Material Changes In Off-The-Plan Contracts
The sale of a proposed lot in a body corporate development “off-the-plan” in Queensland is governed by the Body Corporate and Community Management Act 1997 (Qld) (“the Act”). One main objective of the Act is to provide an appropriate level of consumer protection for owners and intending buyers of lots in a community titles scheme.
Disclosure statements and further statements
The Act requires sellers to give buyers a disclosure statement (with important information such as identity of the proposed lot, a disclosure plan, the sunset date and other details about the proposed body corporate development) before the contract is entered into. Where the seller subsequently becomes aware that information contained in the disclosure statement is inaccurate or if the disclosure statement would not be accurate now, the seller must, at least 21 days before settlement, give the buyer a further statement rectifying the inaccuracies.
Provided that the contract has not been settled, where a further statement varies the disclosure statement to such a degree that the buyer would be materially prejudiced if compelled to complete the contract, the buyer may terminate the contract within 21 days (or a longer period as agreed between the parties), after the seller gives the buyer the further statement.
Although there has been long debate about the term ‘material prejudice’, which is decided by Courts on a case-by-case basis, it is common market acceptance that a 5% or less variation in the size of a lot will generally not materially affect a lot. However, the Supreme Court of Victoria recently decided in favour of the buyer in rescinding a contract for a variation of less than 5% contrary to a term of the contract. Whilst this is not a Queensland case, it is cautionary reminder for sellers and developers when entering into off-the-plan contracts.
Facts of the case
In Burger & Ors v Longboat Holdings Group2 Pty Ltd  VSC 469, the two plaintiffs had each entered into an off-the-plan contract to purchase an apartment in the defendant’s development.
The contract contained an acknowledgement by the plaintiffs that an amendment made to the plan of subdivision which altered the area of the lot by 5% or less will not be regarded as an amendment which materially affects the lot. This is a common provision in off-the-plan contracts.
The defendant amended the plan of subdivision for the development and the plaintiffs argued that the amendments materially affected the lots purchased by the plaintiffs, thus entitling the plaintiffs to rescind the contracts pursuant to section 9AC(2) of the Sale of Land Act 1962 (Vic).
The Supreme Court of Victoria held that the following amendments to the plan of subdivision did materially affect the lots, each change giving the plaintiffs a right to rescind their contract:
- a change to the configuration, and the reduction in the size (of approximately 4.39%), of the master bedroom which detrimentally affected the utility of the room e.g., the ability to position and manoeuvre furniture in the bedroom;
- changes to the light court resulting in a reduction of the natural light available in the master bedroom, when considered with the configuration and size changes to the master bedroom;
- the plaintiffs’ exclusive rights over common property being reduced due to the creation of a public reserve over an area previously shown on the plan to be common property; and
- the plaintiffs’ loss of the right to use an (albeit small) area of common property for a terrace.
The amendments to the plan of subdivision also varied the parking arrangements of the lots by:
- changing the allocated parking space for one of the lots from the top level of a car-stacker to the bottom level;
- a change in the length and area of a car park space (where no evidence was provided as to a statutory minimum length for a car park or the effect of the change e.g., fewer types of cars being able to utilise the space).
However, the Court found that these amendments were not material and the plaintiffs were not entitled to rescind the contracts in reliance upon them.
The case reiterates that when considering whether an amendment materially affects a lot it is necessary to consider the “lot” as a bundle of rights, which may include storage cages, car parks, and the right to common property vested in the lot owner as member of an owners corporation.
The plan of subdivision and other disclosure information required to be provided the buyers before entry into off-the-plan sales should be finalised as much as possible and any subsequent changes should be minimised to avoid rescission or termination risks. In circumstances where changes are unavoidable, sellers/developers need to be aware of what may constitute material changes and the potential rescission and termination risks and how this may impact on development finance arrangements.
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