NSW shakes up off-the-plan buying

In addition to reassessing how customers buy off-the-plan, the state is also looking at freeing up land for development by allowing property owners to remove certain covenants that restrict what the land can be used for. 

While separate issues, in tying them together the state is billing the effort as a way of strengthening the property development sector at a time when new construction is desperately needed – greater consumer confidence could translate to more sales, and more available land means greater opportunity for development.  

Roughly 5% of the 180,000 residential purchases that took place in NSW last financial year were off-the-plan, according to state data. And as they can offer an affordable pathway for many NSW purchasers, interest in the sector is expected to remain strong. 

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When it comes to off-the-plan contract provisions, the state's focus is primarily on consumer protection and addressing a new issue that has emerged since the last round of updates to off-the-plan contract laws, which took place in 2019. 

While those changes sought to put extra disclosure obligations on vendors so that purchasers have greater transparency when buying off-the-plan, the latest review takes aim at fluctuating timelines that the state says has, in some cases, left buyers stuck in limbo. 

According to a discussion paper released at the review’s announcement, since 2019, new economic factors have meant that some buyers have found themselves facing lengthy delays on the projects they have bought into, with no clear path forward. 

“The reasons for these delays vary, but in many cases, buyers have entered into the contract very early in the development stage,” the discussion paper explained. 

“Unforeseen complexities in the planning and certification process may have led to the developer extending sunset dates, resulting in long and protracted contracts.

“In some instances, buyers are eager to settle the purchase, to move in or to start building homes. For others, the ongoing delay and financial pressures have changed their circumstances, so they want to end the contract and recover their deposits.” 

The government is seeking to ensure that buyers who are faced with protracted timelines when purchasing off-the-plan are provided with a reasonable off-ramp. 

How OTP contracts could change 

Current proposals on the table from the state include:

• Making sunset clauses mandatory in contracts so that buyers can withdraw if sunset events do not occur by a set time 
• Requiring developers to disclose the status of the development against construction milestones so buyers have a better understanding of timeframes and potential risks 
• Limiting a developer’s ability to extend sunset dates only for certain reasons beyond the developer’s control such as weather or supply issues, and imposing time limits on extensions 
• Requiring developers to take certain steps to meet dates by potentially introducing penalties for inaction 

Roughly 5% of the 180,000 residential purchases that took place in NSW last financial year were off-the-plan. Picture: Getty

In the situation where the cancellation of a contract by a developer is approved by the Supreme Court through a sunset clause, the state is also considering whether damages to the buyer should incorporate a component for any capital gain attributed to the developer as a result of rising land values.   

NSW minister for customer service Jihad Dib commented that while the state believed “most developers do the right thing” this review was seeking to ensure buyers can’t be put in a situation where off-the-plan sellers “try to run down the clock on a contract to sell to a higher bidder or mislead consumers by unfairly changing the goalposts for when they can move into their dream home”. 

“These reforms are designed to provide greater transparency as well as encourage the delivery of new homes. These proposals are about encouraging developers to be upfront about timelines and challenges to assist homeowners,” Mr Dib said.  

In reviewing the laws surrounding off-the-plan contracts, he noted that the state was still seeking to ensure that the framework continues to give “developers the confidence and financial security to build”.  

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Land freed-up for development 

As part of this consultation, the government is also looking to unlock potential development sites by making it easier to remove certain restrictions on land that dictate whether it can accommodate multiple dwellings.  

Specifically, the review takes aim at “restrictive covenants,” which are private agreements between landowners that limit the way land can be used or developed, and generally binds all future owners of that land to the same restrictions.  

These are most commonly imposed by the owner of a property when land is subdivided for separate sale, and are often included to preserve a certain standard of development that’s appropriate at the time. 

According to the state, however, covenants can easily become outdated as the built environment changes.  

Examples of restrictive covenants include those that prevent more than one main building on the land, limit development above a certain height, or impose a certain style or standard of development, including to ban types of building materials or set a minimum value of construction. 

Rarely are sunset dates included in the covenant, adding restrictions and complexity to land that might now be well suited for higher-density building. 

Legislation currently allows for some restrictive covenants to be removed after 12 years, but only for those related to building materials, fencing, or structure value.  

The state is considering expanding the reasons that a covenant can be considered “obsolete” to include land use, while also imposing new timelines on the imposition of restrictive covenants in new contracts. 

The reforms are not intended to apply to covenants that are imposed by entities such as a local council, or to positive covenants that require an owner to carry out activities like maintaining the site of an easement, keeping fire trails cleared or taking out insurance. 

This article first appeared on realestate.com.au and has been republished with permission.