STRATA LAW – Off the Plan Doesn’t Go To Plan

Retail Unit Manifestly different from Plan

Many investors buy “off the plan”. It can be a good way to get in early, but what if it doesn’t all go to plan when it is built?

In 2017, a buyer bought a retail unit off the plan in Eastwood, Sydney. The price was $3.080m including GST. However, when built, the retail unit had a 6m2 storage space in the middle of the lot, rather than a 2m2 storage space at the rear. This created a dead space in the shop area, between the new storage area and the rear of the shop.

Under the contract, as is often provided in off the plan contracts, the buyer could rescind for a substantial detrimental change to the strata unit when built, and if it reduced the area more than 5%.

The buyer said the unit had a substantial detrimental change that reduced the area more than 5%, and in 2020 rescinded the contract.  The seller served a notice to complete the purchase and when the buyer did not settle, notice of termination for repudiation of the contract.

The Supreme Court agreed that the buyer could rescind on two grounds:  under the contract terms, and under the general law of ”misdescription”.

Under the general law of misdescription, the court said that the misdescription of the property was material and substantial and affected the subject-matter of the contract so that, but for the misdescription, the buyer might never have bought the property at all, so the contract was voided altogether.  [1]

This was a win for the buyer, a loss for the seller.

Off the plan contracts are often presented by sellers as a take it or leave it proposition, and in a hot property market, buyers can be tempted to take the risk. This is a good example of a contractual “out clause” holding up for the buyer.

The lesson is, if you are buying off the plan, get good advice. If you are selling off the plan, ensure it all goes to plan.  Either way, contact  Peter McNamara.

For those interested in reading the whole case, here is the link:  Jin Yi Construction Pty Ltd v Romeciti Eastwood Pty Ltd (NSWSC) [2022] NSWSC 56 (4 February 2022)

[1] Footnote:  This rule of misdescription was based on the 1834 case of Flight v Booth where the court said:

“..where the misdescription, although not proceeding from fraud, is in a material and substantial point, so far affecting the subject-matter of the contract that it may be reasonably supposed that, but for such misdescription, the purchaser might never enter into the contract at all, in such cases the contract is avoided altogether, and the purchaser is not bound to resort to the clause of compensation. Under such a state of facts, the purchaser may be considered as not having purchased the thing which was really the subject of the sale.”