Buying Before Building Now A Safer Option In NSW

Property buyers in New South Wales will be better protected by changes to the legislative regime regulating off-the-plan contracts that came into effect this month (1 December 2019).

Buying Before Building Now A Safer Option In NSW
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Property buyers in New South Wales will be better protected by changes to the legislative regime regulating off-the-plan contracts that came into effect this month (1 December 2019).

The new laws put extra disclosure obligations on developers so that purchasers have greater transparency, new remedies and stronger protections when they buy property off-the-plan. 

Changes to the Conveyancing Act will limit the flexibility of a developer to change or adjust key elements in the development over the life of the project and see much tighter requirements imposed on developers regarding disclosures, cooling-off periods, holding of deposits and sunset clauses. 

Off-the-plan contracts are a popular way for buyers to enter into the property market, as buyers can commit to purchasing a property that will not be settled for some time.

A deposit (often 5 or 10% of the price) is paid on exchange of contracts, with the construction and settlement period (often several years) allowing buyers time to save additional funds required for settlement.

Off-the-plan buyers have been particularly vulnerable to the actions of developers, as they are generally unable to inspect the property before purchase. 

Allen Habbouchi, Head of Project Sales and Distribution at, said the new laws address this vulnerability.

“The reforms provide greater transparency to an area of law that is presently ambiguous and favours developers, to ensure purchasers have greater levels of confidence when buying off-the-plan, as developers will be more accountable to buyers,” Mr. Habbouchi said.

“Two of the major protections for buyers are that the changes prohibit developers from promising one thing and delivering another in relation to the design and schedule of finishes of the proposed development.

“And the reforms also stop developers from cancelling sales contracts to take advantage of higher market prices when developments are completed.”

Fei Wang, Principal at Prudentia Legal, said the new laws were an improvement but still allow for developers to demand more than 10 per cent deposits, unlike Victoria and Queensland, where it is capped at that amount.

“Previously, there were some aggressive developers in NSW who would demand the deposit be released to the developers during development, leaving the purchasers without the power to negotiate with the developer, only taking it or leaving it,” he said.

“The new laws demand the deposit be held in trust, safely secured without unnecessary risk.”

Best-laid plans

The changes brought about by the Amendment Act and New Regulations amendments are far-reaching.

A cooling-off period for the purchaser has been extended from five days to ten.

To prevent developers from using, and potentially losing, purchasers’ deposits, they must now be held in the trust account of a solicitor, conveyancer or real estate agent until project completion.

Buyers can now end the contract or claim compensation in some cases if they are materially impacted by changes made from what was originally disclosed.

Existing legislation has also been broadened to clarify that the Supreme Court can award damages where the vendor terminates under a sunset clause.

“The new requirements for how deposits are held in trust are well overdue,” Mike Mortlock, Managing Director of MCG Quantity Surveyors, said.

“Purchasers of off-the-plan apartments are often buying blind when it comes to key material details of their acquisitions and these measures will enable purchasers to have a clearer understanding of the details, such as the strata plan, by-laws and maintenance schedules.

“The legislation offers greater protections for purchasers and in my view is a positive step forward,” Mr Mortlock said.

Built to last

The NSW Minister for Better Regulation and Innovation, Kevin Anderson, said in a media statement that the changes “are vitally important for the NSW Government’s building reforms, which aim to deliver greater protections for consumers, while increasing the transparency, accountability and quality of work in the sector.”

The number of off-the-plan purchases in NSW has increased significantly in the last decade from 2,646 in the 2008/09 financial year, to 17,218 in 2018/19, representing more than 10 per cent of residential property sales.  

The reforms will offer property buyers in the state the confidence that should have flow-on effects on the apartment market as a whole, Mr. Habbouchi said.

“Investors can have increased confidence and certainty when investing in off-the-plan real estate, as they will have a greater insight into what they are actually purchasing,” he said.

“Buyers will have the legal right to a schedule of finishes and a final unalterable floor plan to ensure that the purchase of a ‘one bedroom apartment’ does not turn out to be a studio!”

Law and lawyers

Unlike Queensland and Victoria, where a sale land contract requires a statement signed by the vendor and purchaser and includes several compulsory disclosures, NSW had no such safeguards.

Mr. Wang said that while there were relevant legal requirements in regards to disclosures, the practice for lawyers to prepare such disclosures was “rather casual”, with neither the vendor nor the purchaser required to sign and confirm the disclosure documents.

“Before the new laws most solicitors preparing off-the-plan contracts would usually include the disclosure information (such as draft plan, lot number, location, by laws, etc.), but some lazy lawyers would ignore this necessary information, with the purchaser unaware of its relevance,” Mr. Wang said.

“From my 14 years of experience, some vendors’ solicitors did not bother to provide the schedule of finishes in an off-the-plan contract unless the purchaser’s solicitor wrote to ask for it.

“The new legislation forces the vendors’ solicitors to fulfil their obligations to include all legally required documents, with the purchasers made fully aware of all relevant information.”

Mr. Wang did identify a provision not covered by the new legislation and worthy of buyers’ attention.

“Interestingly, the new laws do not require the disclosure of the location or area of any parking or storage area for proposed strata lots, and the allocation of the costs of shared expenses in a building management statement or strata management statement are not required to be disclosed,” he said.

“The onus is on the purchaser to confirm on the front page of the contract whether a car park and/or storage space is included with the subject purchase.”

The legislative regime regulating the sale of property in NSW is found in the Conveyancing Act 1919 (NSW) (Conveyancing Act) and the Conveyancing (Sale of Land) Regulations 2017 (NSW) (Regulations). On 17 October 2018, the Conveyancing Legislation Amendment Bill 2018 (Amendment Bill) was introduced into Parliament. 

The Amendment Bill was passed by Parliament in November 2018 as the Conveyancing Legislation Amendment Act 2018 (NSW) (Amendment Act) after consultation with the stakeholders such as the Law Society of NSW, Urban Development Institute of Australia and the Property Council of Australia.

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