How Much Legal Flexibility Do Developers Have In Off-The-Plan Contracts In NSW?

Introduction

Buying a property off-the-plan is a common way to enter the New South Wales (NSW) property market, involving a contract for a property that is yet to be built or registered. These off-the-plan contracts are inherently complex, often spanning long periods and requiring a degree of flexibility for the developer to manage the construction process and respond to unforeseen circumstances.

However, this need for developer flexibility must be balanced against the rights and protections of the purchaser. While standard plan contracts often include clauses permitting the developer to make changes, NSW property law, including the Conveyancing Act 1919 (NSW), sets boundaries on this flexibility, particularly concerning material changes or the use of sunset dates. This guide aims to clarify the scope of changes a developer can legally make within an off-the-plan contract in NSW.

Understanding Developer Rights To Modify Plan Contracts

Standard Contract Provisions Allowing Developer Changes

Most standard off-the-plan contracts contain clauses that grant the developer certain rights to make changes to the project before settlement. These provisions exist because the property is not yet built or registered, and unforeseen circumstances can arise during development.

By signing the plan contract, the buyer typically agrees to accept minor alterations or changes that do not materially affect the property. Developers often prepare these contracts to allow maximum flexibility while securing the purchaser’s commitment.

It is typical for off-the-plan contracts to include allowances for variations, such as:

• Minor discrepancies in land dimensions compared to the initial disclosure plan
• Changes that might arise due to construction practicalities
• Modifications required by authorities

These clauses acknowledge that final details might shift as the development progresses from concept to completion.

Why Developers Need Flexibility In Off-The-Plan Projects

Developers require a degree of flexibility when managing off-the-plan projects due to the inherent uncertainties involved in construction and development. Selling property off-the-plan helps developers secure the necessary finance to commence and complete projects, thereby providing certainty for both the developer and their financiers.

Several practical reasons necessitate this flexibility in plan contracts:

• Authority Requirements: Changes may be mandated by authorities like the local Council during the approval or construction process
• Construction Issues: Unforeseen practical challenges can emerge on-site, requiring adjustments to initial plans or specifications
• Cost Management: Flexibility allows developers to manage unexpected increases in material or labour costs, which have become more common
• Financier Conditions: Construction financiers often impose requirements on the contracts to protect their investment

These financier conditions typically include limiting a purchaser’s ability to terminate for minor changes. Additionally, developers need pre-sale contracts that comply with these lending requirements before funding is provided.

Common Property Off-The-Plan Changes Made By Developers

Alterations To Architectural Drawings And Design Specifications

When buying a property off the plan, purchasers rely on architectural drawings and design specifications included in the off-the-plan contract. These documents outline the proposed look, layout, fixtures, fittings, and finishes of the dwelling or commercial lot. However, developers often retain the right within the contract to make changes to these initial plans and specifications.

Circumstances that may necessitate alterations during development include:

• Requirements from authorities like the local council
• Practical issues arising during construction

Standard contracts typically allow the developer flexibility to substitute items detailed in the design specification, such as appliances or finishes. To facilitate this flexibility, these specifications often avoid naming specific brands or models.

Key points regarding these alterations include:

• Substitution Rights: Contracts usually permit the developer to substitute specified fixtures, fittings, and finishes, provided the replacements are of equivalent quality.
• Importance of Detail: If specific items, like high-quality tapware or particular paint colours, are crucial to the buyer, they should seek to specify these clearly in the contract inclusions to limit the developer’s ability to substitute them without agreement.
• Potential for Change: Buyers should be aware that architectural drawings and design specifications are often subject to change, and the final product might differ from initial representations or display homes.

Variations In Lot Size Or Area

Off-the-plan contracts commonly include clauses addressing potential variations in the final size or dimensions of the property compared to the proposed plans shown at the time of signing. Developers include these clauses because final lot sizes can be influenced by factors arising during construction or requirements from authorities involved in the subdivision approval process.

A typical provision allows for a minor variation in the area or dimensions of the completed lot, often specified as up to 5% less than the area shown in the proposed disclosure plans. Buyers usually agree contractually not to object or seek compensation for such minor variations.

While a purchaser can request a smaller tolerance (less than 5%), developers are often reluctant to agree to this. If the variation exceeds the contractually defined minor threshold (e.g., more than 5%), it might constitute a ‘material change’.

Whether this gives the purchaser termination rights depends on:

• The specific contract wording
• Potentially common law principles regarding material prejudice
• Consideration of whether the buyer receives something fundamentally different from what they agreed to purchase

Adjustments To Car Parking Or Exclusive Use Areas

Developers typically retain considerable flexibility in allocating and changing car parking spaces and other exclusive use areas associated with a lot in an off-the-plan contract. The proposed plan attached to the contract might show an initial allocation, but this is often subject to change before settlement.

Contracts usually grant the developer broad leeway to alter these allocations unless specific restrictions are negotiated and included in the agreement. For instance, a buyer might negotiate for:

• A specific car park location (e.g., near an elevator)
• Multiple parks to be adjacent

Without such specific contractual guarantees, the developer can generally change the location or configuration of car parks or other exclusive use areas.

A thorough review of the contract and associated documents is necessary to understand:

• How these areas are treated – whether they are part of the lot title or allocated as exclusive use
• The extent of the developer’s right to make changes
• Relevant documentation such as the strata management statement (NSW) or community management statement (Qld)

Legal Boundaries On Developer Flexibility For Plan Contracts

Buyer Rights When Facing Material Prejudice

Under NSW property law, purchasers buying off the plan have specific rights if the developer makes significant changes to the property after the contract is signed. Developers must notify purchasers using a ‘Notice of Changes’ form if there’s an inaccuracy in the disclosure statement regarding a ‘material particular’.

A material particular is defined as a change likely to adversely affect the use or enjoyment of the lot being purchased. Upon receiving this notice, the purchaser has 14 days to consider their options.

If the change results in ‘material prejudice’ – meaning the buyer likely would not have entered the off-the-plan contract had they known about the change – they may have remedies. Depending on the contract terms and the nature of the prejudice, these remedies can include:

• Rescinding (ending) the plan contract
• Claiming compensation from the developer

Legislation introduced in NSW in 2019 strengthened these buyer protections. If a change significantly impacts the property, such as a substantial variation in lot size beyond typical allowances (often defined contractually, sometimes around 5%), it might constitute material prejudice.

Where not explicitly defined in the contract, common law principles may determine if a change is materially prejudicial enough to warrant termination.

Restrictions On Using Sunset Clauses For Termination

Off-the-plan contracts include a ‘sunset date’, which is the latest date by which the developer must complete certain milestones, such as registering the plan or obtaining an occupation certificate. Previously, some developers misused these clauses, particularly in a rising property market. They might have intentionally delayed completion to trigger the sunset date, allowing them to terminate existing contracts and resell the property off the plan at a higher price.

However, Section 66ZS of the Conveyancing Act 1919 (NSW), introduced in 2015 and strengthened in 2019, significantly curtails this practice. This legislation restricts a developer’s ability to unilaterally rescind an off-the-plan contract based solely on the passing of the sunset date.

To terminate using a sunset clause, a developer now requires either:

• The written consent of the purchaser
• An order from the NSW Supreme Court permitting the rescission

To obtain a court order, the developer must justify the delay and the reason for seeking termination. The court can also award damages to the purchaser even if it permits the developer to rescind, acknowledging the potential loss suffered by the buyer being out of the property market.

The Role Of Financier Requirements In Contracts

Construction financiers play a significant role in shaping off-the-plan contracts, often reinforcing developer flexibility to protect their investment. Lenders providing finance for a development project typically require developers to include specific clauses in their sales contracts before funding is approved. These requirements aim to minimise the financier’s risk throughout the project.

Common financier-mandated clauses often include:

• Step-in rights: Allowing the financier to take over the project if the developer becomes insolvent
• Limitations on purchaser termination: Restricting a buyer’s ability to terminate the contract due to minor variations or if the developer becomes insolvent
• Restrictions on caveats: Preventing purchasers from lodging caveats against the property title before settlement
• Limited defects period: Defining the developer’s obligations for defects without granting termination rights to the purchaser for such issues

These clauses protect the financier’s interests but also tend to limit the purchaser’s ability to negotiate changes or terminate the contract, thereby supporting the developer’s need for operational flexibility during construction. Developers may be reluctant to amend standard contract terms requested by a buyer if those amendments conflict with their financier’s requirements.

Conclusion

Buying a property off the plan in NSW involves navigating contracts that provide developers with necessary flexibility, allowing for changes to plans, specifications, and timelines due to construction realities and authority requirements. However, this flexibility is balanced by NSW property law, notably the Conveyancing Act 1919 (NSW), which grants purchasers rights against material prejudice and restricts developers from unfairly using sunset date clauses for termination.

Understanding the complexities of these off-the-plan contracts and your rights as a purchaser is crucial before signing. Our property and planning lawyers can help you with that, with their trusted expertise and guidance tailored to your situation when buying a property off the plan. Contact the property law specialists at LawBridge today to ensure your interests are protected.

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