Since 2012, the number of off-the-plan contracts in NSW has grown at around 20% per annum.[1]  Despite often negative media attention, it seems that buyers (particularly first home buyers) are still attracted to new developments.  The reforms aim to protect these buyers and mitigate some of the risks inherent in purchasing a lot that a buyer cannot yet inspect with their own eyes and may take many months (or even years) to be completed.

What follows is a summary of some of the key items of reform under the Conveyancing Legislation (Amendment) Act 2018 (NSW) and Conveyancing (Sale of Land) Amendment Regulation 2019 (NSW):

Longer cooling-off period

Currently, purchasers of residential property in New South Wales (and some other States and Territories) receive the benefit of a five business day cooling off period subject to certain legislative exceptions (e.g. auction sales).  This period allows the buyer to rescind (i.e. cancel) the contract for any reason and their only penalty will be 0.25% of the price, which is often forfeited from the initial deposit paid.

The reforms have extended the cooling off period for off-the-plan contracts to 10 business days.  In order to ensure buyers are made aware of this extended cooling off period, the prescribed warning statement that must appear in all contracts of sale has been amended to make reference to it.

While contracts for the sale of existing properties can continue to use the current warning statement until 1 June 2020, off-the-plan contracts must contain the new warning statement from 1 December 2019.  A failure to include the correct warning statement will entitle the buyer to cancel the contract under section 66X of the Act at any time before settlement (unless the buyer waived the cooling off period).

Disclosure Statement

In addition to the usual documents that a vendor must attach to a contract of sale (e.g. Title search, registered plans and dealings) before it is exchanged, a vendor under an off-the-plan contract must now attach a disclosure statement under new section 66ZM of the Act.  This disclosure statement has a prescribed form and must include the following:

• Details of the settlement timeframe;

• Details of the Sunset Date;

• Confirmation whether development approval has been obtained;

• A copy of the draft plan prepared by a registered surveyor (including the location, area and floor plan of the lot).  However, the plan does not need to show the location or area of any proposed parking or storage areas;

• The proposed schedule of finishes;

• Any instrument under section 88B of the Act (e.g. easements, restrictions etc.) that are proposed to be lodged with the plan;

• The draft by-laws (if in a strata scheme);

• Any proposed development contract; and

• Any proposed strata or building management statement.

If the disclosure statement and accompanying documents are not annexed to the contract before it is signed, the purchaser can cancel the contract within 14 days of exchange.

Notice of changes

One of the bigger risks of purchasing a property off-the-plan is that the developer may make changes to the plans and other important documents before settlement.  A vendor under an off-the-plan contract must now notify a buyer of any changes to a ‘material particular’ at least 21 days before settlement under new section 66ZN of the Act.  This notice must be in the approved form.  A ‘material particular’ is defined under section 66ZL of the Act to include the following changes that will, or will likely, adversely affect the use or enjoyment of the subject lot:

• a change to the draft plan;

• a provision of draft by-laws;

• an easement or covenant;

• changes to the schedule of finishes;

• a strata management statement; and

• a (strata) development contract.

However, the new regulations specify that inter alia a change in lot number, street name or parking/storage area location will not be a ‘material particular’.

If after receiving notice of such changes, the buyer can cancel the contract within 14 days under new section 66ZO of the Act if they would not have entered into the contract had they been aware of the change AND would be materially prejudiced by the change.  If the buyer so cancels the contract, they will receive a full refund of the deposit paid.

Copy of registered plan and dealings

Similarly, a vendor under an off-the-plan contract must serve a copy of the registered plan (and any other documents that were registered with it) on the buyer at least 21 days before settlement under new section 66ZP of the Act.

After receiving these documents, if it becomes apparent that the disclosure statement now contains an inaccuracy in relation to a material particular such that the buyer would not have entered into the contract had they been aware of the inaccuracy AND would be materially prejudiced as a result, then the buyer can cancel the contract within 14 days with the deposit refunded in full to the buyer.

Claims for compensation

A buyer who is entitled to cancel the contract under section 66ZO or 66ZP of the Act may instead choose to make a claim for compensation from the vendor of up to 2% of the purchase price.  Like the right of rescission, this claim must be made within 14 days of receiving the notice of change or registered plan (and before settlement).

If, after the purchaser serves such claim, the vendor does not rectify the change or pay the compensation claimed within one month of service, the claim will be determined by arbitration.  Once a claim is determined by an arbitrator, the purchaser can no longer cancel the contract.

It is worth noting that the 2019 Law Society Contract provides that if a purchaser makes a claim under the new regulations, he or she will be prevented from making a claim under standard clause 7.

Professional Depositholders

Under new section 66ZT of the Act, the deposit under an off-the-plan contract can now only be held in the trust account of a real estate agent, law firm or licensed conveyancer.  This change will prevent buyers from losing deposits paid to developers who later become insolvent.  However, this new requirement does not affect deposits paid by deposit bond or bank guarantee.

If you require assistance with a property development or conveyancing transaction, please contact HPL Law Group on (02) 9905 9500.

[1] NSW Office of the Registrar General, Off-the-plan contracts for residential property, Discussion Paper (2017) 6.

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Originally announced as part of the 2017-2018 Federal Budget, the Government has now passed legislation significantly changing the way GST is handled on the sale of new residential property. From 1 July 2018, purchasers of new residential property must pay the GST component of the purchase price to the Australian Taxation Office (‘ATO’) directly instead of to the vendor. The Government has explained these changes are necessary to “clamp down on GST evasion in the property development sector”.

To what transactions does the new withholding scheme apply?

The GST withholding requirements apply to the sale or long-term lease (generally leases or licences for a term of at least 50 years) of the following types of real estate:

• ‘New residential premises’ that have not been created through substantial renovations of a building.  A ‘new residential premises’ is defined under the existing GST law as premises that have not previously been sold as residential premises and have not previously been the subject of a long-term lease, or contain a building that has been built to replace demolished premises on the same land;
• ‘New residential premises’ that are not ‘commercial residential premises’ (i.e. a hotel, motel, inn, hostel, boarding house, premises used to provide accommodation in connection with a school, certain ships, a marina at which one or more of the berths are occupied by ships used as residences, a caravan park, a camping ground or anything similar); and
• Land that it is permissible to use for residential purposes, but that does not contain any buildings (‘potential residential land’), and is included in a property subdivision plan (e.g. strata plan or land subdivision) and does not contain any building that is in use for a commercial purpose.In our view, the above categories will mostly affect those conveyancing transactions commonly referred to as ‘off-the-plan’ purchases.While the transitional provisions exempt any contract made before 1 July 2018 from the GST withholding requirements, they will apply to any part of the purchase price is paid after 1 July 2020. This effectively means that the withholding regime will apply to all conveyancing transactions involving the above property categories if they settle after this date regardless of the contract date.

What does a vendor need to do?

Before selling any residential property (not just new residential property in the above list), a vendor must give a prospective purchaser a written notice stating whether the purchaser will be required to make a GST withholding payment to the ATO and, if so, include the following:

• The vendor’s name and ABN;
• The amount that the purchaser will be required to pay to the ATO;
• When the purchaser will be required to pay that amount;
• If some or all of the purchase price will not be expressed as an amount of money, the GST inclusive market value of that part of the price; and
• any other matters specified in the regulations.

If the vendor fails to give the above notice, then the ATO can fine them up to $21,000.

What does a purchaser need to do?

If the purchaser is not registered for GST, they must deduct the GST component from the purchase price and pay it to the ATO on or before the date that the purchase price (other than the deposit) is paid to the vendor. In the vast majority of cases, this will be the settlement date under the contract. However, where the price is payable by instalments, the obligation to pay the full GST amount to the ATO will arise when the first instalment is due. If the purchaser fails to make the required payment to the ATO on or before settlement, the purchaser is liable for a penalty equal to the GST amount.

It is important to note that the purchaser’s obligation to make the required payment to the ATO is not dependent on the vendor giving the requisite notice as outlined above. However, the purchaser may be absolved from liability if the vendor gave them a notice stating that the premises are not new residential premises or indicating that the purchaser will not be required to pay an amount to the ATO and, at settlement, there was nothing in the contract or any other circumstances relating to the sale that made it unreasonable for the purchaser to believe that the vendor’s statement was correct.

The amount to be paid to the ATO is a percentage of the GST-inclusive purchase price specified in the contract, disregarding any usual adjustments for outgoings, and will depend on whether the vendor will be applying the margin scheme to the supply. If the margin scheme will be applied, then the rate will be 7% of the purchase price (although the Government has the power to increase this as long as it does not exceed 9%). Otherwise, the rate will be 1/11th of the purchase price.

Changes to the NSW Law Society Contract

The contract for the sale of land that is commonly used in New South Wales, which is prepared by the NSW Law Society, has been amended to reflect the new withholding scheme (called a ‘residential withholding’ payment in the contract). The main changes in the 2018 contract include:

• A new yes-no box to indicate whether or not the purchaser must make a GST withholding payment at settlement;
• A new section that sets out the particulars required to be disclosed to a purchaser. Interestingly, in relation to the amount of GST to be withheld, the NSW Law Society is advising that when a property is sold at auction and the amount is not completed, the vendor must provide all these details in a separate notice to the purchaser within 14 days of the contract date; and
• New clauses have been inserted in the standard conditions that allow the purchaser to make the required GST payment. These clauses inter alia require the purchaser to produce evidence that they have submitted the required notification form to the ATO at least five days before settlement.

Implications for purchasers and vendors

Vendors of all residential property will need to ensure they comply with the notice requirements under the new withholding scheme and purchasers must ensure they pay the GST payment when they are buying new residential property. In some cases, simply relying on the vendor’s notice will not be a sufficient excuse for the purchaser not making the required payment. A failure to comply with either requirement could see the purchaser and the vendor facing heavy penalties.

If you require assistance with a property development or conveyancing transaction, please contact HPL Law Group on (02) 9905 9500.

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