When off the plan goes 'off plan'

What happens if what you purchase 'off the plan' doesn't match what's promised in the contract?

In the recent New South Wales Supreme Court decision of Victorsen v Easy Living Holdings Pty Ltd [2019] NSWSC 1721, the buyers of an off the plan property successfully rescinded the contract of sale based upon the rule in Flight v Booth[1], where the property as built was materially and substantially different from that which the seller promised to deliver.

Around 19 June 2017, Mr and Mrs Victorsen entered into a contract of sale with Easy Living Holdings Pty Ltd to purchase an off-the-plan property in Miranda, New South Wales for $1.31 million. The property formed part of a development of nine townhouses being constructed at the time. Prior to entering into the contract, the buyers met with Peter Green, the sales agent, who introduced them to "the owner and builder" Mr Estephan Daccour, a director of the seller. After looking through a number of other lots at the development, the buyers advised Daccour that those properties were too small as they needed a yard for their 18-month-old son to play in.

Daccour then proceeded to show the buyers the subject property, which was described as Lot 9 where he allegedly explained to the buyers that the property would have a grassed area at the front and side of the dwelling, and would have plenty of room for a cubby house and grass for their child to run around on. In addition, the buyers deposed they'd also been advised by Daccour that there would be a pantry in the kitchen and a bath would be installed in the main bathroom of the property. At trial, Daccour deposed that he didn't recall any conversations in relation to the yard, the pantry or the bathroom of the property.

Additionally, a floor plan was provided to the buyers which indicated that the property had an outdoor area at the front of the property described on the plan as "POS," or private outdoor space, which was to be covered by turf or lawn. The buyers alleged that based upon the representations made by the seller, and the information provided by the sales agent, they entered into the contract to purchase the property.

The contract of sale for the property relevantly provided at Special Condition 9 that the buyers were not entitled to make any objection or claim for compensation in respect of: "any minor variations (being a reduction of 5% or less) as regards to the subject lot or lots hereby sold which may be required by any statutory authority or by the Registrar General...provided that if any such alteration, variation or discrepancy is other than minor the Purchaser...shall elect within 14 days...whether to complete the Contract on the terms set out herein or whether to cancel the Contract...and accept a refund of the deposit paid...Should the Purchaser...not so elect to cancel the Contract...then he shall be deemed to have waived such right of cancellation...and shall not be entitled to rescind..."

In late September 2017 at an inspection of the property, the seller alleged he'd shown the buyers the "beginning" of an on-site storm water detention tank which had been shifted into the lawn area of the property. The OSD tank was a shared facility with the other lots in the development and would require occasional access to the property. Daccour deposed the male buyer didn't react unfavorably to this discovery. He also suggested there was a further discussion about the possibility of installing artificial grass or a timber deck on top of the OSD tank.

The buyers denied they had any conversations with Daccour in relation to the OSD tank. Rather, the buyers gave evidence that they attended the property on 24 October 2017 and noticed there was reinforcement mesh in the lawn area of the property, which indicated there was to be concrete poured at a level higher than the adjacent tiled area. This would preclude the buyers' ability to put lawn over the top of the concrete. The buyers subsequently contacted Daccour to ask if he could leave 70mm below the adjacent tiled area so that they could install artificial grass in the lawn area.

After receiving no response from the seller, the buyers retained a building inspector who inspected the property and advised them that the OSD tank had been installed in the lawn area, above the adjacent tiled area, and that there were four metal access grates on the roof of the OSD tank. The buyers advised the seller they hadn't agreed to the installation of the OSD tank within the boundaries of the property.

In mid-to-late November, the seller offered the buyers a Deed of Mutual Rescission along with a full refund of their deposit. The buyers agreed to the offer on the basis that the seller also reimburse them for the money they had spent on installing blinds in the property and the interest earned on the deposit monies. The seller didn't accept the buyers' counter-offer, and a deck was subsequently built on top of the OSD tank. The buyers later declined to proceed to completion of the contract.

Ultimately, the buyers claimed the property as it was built was materially and substantially different from what was promised or represented to them by the seller - the lawn area was adversely affected by the OSD tank and the kitchen and main bathroom hadn't been constructed in accordance with the requirements of the contract. The buyers asserted they were entitled to a rescission of the contract based upon the common law principles set out in the decision of Flight v Booth, or alternatively, based upon the Australian Consumer Law.[2] The seller denied that the buyers were entitled to rescind the contract and cross-claimed against the buyers for specific performance of the contract.

The Court considered the rule in Flight v Booth which states, inter alia that where there is misleading description of a property on a material and substantial point, affecting the subject matter of the contract, so that it may be reasonably supposed that, but for the mis-description, the buyer might never have entered into the contract at all. In such cases, the contract is voided altogether and the buyer is not bound to rest to claiming compensation. That is, in that situation, the buyer is considered not to have entered into the contract at all.[3]

The Court also considered that the authorities set out in Vella v Ayshan[4] illustrated the operation of the principle in relation to the sale of land. In summary, the Court in that decision held that the description of a property was an essential term of the contract and a buyer was entitled to reject the property on any substantial difference in the property and its contractual description. The Court confirmed that "substantial" in this context does not mean large; it means something of substance rather than merely nominal.

The seller's submission was that any discrepancy between its promises and the finished property were merely nominal, not substantial and the evidence didn't show that the existence of a grassed outdoor area was of such significance to the buyers that they wouldn't have entered into the contract had they known it wouldn't be included. As such, the Court held that the relevant subject matter of the contract, that is, the promises of the seller, should include the relevant plans provided to the buyers in lieu of any description of the house to be built within the contract of sale. The plans showed the approved OSD tank as being partly beneath the lawn area, but with all access grates being outside the boundaries of the property.

The Court further held that the buyers had established a right of rescission based upon the principles in Flight v Booth as the change in the location of the OSD tank resulted in the seller not providing the outdoor area as promised. And, the change in the OSD tank's location caused practical consequences such as the need for an easement to access the OSD tank.

The Court therefore held that these discrepancies were a matter of substance to the sale; giving the buyers something entirely different to what they contracted to acquire. The Court noted that had the buyers known the outdoor area wouldn't contain a grassy area for their child to play in, they would likely not have entered into the contract and it therefore considered that the buyers were entitled to rescind the contract. The deposit, interest and costs were awarded to the buyers.

It's of course best practice to include accurate and up-to-date information in all marketing material distributed to prospective buyers of off the plan properties. Sales agents selling off the plan properties should act as a mere conduit of the information provided by their developer client and must not put their own "spin" on the information being provided or attempt to interpret what the finished product may look like. In addition, sales agents should ensure that any and all discussions and representations made to prospective buyers are appropriately file noted in order to document what information has been conveyed. Prospective buyers should also be encouraged to undertake their own due diligence enquiries and seek expert advice before entering into a contract to purchase an off the plan property.

[1] (1834) 1 Bing (NC) 370.

[2] Competition and Consumer Act 2010 (Cth), Schedule 2 ('Australian Consumer Law').

[3] Flight v Booth per Tindall CJ.

[4] [2008] NSWSC 84 [73]-[75].

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