When is a purchaser in an off the plan sale entitled to terminate its contract?
The Supreme Court of NSW declared earlier this year in Jin Yi Construction Pty Ltd v Romeciti Eastwood Pty Ltd  NSWSC 56 that the purchaser of a commercial strata unit was entitled to rescind the contract, and ordered the deposit paid to be returned to the purchaser, on the following basis:
- The relevant clause which permits the purchaser to terminate the contract for “alterations, amendments, variations or discrepancies substantially, detrimentally and permanently affect the Property in a way which is other than minor” should be construed, in the context of the contract as a whole, objectively.
- “Detrimentally” requires a change that is “objectively undesirable or harmful to enjoyment of the Property”, and “substantially” requires a change that is “of substance rather than merely nominal”. It was not disputed that the changes were “permanent” as the changes could not be removed without amendment of the registered strata plan and reconstruction work.
- The inclusion of a new storage space (encased in a fixed structure) not shown as a feature on the draft strata plan, and which was included within the boundaries of the shop, was found to be a substantial, detrimental and permanent change to the shop, depriving the purchaser of an unobstructed, open area of commercial space.
- Although the total area of the property as identified on the draft strata plan was 112 square metres (110 square metres of commercial space and 2 square metres of storage space), the area of critical important to the purchaser was the area of commercial space. The change in area is therefore considered based on 110 square metres and the reduction in area of about 6.5% is sufficient to satisfy the 5% limitation for which the contract provides.
- The property as registered had impediments to open space in the form of the “new storage space”, an area of common property and “dead spaces” defined by their intrusion within the external boundaries of the property. The configuration as constructed also limited the ability of any occupier to choose how the shop might be fitted out.
- The purchaser was therefore entitled under the contract to rescind the contract and the purchaser was not bound to accept the property under the rule in Flight v Booth.
Although this case is in relation to an off the plan commercial unit, it is beneficial to similar issues as they may apply to off the plan residential strata contracts and should be read together with the statutory regime that applies to off the plan residential properties in the Conveyancing Act 1919 (NSW).
If you would like to discuss this article or its implications for your project or development, please contact our Property and Real Estate Projects Partner, Mike Ellis or Senior Associate, Yanlie Leung.
The contents of this publication do not constitute legal advice and are for general information purposes only. You should seek legal advice regarding your particular circumstances.