. 639 people responded to that survey over a three week public consultation period. The survey closed on 14 October 2015.

Fair Trading and LPI assessed the results of that survey to help identify and respond to key issues related to this type of property sale in NSW. Industry stakeholders and consumer representatives were also separately consulted, to consider possible changes to the law.

For more information, click here.