Things not always going according to plan is a learning curve any developer [or buyer for that matter] must accept before entering into an off the plan [OTP] contract.  

Many factors can change the course of a development and they won’t always be planned for. Since there is no standard contract for OTP sales, the fine print must be checked and double-checked before it is signed.

Because when issues do arise and if they can’t be overcome, the first question that‘ll probably come up is whether it’s possible to get out of the contract.

 

can I terminate an off the plan contract?

To answer this, you first need to look at the Body Corporate and Community Management Act [BCCMA] and of course, the contract you’ve signed.    

 

the BCCMA

As noted in part 5 of this series, one of the objectives of the BCCMA was to provide an appropriate level of consumer protection for owners and intending owners of lots. This is partly achieved by providing buyers with certain termination rights, including: 

section 213 – information to be given by the seller to the buyer 

A developer is required to provide a buyer with a disclosure statement [refer to part 4 of the series for a detailed explanation] that complies with section 213 of the BCCMA, before entering into a contract with a buyer.  
 
If a disclosure statement is not provided, the buyer may terminate the contract before settlement.  

section 214 – variation of disclosure statement 

A developer is required to provide updates if they become aware that the disclosure was [or would be] inaccurate. For example, if the lot entitlements are adjusted in the Community Management Statement [CMS] or the area of the lot or exclusive use area is changed.  
 
If a buyer would be materially prejudiced because of the change/s, then a buyer may terminate the contract before settlement.  
 
There is a case law that discusses the concept of material prejudice and importantly the consensus is that the focus is on the buyer and is tested objectively, but there is regard to the buyer’s circumstances.

For example, the absence of a security system in the proposed asset register contained within a further disclosure statement [where it was contained within the initial disclosure] was considered in determining material prejudice to a buyer, where safety/security was paramount to the buyer.  

section 217  – terminating the contract for inaccuracy 

This section allows a buyer to terminate a contract before settlement if there are certain deficiencies with the CMS and the buyer would be materially prejudiced as a result.

The types of deficiencies covered include the registered CMS being different to the copy disclosed to the buyer or information regarding the lot entitlements being either inaccurate or not explained correctly.  

section 217B – terminating the contract if not settled within a particular period 

The BCCMA requires that a seller settle a contract the earlier of: 

  • The sunset date specified in the contract
  • The date that is 5.5 years from the date of the contract

Failing which the buyer may terminate the contract [unless they are in default].  

 

the contract

Generally, there will be very few circumstances where buyers have a termination right in OTP contracts [noting that their statutory rights will take precedence over the terms of the contract]. The below summary details the common termination rights sellers have:   

approvals

Generally, OTP contracts will be entered into before developers have obtained all approvals required for a development – so it is critical that a developer can terminate a contract if for any reason: 

  • They aren’t able to obtain all approvals required to complete the development 
  • They aren’t able or willing to comply with any conditions of any approvals issued for the development
  • Any approval that is issued, is either changed or revoked [if applicable]

sunset date

A sunset clause is the deadline for finishing the construction, getting official approval for the plan and making the property officially the buyer’s with a title.

If these things don’t get done by the sunset date, the buyer has the option to cancel the contract and get their deposit back. 

It’s important to note that section 217B of the BCCMA only provides the buyer with a termination right if the contract is not settled before the sunset date – it is, therefore, critical that the contract includes the developer’s right to terminate in that situation.

OTP contracts will sometimes include positive obligations on developers to take reasonable steps/endeavours to complete the development and settle the contract before the sunset date.

A developer must consider whether they have complied with these obligations before exercising this right.    

financial viability

It is becoming increasingly common for OTP contracts to include termination rights related to the financial viability of the development.

These vary in detail, but the concept is important, especially when market conditions negatively impact the development.

For example, labour and material shortages experienced as a result of Covid or natural disasters, heavily impact the construction industry.  
 
This type of provision must be worded carefully to avoid being the subject of a dispute, particularly when setting parameters around viability [versus profitability].   

 

key takeaways for developers

  • Make sure you understand your rights in OTP contracts and that they maintain the required degree of flexibility
  • Make sure all documents [in particular those contained within the disclosure statement], are prepared with due care and skill by experts
  • Have a system in place for contract management – including making updates when required
  • Maintain consistent communication with all parties including the professionals involved in the development
  • Understand the circumstances that would require additional disclosure and the key time frames contained in the BCCMA and the relevant contract

 

we’re here to help

While the above is not the full list of all termination rights, it does cover the main statutory and contractual rights that tend to arise in practice. If you want a hand on how to navigate your OTP, the businessDEPOT legal team is here to help! Give our Legal team a buzz on 1300DEPOT or get in touch via legal@businessdepot.com.au. 

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General advice disclaimer 
The information provided in this booklet is a brief overview of the subject matter and does not constitute any type of advice. We endeavour to ensure that the information provided is accurate however, information may become outdated as legislation, policies, regulations and other considerations constantly change. Individuals must not rely on this information to make a financial, investment or legal decision and should consult an appropriate professional before making any decision.