Strata Series: Material Changes and Disclosure Update Notices for Off-The-Plan Unit Sales

Over the course of a project things can change. These changes may count as a ‘material change’ rendering the Disclosure Statement inaccurate or incomplete. Where this happens, the seller must notify the buyer by giving the buyer a Disclosure Update Notice (DUN) setting out the details of the change to a matter set out in the Disclosure Statement.

The aim of the Notice is to provide the buyer with an avenue to rescind a contract for specific changes that will, or is likely to, directly affect their interest. As such, Disclosure Statements must be consistently updated using DUNs. More information about the new Disclosure Statement requirements can be found here.

In Summary

DUNs will now be required for any Material Changes to Off-the-Plan Units.

Material Changes include decreases in floor or balcony area, changes in unit entitlement and changes that will or are likely to affect the use and enjoyment of the unit.
DUNs must be issued to buyers at least 21 days before the date for completion for a contract.
Depending on the type of change and when the DUN was issued, buyers may have the option to rescind their contract or claim compensation.
There is an implied warranty on the Seller that the information they provide in the Disclosure Statement and any subsequent DUN is accurate. A breach of this warranty that relates to a Material Change and causes significant prejudice to the Buyer will give the Buyer an additional right to rescind the contract or claim compensation.

What kinds of changes will attract a DUN?

The specific changes that will trigger requirement to issue a DUN have been clearly identified and categorised into two main types. The buyer will have different options for action depending on the type of change and when the DUN was issued.

Material Changes
Changes that require a DUN are defined as follows:

Type 1 Changes	Type 2 Changes
The change is a Type 1 Matter is it is any one of the following:	The change is a Type 2 Matter if the change will, or is likely to, affect the use and enjoyment of the unit and includes a change to the following:
A decrease in overall floor area of the unit (excluding any unit subsidiary) of 5% or more; A decrease or increase in the unit entitlement estimate of 5% or more; A decrease of 10% or more of a courtyard area or balcony area for the unit (whether or not the courtyard or balcony is part of the unit or a unit subsidiary); Any other prescribed matter.	The plan mentioned in the disclosure statement; The proposed rules for the OC; The developer’s estimate of the buyer’s contribution to the general fund if the change is more than the prescribed amount; The location of an easement or inclusion of a new easement; A development statement for the units plan that will, or is likely to, affect the use and enjoyment of the unit; Any other prescribed matter.

Type 1 Changes

Type 2 Changes

The change is a Type 1 Matter is it is any one of the following:

The change is a Type 2 Matter if the change will, or is likely to, affect the use and enjoyment of the unit and includes a change to the following:

A decrease in overall floor area of the unit (excluding any unit subsidiary) of 5% or more;
A decrease or increase in the unit entitlement estimate of 5% or more;
A decrease of 10% or more of a courtyard area or balcony area for the unit (whether or not the courtyard or balcony is part of the unit or a unit subsidiary);
Any other prescribed matter.

The plan mentioned in the disclosure statement;
The proposed rules for the OC;
The developer’s estimate of the buyer’s contribution to the general fund if the change is more than the prescribed amount;
The location of an easement or inclusion of a new easement;
A development statement for the units plan that will, or is likely to, affect the use and enjoyment of the unit;
Any other prescribed matter.

Excluded Changes
Changes to incomplete stages of staged developments may be incorporated into the development’s Development Statement and approved by application to the Planning and Land Authority under s 30 of the Unit Titles Act. These are recognised as excluded changes and will not need a DUN.

The Authority will need to be satisfied that:

each person with an interest in the part of the incomplete stage has provided their written consent to the change; and
any changes to common property boundaries are minor boundary changes.

Changes to a completed stage of staged developments may also be incorporated into the Development Statement in the same way without a DUN with the Authority needing to be satisfied that:

the application is authorised by special resolution of the owners corporation within 3 months before the application is given to the Authority;
each non-voting person with an interest has provided their written consent to the change; and
any changes to common property boundaries are minor boundary changes only.

When does the Developer have to notify the Buyer of a Material Change?

The DUN must be issued in writing, no later than 10 working days after the end of the calendar quarter in which the seller first becomes aware of the material change, but at least 21 days before the day the buyer is required to complete the contract.

If the DUN is not issued within this time frame it will be considered issued ‘out of time’. A DUN issued ‘out of time’ will broaden the buyer’s ability to either rescind the contract or claim compensation for the change.

It is important to be aware that any DUNs issued for material changes that occur within 21 days of the date the buyer is required to complete the contract will be automatically considered issued ‘out of time’.

Once a buyer has been issued with a DUN, they have 21 days to take action from the day the DUN is issued (“buyer action period”). If the Buyer does nothing by the end of this period, the Disclosure Statement will be automatically amended to incorporate the change.

The Buyer’s options when there is a Material Change

Depending on the type of change and when the DUN is issued, the buyer can provide written notice to the seller of:

their intention to rescind the contract; or
indicate they wish to complete the contract and claim compensation for the change.

If the buyer rescinds the contract, the seller must repay any amount paid by the buyer to the seller under the contract.

We have summarised the options and requirements for notice below:

Type 1 Changes
The DUN is issued ‘in time’ The Buyer believes they will suffer significant prejudice as a result of the material change.	The Buyer has until the end of the Buyer Action Period to give written notice in response. The Buyer must provide a summary of the prejudice suffered by the change.
The DUN is issued ‘out of time’ It won’t matter whether the Buyer will suffer significant prejudice.	The Buyer has until the end of the Buyer Action Period to give written notice in response. There is no requirement that the Buyer suffer significant prejudice.
No DUN is issued It won’t matter whether the Buyer will suffer significant prejudice.	The Buyer may rescind the contract by written notice at any time before the contract is to be completed. There is no requirement that the Buyer suffer significant prejudice.
The buyer takes no action	the Disclosure Statement will be automatically amended to incorporate the change.
Type 2 Changes
The DUN is issued ‘in time’ OR ‘out of time’ The Buyer believes they will suffer significant prejudice as a result of the material change.	The Buyer has until the end of the Buyer Action Period to give written notice in response. The Buyer must provide a summary of the prejudice suffered by the change.
No DUN is issued The Buyer believes they will suffer significant prejudice as a result of the material change.	The Buyer may rescind the contract by written notice at any time before the contract is to be completed. The Buyer must provide a summary of the prejudice suffered by the change.
The buyer takes no action	the Disclosure Statement will be automatically amended to incorporate the change.

Important responsibilities on the Seller

It is the Seller’s responsibility to provide these notices and keep their buyers informed of changes. It is also the Seller’s responsibility to produce any evidence of DUNs issued if there is a dispute over material changes.

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 DUN/s were given to the buyer.

There is an implied warranty on the Seller that the information they provide in the Disclosure Statement and any subsequent DUN is accurate. A breach of this warranty that relates to a Material Change and causes significant prejudice to the Buyer will give the Buyer the right to rescind the contract or claim compensation.

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 contract, the seller must repay any amount paid by the buyer to the seller under the contract.

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, Developers may elect to use the new Disclosure Statement 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.