Off-the-plan contracts and material changes to plans of subdivision: what you need to know as a buyer or developer

The growing development of apartment complexes – large and small – in and around Melbourne’s CBD means that ‘off-the-plan’ sales are becoming more and more common with investors and occupiers alike.

As a result, many investors and home buyers now need to consider whether purchasing an apartment off-the-plan (i.e. before the building has been constructed and/or subdivided) is a viable alternative to purchasing an existing dwelling. Whatever decision they make, it is important that purchasers and developers know and understand their rights and obligations in relation to off-the-plan contracts of sale.

What protects you as a purchaser?

While purchasing off-the-plan can involve some risk – since the building is generally not built or complete at the time of signing the contract – protections also exist to ensure that purchasers receive what they have agreed to purchase.

One important protection is section 9AC of the Sale of Land Act 1952, which requires vendors of off-the-plan properties to notify purchasers in writing of amendments to the subdivision plan within 14 days of the amendments being requested.

This section also allows purchasers to rescind an off-the-plan contract of sale within 14 days of being advised of an amendment “which will materially affect the lot to which the contract relates.” This provision ensures that purchasers are not forced to settle and pay for properties that are significantly different to what they originally agreed to purchase when signing the contract of sale.

This is particularly important, as several years can pass between the purchaser signing the contract of sale and the final settlement date. Over this time, subdivision plans can often be frequently revised or substantially altered before final registration.

Given all this, purchasers should try to find out what types of amendments materially affect a development lot and two recent Supreme Court cases have considered that very point.

How has the Supreme Court dealt with these issues?

In Besser v Alma Homes Pty Ltd [2012] VSC 460 (Besser), the Court decided that what constitutes a material effect must be determined objectively and should not necessarily be detrimental to the purchaser. Obviously detrimental effects on purchasers’ rights are more likely to be considered material, but that alone is not the determining factor.

In Besser, the relevant amendment involved a significant reduction in the entitlement and liability of the lot being purchased, from 100 out of 400 (25%) to 1 out of 202 (0.5%), which significantly reduced the purchaser’s voting rights. The Court noted that it is not always possible to foresee an amendment’s flow on effects to a plan of subdivision, but in this case the Court considered this change had a material effect on the lot in question and the purchaser was entitled to rescind the contract.

In the second case (Lockwood v PSP Investments P/L [2013] VSC 10), there were three relevant amendments to the plan of subdivision, including the deletion of all 10 car park lots and the rooftop apartment. These all became common property, leading to a substantial increase in the overall size of the common property and subsequent changes to the lot entitlement and liability for each apartment lot.

The Court held that these amendments had a material and adverse effect on each of the apartment lots, as the subject matter of the contracts had changed, there had been a major change to the project as a whole and the amendments had substantially changed the rights associated with each apartment lot.

Both these cases show that the courts will objectively consider the facts and circumstances of each case in order to determine whether amendments to a plan of subdivision materially affect a lot.

What to do as a result?

It is vital that purchasers obtain sound and comprehensive advice immediately after they or their solicitors are advised of any amendments to a plan of subdivision. This ensures that they can exercise their rights (if any) within the required 14 day period.

Developers will also need to comply with their notification obligations under section 9AC. This will help them avoid purchasers attempting to rescind contracts of sale after the plan has been lodged or registered, on the basis that they can still exercise their rights under that section (if they were not advised of the relevant amendments).

For more information on these issues, please contact Peter Bazzani on phone 9670 0722 or email pbazzani@bsplawyers.com.au