Disclosure statements have been a feature of Contracts for Sale for several years now. Recent legislative reform introduces new requirements for Disclosure Statements (DS) for Off-the-Plan contracts.
The new DS will need to include a broad cross section of information including information relating to the unit, entitlement, any subsidiaries, the proposed OC rules and the building management statement (if required).
The changes reinforce the Seller’s responsibility to ensure all disclosures are present and up to date prior to completion of the contract.
What happens if the seller does not comply?
Up front, it is important to be aware of what happens when the Seller does not comply with DS requirements.
The Seller is required to provide the buyer with a DS before the parties enter into an Off-the-Plan contract. If the buyer does not receive a DS, they have the right to rescind the contract by written notice at any time before the contract is signed. If the DS is given to the buyer after the contract is signed, the buyer has 21 days to provide written notice of their intention to rescind the contract.
If the buyer rescinds the contract, the seller must repay any amount paid by the buyer to the seller under the contract.
The update also reinforced the implied warranty on the Seller that the information provided in the DS and any DUN is accurate. A breach of this warranty that causes a significant prejudice to the Buyer will give the buyer an additional right to rescind the contract or claim compensation.
For an off-the-plan contract, the buyer may provide the seller with notice of their intention to rescind at any time before the buyer is required to complete the contract. If the Buyer rescinds, the Seller must repay any amount paid by the buyer to the seller under the contract.
The implied warranty will apply to any contract for sale of a unit in a units plan that has not been registered. If any legal proceedings arise out of or connected with an off-the-plan contract, it is the seller’s responsibility to prove the Statement and/or DUNs were given to the buyer.
What are the Disclosure Statement requirements?
It’s a list. The best way to cover every legal requirement when preparing your DS as a Seller, or make sure that your DS includes all legal disclosures as a Buyer, is to refer to our Disclosure Checklist. If you have any questions about the Checklist or your DS, please feel free to contact us.
Broadly, the DS must include:
- a plan showing the location and dimensions of the unit in relation to other units and common property and an internal floor plan of the unit;
- the Building Management Statement (if required). This is another new requirement. Lookout for an update on this soon;
- a statement about the proposed use of each unit including all authorised uses and any proposed restrictions to use;
- the proposed schedule of unit entitlement;
- details of each unit subsidiary in the units plan;
- a statement about the potential for and type of easement that may be required;
- the proposed Body Corporate Rules including any special privilege rules;
- details of contracts the developer requires the Body Corporate to enter;
- the developer’s estimate of the Buyer’s general fund contribution for the 2 years following the units plan registration;
- the method proposed for working out contributions to be paid to Body Corporate funds;
- for a staged development, the Development Statement and any amendments to that statement; and
- any other matter prescribed by regulation.
There are different requirements depending on if the building is authorised by a Development Approval. If authorised, the approval and its conditions must be identified. If not authorised, the DA status of the building must be confirmed, and the developer must undertake to notify the Buyers when the application for DA has been lodged.
With regards to utility services, specific disclosures are required. Information about which units will be individually metered for cold water supply and information about if any and what facilities will be provided to charge electric vehicles.
What happens if something changes?
Development projects are a moveable feast and changes happen. Where these changes amount to a ‘material change’ that render a DS inaccurate or incomplete, the Seller must notify the buyer by giving the buyer a Disclosure Update Notice (DUN).
Read more about DUNs, what counts as a ‘material change’ and the buyer’s rights to rescission or compensation here.
If the buyer has received a DUN but they decide to take no action by the end of the buyer action period, the Statement is taken to be amended by agreement to incorporate the material change indicated in the DUN.
When exactly do these requirements apply?
The new requirements will apply to:
- Contracts entered into on or after the 1 July 2021; and
- Contracts for sale in a Units Plan where no other related contracts (ie contracts for the sale of another unit in the same Units Plan) was entered into before 1 July 2021.
This transitional measure has been included to ease into the new requirements.
However, sellers may elect to use the new DS from 1 November 2020. If they do so, they must comply with all the new requirements. This will include issuing DUNs when material changes occur and subsequently give the buyer the right to rescind the contract when the requirements are not complied with.
If you have any further questions about these requirements, or how the broader reform may affect you, please do not hesitate to contact us now.