Off-the-plan sale contracts

06 April 2010

The Trade Practices Amendment (Australian Consumer Law) Bill 2009 has passed through the Australian Parliament.

This law affects almost all consumer contracts, including contracts for the sale or rent of residential property. We raised concerns about this legislation, but regretfully, it has been passed without addressing the issues raised by our industry and others.

Under the new law, due for implementation by the end of the year, a term in a consumer contract may be held as unfair if:

  • the term would cause a significant imbalance in the parties’ rights and obligations; and
  • it is not reasonably necessary to protect the legitimate interests of the party advantaged by the term.

If a court concludes that a term is “unfair” it is void and unenforceable.

We are concerned that this proposed legislation will reduce the ability of property developers to de-risk residential development to the satisfaction of the banks – and therefore reduce the ability of residential developers to secure finance. This will be a very poor policy move, coming at the very same time that the Reserve Bank is highlighting the lack of housing supply as a major risk (and impediment) to economic growth.

Developers should consider arranging for their contracts for the sale of land to be reviewed in the light of this new law. Our expectation is that the application of this law will become a central issue in most litigation by purchasers who are seeking to escape their contract to complete an off-the-plan purchase arrangement. 

A Federal Government media release on this subject is here. The Urban Taskforce’s submission on the bill is here.