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Purchasing off the Plan?  The new regulations of which you need to be aware

Purchasing off the Plan?  The new regulations of which you need to be aware

On 1 December 2019 the Registrar General of New South Wales set out new regulations for off the plan contracts, implementing greater disclosure requirements for vendors.

What is an Off-The-Plan Contract?

Under the Conveyancing Legislation Amendment Act 2018 an off the plan contract is defined as a contract for the sale of a residential lot, which at the time of entering into, has not been created.[1]

New obligations

As a new requirement, a Disclosure Statement by the vendor must be attached to the contract. The Disclosure Statement is a single page which provides additional details of the expected purchase of property, such as the completion date, whether development approval has been obtained and when the expected settlement date may occur.

Furthermore, the cooling-off period for off-the-plan purchases has been increased from five business days to 10 business days.

In addition, the deposit must be held in a trust account throughout the contract period and cannot be released prior to settlement.

Disclosure Statement Requirements

A registered surveyor must provide a draft plan which must display the area and number of the proposed lot as well as any relevant information to determine the location of the lot, any potential easement or restriction to the land, future schedule of finishes, and a s 88B instrument (which is the document forming part of the deposited plan creating easements, covenants, restrictions on the land, etc) – where applicable.

Additional for Strata Schemes

Where the lot is part of a strata scheme, further requirements include a draft floor and location plan, (it is not necessary to provide the location of storage and parking areas for any strata lots), draft by-laws and management statement as per section 99 of the Strata Schemes Development Act 2015 and draft building management statement (if applicable).

 Additional for Community, Precinct or Neighbourhood Schemes

Where the lot is part of a community, precinct or neighbourhood scheme, further requirements include a draft detail, community, neighbourhood, precinct and location diagram, development contract, and draft building management statement (outlining how shared facilities are accessed, maintained and funded).

 Consequences of no Disclosure Statement

If the off-the-plan contract does not have the preceding documents (being the Disclosure Statement, prescribed documents that apply and the draft plan) attached before the contract is signed, then within fourteen (14) days of exchange, the purchaser may rescind the contract.

Vendor’s Obligations

Vendors are now obliged to disclose to the purchaser any changes that occur to the original plans during the developing process (‘material particulars’ by way of a Notice of Changes approved form). Importantly however, this does not include the following changes: amended street name or lot number, costs being allocated in relation to building or strata management statements and changes to the location or inclusion of parking areas for lots.

Developer’s Obligations

It is the developer’s obligation to ensure a final registered plan is provided to the purchaser at least 21 (twenty-one) days before settlement.

Purchaser’s Rights to Rescind or Claim Compensation

Rescission of a contract may be applicable to a purchaser where no disclosure document was attached as set out above. Further, rescission or compensation may be applicable to a purchaser who can display that if changes of the material particulars were apparent at the time of entering the contract, that the particular change in question would have resulted in the purchaser not entering into the contract. However, the change must be one that makes the purchaser materially prejudiced by the change.

Additionally, if the final registered plan that the developer provides to the purchaser displays any changes which materially impacts the purchaser, then the purchaser may be entitled to rescind, or, within fourteen (14) of being provided the registered plan claim compensation.

Amended Sunset Clause

The new amendments include the further developed definition of the sunset clause (which allows the parties to terminate an off-the-plan contract should a certain event, like the registration of the plan, not occur by a specified date) to capture other events which trigger termination of the contract, like the issue of an occupation certificate, and confirm the power of the courts to awarded damages in the event the contract is terminated under a sunset clause.[2]

How can JHK Legal help?

If you are thinking to purchase a property off-the-plan and would like to know what are your rights in light of the recent changes in the law, please contact our office on 02 8239 9600 or by email at [email protected] to discuss how we may be able to assist you.

Written by Chiara Becattini

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[1] Conveyancing Legislation Amendment Act 2018

[2] As per section 66ZS of the Conveyancing Legislation (amendment Act 2018) the Court may award damages in relation to sunset clauses.

Marshalling: protecting your position as a subordinate secured creditor where a debtor becomes insolvent

You’re in the fortunate position of securing a debt with a registered mortgage over real property owned by your debtor. However, your mortgage is registered second in priority to that of a first registered mortgage in favour of another creditor. Your debtor becomes insolvent and the first mortgagee exercises its right of sale over the property against which your mortgage is registered. The proceeds of the sale pay a portion of the first mortgagee’s secured debt, with no surplus to cover your secured debt in full or in part and leaving you unsecured.

Fortunately, the law of equity will intervene in applicable circumstances to reduce any prejudice to subordinate creditors, by virtue of the equitable doctrine of marshalling. The doctrine of marshalling may also be applied to liens, charges and other forms of security – for the purposes of this article, we will focus exclusively on the application of marshalling in the context of mortgages as a form of security.

What is the equitable doctrine of ‘Marshalling’?

Marshalling is a principle which may be relied on by a second registered security holder in certain circumstances for further protection. In circumstances where the principle applies, the second registered security holder is able to access the security held by the first registered security holder, with respect to another security interest, rather than lose its security altogether.

Context within which the doctrine of marshalling will apply

The doctrine is best demonstrated with a working example, as follows:

  1. Parties and Properties:
    • Debtor is a common debtor of Entity A and Entity B.
    • Entity A has a first ranking mortgage over two properties owned by Debtor: Property A and Property B.
    • Entity B has a second ranking mortgage over Property A, only.
  2. Debtor becomes insolvent or is otherwise in default of an agreement with Entity A.
  3. Entity A decides to exercise its power of sale with respect to Property A, being the property the subject of a common interest between Entity A and Entity B.
  4. The proceeds of the sale of Property A do not discharge the debt owed by Debtor to Entity A, i.e. there is no equity in Property A.
  5. Accordingly, Entity B loses its security in Property A – what’s next for Entity B?

In this example, the law of equity will intervene to ensure Entity B is not prejudiced by a decision of Entity A to exercise its power of sale over the property of its choice. In applying the doctrine of marshalling, Entity B is subrogated to Entity A’s mortgage over Property B for enforcement purposes – Entity B, through the doctrine of marshalling, will take the security position of Entity A, the first ranking mortgage.

Does the doctrine of marshalling apply?

In determining whether a subordinate secured creditor has a claim to the doctrine of marshaling, close consideration must be applied to the following:

  1.  In most circumstances, whether there is a common debtor between the first ranking secured creditor and the subordinate secured creditor (though, exceptions to this rule apply);
  2. Where there is a legally binding agreement between the debtor and the first ranking secured creditor to sell the common property; the subordinate secured creditor’s right to marshal may be extinguished;
  3. A secured debt must be owing to the subordinate secured creditor as at the time the common property is sold by the first ranking creditor.

Recent case law: Burness v Hill [2019] VSCA 94 (“Hill”)

The recent decision in Hill provides practical commentary on the considerations the Court will have with respect to a creditor’s claim to marshal securities.

Key Facts:

  • A solicitor, Mr Hill, was representing Mr Love in a complex litigation matter;
  • In order to secure payment of his legal fees with respect to the litigation matter, Mr Hill registered a second mortgage over Property A, owned by Mr Love
  • The Commonwealth Bank of Australia (the “CBA”) already had a first mortgage registered over Property A, and first ranking mortgages registered over various other properties owned by Mr Love
  • Mr Hill commenced legal proceedings in the County Court of Victoria against Mr Love and obtained Judgment by way of a clause in a Deed of Settlement providing Mr Love’s consent to Judgment.
  • Mr Love was made bankrupt pursuant to a sequestration order and a Trustee was appointed to his bankrupt estate
  • Mr Hill later commenced proceedings in the Supreme Court of Victoria for the purposes of evoking the marshalling doctrine and stand in the shoes of the CBA in order to discharge the debt owed by Mr Love to Mr Hill

The Supreme Court of Victoria (SCV) Decision:

His Honour Sifris J. of the SCV held that Mr Hill was entitled to marshal the CBA’s security with respect to property over which Mr Hill did not have security, thereby subrogating to the CBA’s first ranking mortgage to the extent of the debt secured by Mr Hill’s original, second ranking mortgage.

The property over which Mr. Hill did not hold security was sold by the CBA

The Position of the Trustee of the Bankrupt Estate of Love

On appeal by the Trustee in the Court of Appeal, the Trustee contended that the marshalling doctrine could not be applied to the current factual scenario and made the following submissions:

  1. at the time of sale of the common property, the consent Judgment in favour of Hill had not been entered and therefore was not secured by the mortgage registered over the common property
  2. between the CBA and Mr Love, it had been agreed that the properties would be sold in a particular order; the common property was coincidentally the first to be sold pursuant to the agreement;
  3. the terms on which the County Court proceeding against Mr Love was settled extinguished Mr Hill from enforcing his right to marshal;
  4. Mr Hill’s claim was estopped pursuant to the principles established in Ashun[1].

The Court of Appeal (CoA) Decision:

In reaching its final decision, the CoA considered the elements of the doctrine of marshalling, which provides that a creditor is entitled to marshalling where:

“…(i) his debt is secured by a second mortgage over property (‘the common property’),

(ii) The first mortgagee of the common property is also a creditor of the debtor,

(iii) The first mortgagee also has security for his debt in the form of another property (‘the other property’),

(iv) the first mortgagee has been repaid from the proceeds of sale of the common property,

(v) the second mortgagee’s debt remains unpaid, and

(vi) the proceeds of sale of the other property are not needed (at least in full) to repay the first mortgagee’s debt.

In such a case, the second mortgagee can look to the other property to satisfy the debt owed to him[2]”.

The CoA further held:

  1. securities with respect to fluctuating debts may be marshalled, even in circumstances where following the sale of the security property, the debt increases;
  2. the terms of settlement did not extinguish Mr Hill’s right to marshal as the debt continued to exist
  3. the factual scenario need not establish that the first mortgagee’s decision to sell the common property was arbitrary or capricious – that is, even in circumstances where there is perceived arrangement (which is non-binding) between the debtor and first mortgagee to sell the properties in a particular order, marshalling may still apply.
    (NB: For the sake of completeness, in the event there is a binding arrangement between the debtor and first mortgagee, a claim to marshal security will not be available to a subordinate secured creditor.)

How can JHK Legal help?

The equitable doctrine of marshalling is an extremely useful tool for subordinate creditors when faced with the insolvency or otherwise default by a debtor. It is important that creditors are aware of the circumstances in which their ability to marshal securities may be extinguished and how to avoid this.

If you require further information with respect to the doctrine of marshalling, or if you are seeking tailored advice as to your current security position with respect to your debtor(s), please contact our office on
03 9927 3600 or by email at [email protected] to discuss how we may be able to assist you.

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Written by Kathryn Koutoulas

[1] Port of Melbourne Authority v Anshun Pty Ltd [1981] HCA 45

[2] National Crime Agency v Szepietowski [2014] AC 338.