Unfair Terms In Off-The-Plan Contracts

In November 2023 the Queensland Government made changes to the law which affects contracts and unfair contract terms. These changes broadly aim to prevent unfair terms in contracts by limiting the types of contracts in which these terms can be present, such as making unfair terms illegal when the terms of a contract are non-negotiable. The aim of reforming the law around unfair terms is protecting consumers from these unfair terms where contracts are given out on a standard basis, rather than being specially negotiated between parties. However, contracts can still be considered standard form despite the parties being able to negotiate and vary the contract.

While unfair contract terms can be present in any contract, one such area where the Queensland Government determined that unfair contract terms were becoming problematic was when parties were purchasing property through off-the-plan contracts.

The recent changes will affect any new off-the-plan contracts which were signed after 22 November 2023. These changes will also apply to any contracts which were varied after that date. Varying a contract is when changes are made after a contract is initially signed which are presented in writing and agreed on by both parties.

What is an off-the-plan contract

Off-the-plan contracts are a type of property contract which can be signed for the purchase of unregistered vacant land, or before construction of a townhouse or unit is completed, and the lot has yet to have title created over it. They can be appealing for buyers as the time to settle (and hence pay the purchase price under the contract) is further in the future. This allows for a larger window for financial planning around such a significant purchase. For a more detailed explanation of this type of contract, see the article Should I Buy a House Off-the-plan or Not? | ABKJ Lawyers.

Buyer risks

The Queensland Government has identified the following prevalent risks to buyers regarding off-the-plan contracts:

The buyer has purchased the property before seeing the result.
There can be unexpected delays in the building process.
The market price of the property can change between entering the contract and upon settlement of the contract.
Standard clauses in the contract can allow the seller to cancel the contract. These are known as sunset clauses.

There has always been risks for both parties when entering any contract. However, the risks for buyers in off-the-plan contracts became particularly apparent in Queensland after the COVID-19 pandemic and subsequent price increase in the property market. According to the Queensland Attorney-General, following COVID and the industry challenges the pandemic presented, there was a spike in occurrences of developers invoking sunset clauses to cancel off-the-plan contracts and sell the contracted land at a higher price than was considered in the original contract. Because of occurrences such as these, reforms by the Queensland Government focused on adding protections for the buyer to prevent this from happening.

Sunset clauses

Sunset clauses were identified by the Queensland Government as a high risk to buyers because sellers had freedom to terminate the contract for broad reasons. However, recent changes to laws by the Queensland Government have increased the security of buyers when entering off-the-plan contracts.

Vacant Land:

Introduced in November 2023, amendments to the Land Sales Act 1984 (QLD) by the Queensland Government increase buyer security over the purchase of vacant land by limiting the reasons for which a seller can terminate an off-the-plan contract. Sunset clauses over the purchase of vacant land can be in effect for up to 18 months after the contract is formed. Under the new changes, sellers can only cancel an off-the-plan contract via the sunset clause if any of the the following requirements are met:

The buyer has given their written consent to the cancellation.
The Supreme Court has ordered the seller to cancel the contract.
A separate regulation allows termination under sunset clauses, and the Minister is satisfied this allowance provides sufficient buyer protection.

Townhouses and Units:

The changes mentioned regarding the purchase of vacant land have not yet been applied to the sale of proposed townhouses or units. As such, these sales are still regulated by the Body Corporate and Community Management Act 1997 (QLD) (‘BCCM Act’), which provides the sunset date windows. The BCCM Act states that sunset clauses can be invoked by buyers if the off-the-plan contract is not settled before the date stipulated in the contract. If there is no date specified in the contract, the BCCM Act provides for a sunset date of 3.5 years after the contract date. However, this sunset date can be extended to up to 5.5 years after the contract date. While the BCCM Act specifically provides buyers the power to terminate the contract after the sunset date, often these contracts are written to also allow the seller to terminate the contract after this date.

Because the reforms to the Land Sales Act 1984 (QLD) have not yet been applied to the BCCM Act, if the seller terminates an off-the-plan contract for the sale of a townhouse or unit under the sunset clause, the way for buyers to seek remedy is by testing if the sunset clause was unfair. This test for unfairness is provided for in the Australian Consumer Law.

Generally, the Australia Consumer Law identifies unfair terms as:

terms which create a significant imbalance in bargaining power between the parties;
which are not reasonably necessary to protect the interest of the party; and,
which would cause detriment to the party if they were relied on.

Therefore, even if a sunset clause creates an imbalance in bargaining power, it may still be permitted if it operates to protect the legitimate interests of the developer. This is because the termination of a contract under sunset clauses may be necessary for protecting the developer from major financial risks.

Deposit access

The recent reforms also increased buyer protection by confirming that sellers only get access to the deposit paid on a contract after the contract is settled or finalised.

Penalties

Previously, unfair contract terms did not attract penalties and were just deemed void or unenforceable under Australian Consumer Law if a court found a term to be unfair. Now, penalties can be imposed for non-compliance. Developers now need to take more care to ensure unfair contract terms are not included in their standard form off-the-plan contracts as they may be exposed to severe penalties for non-compliance. These penalties can be imposed by both the Australia Competition and Consumer Commission and Australian Securities and Investment Commission.

Conclusion

While the recent reforms have helped protect buyers by limiting when the seller can terminate their contract and access their deposit, there are still risks for buyers when buying property through off-the-plan contracts.

Developers preparing new off-the-plan contracts or varying an existing contract should consider reviewing their standard terms and conditions to ensure they do not include any unfair contract terms to avoid the possibility of incurring any significant penalties.

The Queensland Government also plans to review these changes to the law after 2 years, to assess whether further changes need to be made.

To see how the recent changes and any future changes may affect your contract, or to get advice on how to best protect yourself when signing an off-the-plan contract, contact the experienced property department at ABKJ Lawyers.