Off the plan contracts – rescission and remedies

Purchasing an off the plan property carries many risks, including that the finished product may not match what was promised.

Pity the poor buyer, whose initial excitement has now turned to deep disappointment.

The question is, what legal redress does the buyer have in such circumstances?

Before we get to that, let’s discuss the first rule of buying any property.

First, sign a robust contract

Off the plan contracts allow the vendor a lot of flexibility. Even after the contract is signed, and before building is completed, the vendor may amend lot numbers in the draft strata plan or reduce the area of the property by up to five per cent.

Such variations are usually defined as ‘minor’ and there’s little the buyer can do about them.

However, an off the plan contract will usually also include a provision that allows the buyer to pull out if the variation has a substantially detrimental effect on the property or the purchaser’s use and enjoyment of it.

Second, look to the law if needed

Buyers are also protected by legislation. Sections 66ZO and 66ZP of the Conveyancing Act 1919 NSW allow purchasers to rescind the contract because of a change to a “material particular”, as long as the purchaser can show that:

• they would not have signed the contract if they’d been aware of the change or inaccuracy, and

• the vendor’s notice of changes or the registered strata plan leaves the buyer materially prejudiced by the change or inaccuracy.

Jin Yi Construction Pty Ltd v Romeciti Eastwood Pty Ltd [2022] NSWSC 56 (“Jin Yi v Romeciti”)

Earlier this year, this legislation was put to the test.

The plaintiff, Jin Yi, had agreed to buy an off the plan strata commercial unit from Romeciti. The property was identified as a lot that had 100m² of open commercial space, together with storage space of 2m², located at a rear corner of the unit.

The contract gave Jin Yi the right to rescind if any alterations “substantially, detrimentally and permanently” affected the property in any way other than minor. “Other than “minor” was defined in the contract as being a reduction of more than five per cent between the property area shown on the draft strata plan and that shown on the registered strata plan.

During pre-contractual negotiations, Romeciti’s agent assured Jin Yi that the property was suitable for a restaurant because it had a high ceiling and “clean open space”.

This assurance proved false. On completion, the lot included a new storage space (enclosed in a fixed structure) within the external boundaries of the property. This permanent change to the property deprived Jin Yi of an unobstructed, open area of commercial space.

Findings

Lindsay J made the following findings:

1. The open area of commercial space was critical to Jin Yi and the reduction in this area of about 6.5% satisfied the 5% limitation for which the contract provided

2. "Detrimentally" requires a change that is "objectively undesirable or harmful to enjoyment of the property", and “substantially” involves a change that is “of substance rather than merely nominal”

3. The obstruction of open space of the property as registered was of substance and not nominal. The new storage feature substantially, detrimentally, and permanently affected the configuration of the open commercial space including its visual appearance and functionality

4. It was not disputed that the changes were "permanent", as it was apparent that the changes could not be removed without amendment of the registered strata plan and reconstruction work.

The Court therefore determined that Jin Yi was entitled to rescind the contract and have its deposit refunded.

The Court’s findings are also relevant to off the plan residential units, which are also covered by the Conveyancing Act 1919.

Buyers can take assurance from this that while vendors may make minor changes once an off the plan contract is signed, they do not have carte blanche. Should they abuse their license, buyers have powerful remedies available to them. If you have any questions relating to this article, please contact Andrew Grima.

Authors: Jane Lee & Oxana Churilina

Contributing partner: Andrew Grima

See also: Tips for buying residential off the plan apartments