Developers in New South Wales could face stiff financial penalties for failing to deliver homes on time and unfairly profiting from buyers under new rules which are being considered by the state government to deliver greater protection for off-the-plan buyers.

Last Friday, the NSW Government announced that it had commenced consultation in regard to proposed reforms that would increase protection for off-the-plan purchasers of new house and land developments or multi-unit strata titled developments (units, townhouses, apartments etc.) in respect of sunset clauses.

The new laws will attempt to provide greater protection for consumers who enter into ‘off the plan’ building contracts with builders or developers.

An off the plan contract is an agreement for the sale and purchase of a property that is yet to be developed or constructed. These contracts can apply to the sale of a proposed lot in a strata or community land scheme or to the sale of land in a conventional subdivision.

‘Sunset’ clauses aim to deliver greater protections for consumers who enter into off the plan contracts by specifying the date by which a developer or builder needs to finish a project.

Where developers fail to meet these dates, buyers typically have the opportunity to withdraw from the contract and to receive a refund of their deposit.

The proposed reforms aim to tighten consumer protection in respect of sunset clauses.

Particular proposed changes include:

  • Tightening contract rules to give buyers a clearer understanding of when they can expect to move into their new home. This could include scrapping the ability for developers to draw the contract out with indefinite sunset clauses which give buyers no clear path forward or ability to exit the arrangement.
  • 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 that 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.
  • Introducing penalties where developers fail to take reasonable steps to meet dates.

The government is also considering unlocking potential development sites by removing private, outdated agreements from land titles which can place restrictions on how land is developed or used.

This is important as covenants can continue to bind future landowners indefinitely, even if they become outdated.

For example, an obsolete covenant may prevent more than one property from being built on the land or ban the use of certain building materials.

To support consultation on the proposed reforms, the government has released a consultation paper.

According to this paper, reports have emerged about buyers in off-the-plan developments being impacted by lengthy delays with no clear path forward.

Whilst every contract is different, the paper says that bespoke provisions can allow for multiple extensions of sunset dates. Where this happens, buyers are effectively locked into the contract indefinitely even if the development is subject to multiple delays which may see buyers wait years for completion.

Indeed, some contracts do not have any mechanism at all which enable buyers to withdraw at any stage. Where this happens, developers have free reign to extend completion dates indefinitely.

A further issue which the paper says has been identified is a limitation that is generally imposed by off the plan contracts that prevents the buyer from protecting their contractual rights.

For standard contracts, buyers can lodge a caveat on title, giving notice of their interest. Off the plan contracts generally prohibit lodgment of a purchaser’s caveat.

In a statement, Minister for Customer Service and Digital Government Jihad Dib said that the proposals would help to improve consumer confidence in off-the-plan purchases.

“Buying a home is one of the most stressful experiences for an individual, these proposals are designed to provide greater certainty and consistency,” Dib said.

“This review is about making sure home buyers have the right protections and information they need to make informed decisions.”

“Off the plan contracts play a crucial role in supporting essential housing supply initiatives in NSW. They allow buyers to purchase property early in the development process, while giving developers the confidence and financial security to build.”

“We know that most developers do the right thing, but we don’t want situations where businesses 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.”

“We encourage people to have their say on these proposals which aim to boost consumer confidence in the off the plan contract process and help NSW achieve our housing targets.”

Apartment advocacy groups welcomed the reforms.

Samantha Reece, CEO of the Australian Apartment Advocacy (AAA) stated that their 2023 Apartment Living Survey showed that 69% of owners, when buying again, would like a concrete commencement date and 63% a firm completion date.

“These are typically baby boomers who are right sizing and hence they are freeing up family sized homes and that is essential with the current housing crisis,” Reece said.

“Lengthy sunset clauses unfortunately only benefit the developer as often these buyers are seeking to sell their family home and hence are often caught out – and in some instances, couch surfing until their homes are finished.

“But in particular if a builder or developer goes bust, the buyers deposit is held up for the duration of the sunset clause and this binds them from being able to move on with another choice of home.”

Reece said that the proposed laws will balance the provision of protection to owners and buyers.

“The Minns Government will find that these new protection laws will instil confidence in the apartment sector, especially when you consider the parallel strata and building legislation that is being introduced in tandem.” Reece said.

“We are certainly very grateful for this leadership.”

But developer lobby groups have slammed the proposed reforms.

Tom Forrest, CEO of Urban Taskforce Australia, said it was fanciful to suggest that developers were intentionally delaying housing completion any longer than necessary.

“Minister Dib is shadow boxing with this latest anti-housing supply policy,” Forrest said.

“He is seeking to punish property developers for a practice that does not exist.

“What property developer would hold onto a property or slow down construction with interest rates as high as they are today? The holding costs are massive.

“The only sensible course for any developer is to finish construction as soon as possible and settle – that’s when 90% of the sale price is actually paid. Minister Dib seems to have missed the fact that labour shortages, rising construction costs and post COVID supply chains have all made it harder for developers to complete on time. This annoys developers as much as it annoys new off-the-plan home buyers.

“There is a housing supply crisis and the Minns Government deserves praise for driving planning reform, particularly with the establishment of the new Housing Delivery Authority and now reaching out to the Opposition for a bi-partisan approach to further reform of the EP&A Act.

“But Minister Dib seems to have missed the memo as he is adding further barriers to housing supply by adding to the risk of seeking to develop and build the new houses that NSW so desperately needs.”

 

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