Property Series Part 4 | New Disclosure Rules for Buyers

Barrister and mediator, Sydney Jacobs continues his series by discussing the key points following the recently implemented disclosure statements outlined by sec 66ZM of the Conveyancing Act (NSW). For more of his insights into an array of property matters, follow his series here.

Amendments to the Conveyancing Act (NSW), introducing the requirement for a vendor of units “off the plan” to provide disclosure statements, came into force on commencement of the Conveyancing Legislation (Amendment) Act 2018 and Conveyancing (Sale of Land) Amendment Regulation 2019, which according to the Registrar-General’s website, was 1 December 2019.

The usual story goes something like this: the sales agent hands over a glossy brochure depicting couples in a state of bliss, sipping cocktails on the balcony. The agent shows the mock-up unit, so opulent it would have made King Darius in his palace at Persepolis blush with envy. Floor plans are handed over, depicting the future unit. There are also some squiggles on the floor plan that are indecipherable.[1] Using the macro function on a smart ‘phone, one can make out a disclaimer at the bottom of the page.

The purchaser’s Solicitor is sent a contract which contains a grainy, partially legible black and white version of the floor plan. The document is so large, containing a myriad of attachments, and time is so short, that the purchasers does not get around to working out the ambiguities in the pixelated floor plan.

Legion are the cases where the unit as ultimately constructed differs in a material respect to what was represented pre-contract, and what was otherwise thought to be the end product offered in the contract. There might be a variance in internal or external dimensions; the car space might be found not be on title but rather in an allotted space to which a use right is given via a by law. What one thought from lines drawn on the floor plan, and from what the agent said, would be an ideal room for a teenage child, is found to have one “wall” in the form of a curtain hanging from the ceiling.

Prior to the introduction of Sec 66 ZM of the Conveyancing Act (NSW), cases such as these were governed by complex overlapping principles, such as those relating to the true construction of contracts, Flight v Booth and the CCA/ ACL.

Parliament has now enacted Sec 66 ZM of the Conveyancing Act (NSW), whose key points are as follows:

• It applies only to sale off the plan of a residential lot
• It mandates that a disclosure statement is to be attached to off the plan
• The Disclosure Statement must include draft plan prepared by a registered surveyor, containing specified details eg proposed lot number; location; dimensions etc;
• A failure to attach the Disclosure Statement and required documents affords the purchaser the right to rescind the contract within 14 days after the making of the contract (the first rescission right);
• The vendor must notify purchasers at least 21 days pre settlement if the Disclosure Statement has become inaccurate in a material particular. A “material particular” includes a change to the draft plan, management or building statement, schedule of finishes, by-laws or an easement or covenant that will adversely affect the use of enjoyment of the lot. Certain things are excluded;
• Purchaser have the right to rescind if the change is such that the purchaser would not have purchased had they been aware of the change and would be materially prejudiced by the change (the second rescission right); and
• The purchaser can also rescind if, after receiving the registered plan and other documents, the disclosure statement includes any inaccuracy in relation to a material particular. Likewise in this scenario, purchasers much show they would not have entered into the contract had they been aware of the change and they would be materially prejudiced by the change

A copy of the registered plan and documents must be given to the purchaser at least 21 days before completion. The purpose of this provision is to give purchasers a reasonable time to consider documents; and to counterbalance the very short time frames I’ve seen in certain contracts.

The Registrar General has a detailed note on his website, together with relevant forms, that ought, with respect, be part of the armoury of practitioners in the area. An extract follows:

“As an alternative to rescission, purchasers may choose to remain in the contract but claim compensation (up to 2% of the purchase price) for the change. If the parties cannot agree to resolve a compensation claim, the claim can be referred to arbitration. The arbitrator’s decision is final, and the purchaser is no longer able to rescind the contract because of the change to the material particular.

Affected purchasers must exercise their rights to rescind or claim compensation within 14 days of being notified of the change to a material particular, or of being served with the registered plan that reveals the inaccuracy, as the case may be.”

One area of potential disputation I can foresee, is whether the Disclosure Statement has become inaccurate in a material particular. As such, in my next article, I will look at cases as from Flight v Booth [1834] EngR 1087; (1834) 1 Bing (N.C.) 370, cons’d in eg Mehmet v Carter [2018] NSWCA 305 which articulated and applied a test akin to that set out in Sec 66 ZL CA; and will address the type of factual scenarios which have fallen on one side or the other of that hazy divide; so as to consider how the courts may apply the new legislation.

[1] See the legends set out in the Surveying and Spatial Information Regulation 2017 and also on the Registrar General’s website which helpfully explains, eg, what a vinculum is.

Sydney Jacobs is a barrister at 13th Wentworth Chambers. He is also an accredited Mediator and Arbitrator. Sydney read for his LL.M at Cambridge University, England. He has a general commercial equity practice including partnership disputes, property litigation (e.g. easements, leasing matters, contracts for the sale of land off the plan, relief against forfeiture of deposits) and building & construction disputes. He is the sole author of two major loose-leaf services, namely: Damages in a Commercial Context, and Injunctions: Law and Practice, both published by Thomson Reuters. He part authors the leading work, Commercial & International Arbitration, likewise published by Thomson Reuters. You may connect with Sydney via email sjacobs@13wentworth.com.au or LinkedIn

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