Please Note: This is not legal advice but it may help you understand the law. Read more...

Off-the-Plan Contracts – Termination rights and risks

Buying units off the plan is still a popular investment option for many people.  It is not, however, uncommon for buyers, for a variety of reasons, to wish to terminate the contract before settlement.  What you may not be aware of is that there is consumer protection legislation in place which, if the seller does not strictly comply with, the buyer might have rights to terminate the contract and recover the deposit. 

 

The principal consumer protection legislation is the Body Corporate and Community Management Act 1997 (Qld) (“BCCM Act”).  The recent case of Bossichix Pty Ltd -v- Martinek Holdings Pty Ltd [2008] QSC 278 is an example of a case where a buyer was able to terminate a contract and recover its deposit because the seller did not strictly comply with the provisions of the BCCM Act.

 

Facts of the Case

 

The Buyer (Applicant) entered into a contract to purchase a unit off-the-plan from the Seller (Respondent).

 

The relevant clause of the contract provided that the settlement date is the later of:

 

(a)            14 days after the seller notifies the buyer that the building format plan is registered; and

(b)            3 days after the seller notifies the buyer that a Certificate of Classification is issued for the building.

 

Prior to settlement of an off-the-plan unit, the Buyer sent a letter to the Seller purporting to cancel the contract pursuant to section 212 of the BCCM Act.

 

Section 212 of the BCCM Act provides as follows:

 

212 Cancellation for not complying with basic requirements

(1)      A contract entered into by a person (the seller) with another person (the buyer) for the sale to the buyer of a lot intended to come into existence as a lot included in a community titles scheme when the scheme is established or changed must provide that settlement must not take place earlier than 14 days after the seller gives advice to the buyer that the scheme has been established or changed.

(2)      Also, when the contract is entered into, there must be a proposed community management statement for the scheme as established or changed.

(3)      The buyer may cancel the contract if -

          (a)      there has been a contravention of subsection (1) or (2); and

(b)      the contract has not already been settled.

 

The Seller disputed that it had breached Section 212 of the BCCM Act.

 

The Issues

 

The Buyer argued that the relevant clause of the contract failed to comply with s 212 of the BCCM Act in two respects:

 

(1)            Section 212 requires the adoption of the specific words “settlement must not take place earlier than 14 days after the vendor gives notice to the purchaser that the scheme has been established”; and

 

(2)            That the date of settlement was fixed by reference to the date 14 days after registration of the building unit plan and not the establishment of the community titles scheme.

 

The Decision of the Court

 

The Court accepted that s 212 of the BCCM Act provides that settlement of an off-the-plan unit contract cannot occur prior to the establishment of the relevant community titles scheme.  (Note: a community titles scheme essentially deals with the ownership of and management by a body corporate of common property in a unit development.)

 

Section 24 of the BCCM Act provides that a community titles scheme is established by:

 

(a)                registration of the plan of survey identifying the scheme land (Note: a building format plan is a type of survey plan); and

 

(b)                the recording of the first community management statement for the scheme (Note: a community management statement essentially records the entitlements, rights and responsibilities of owners of individual units in a unit development).

 

The Court also accepted that, from a practical perspective, registration of the survey plan and recording of the community management statement would occur “virtually contemporaneously”.  This means, there could be no registration of the survey plan without the recording of the community management statement, and therefore the establishment of the scheme.

 

Despite that, the Court held that because the contract only required notice to be given in relation to the registration of the survey plan (i.e. the Building Format Plan) and not the establishment of the community titles scheme, section 212 of the BCCM Act had been breached by the Seller.  The Buyer was entitled to terminate the contract.

 

Observations

 

The Court took a very literal approach to the wording of section 212 of the BCCM Act and in doing so has opened the door to buyers of units off-the-plan to cancel the contract for, what the writer views as, essentially technical reasons. 

 

This decision is a sober reminder to Sellers that they need to ensure their contracts for sale of units off-the-plan comply with BCCM Act.

 

If you have entered into a contract to purchase a unit off-the-plan and wish to cancel the contract, please give Corney & Lind a call or talk with your lawyer about whether the decision in Bossichix Pty Ltd -v- Martinek Holdings Pty Ltd might offer a lawful basis for termination.

 

* The decision in Bossichix Pty Ltd -v- Martinek Holdings Pty Ltd is currently under appeal.

 

Please Note: This is not legal advice but it may help you understand the law. Read more...

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