Can a purchaser rescind on an off the plan contract?

The recent decision of the Supreme Court of Victoria in Burger & Ors v Longboat Holdings Group2 Pty Ltd [2021] VSC 469 has found that a reduction in size of an “off the plan” lot of less than 5% may, in certain circumstances, ‘materially affect’ the lot in question, entitling the purchaser to rescind the contract. This means that the commonly accepted position that a ‘variation of 5% or less in the size does not materially affect the lot’ may no longer apply in circumstances where the reduction in useability and utility is found to materially affect a lot. For example, in the Burger decision, the Court considered that changes to the size and shape of the master bedroom, reductions in available natural light and a change in the size and location of one of the car parking spaces all constituted a change that ‘materially affected’ the lot notwithstanding that the total reduction of the size of the lot was only 4.39%.

This case highlights the importance of developers having progressed plans prior to going to market to reduce the risk of changes having material affect on the development lots giving rise to rescission rights. In circumstances where changes are unavoidable, developers should be aware of the potential rescission risks and flow on impacts on financial arrangements, resulting in reductions to total presales amounts and potential breaches of conditions of the developer’s development finance. While this is not necessarily the end of the 5% market tolerance for all variations, it is a timely reminder to consider the practical implications of changes to a plan of subdivision.

Despite the fact that this is a Victorian decision, NSW Courts may give weight to this decision when determining whether a purchaser is ‘materially affected’ by a lot reduction to an extent entitling the purchaser to rescind the off-the-plan contract.

If you have any questions regarding the above or would like further information please contact our Property Team on (02) 4927 2900.