Off the plan sales and changes to the property

Can the purchaser of an apartment off the plan terminate the contract because the carspace allocated to the lot contained a PWD symbol?

Perhaps surprisingly the issue was recently considered by the Supreme Court of New South Wales[1].  The decision provides a useful reminder of the principles which apply to variations between contract and settlement.

In August 2015 Mr Smogurzewski entered into a contract to purchase an apartment (lot 107) in Meadowbank, west of Sydney, off the plan for $720,000.  He paid a 10% deposit.  The contract provided that the apartment would have a carspace in a location to be determined at the seller’s discretion.

The planning scheme

The City of Ryde Development Control Plan 2014 required the development to comply with the Commonwealth Disability (Access to Premises – Buildings) Standards.  Consistent with this requirement, when the development approval was issued in December 2015, the development was required to include 42 Class A adaptable units as specified in AS4299 in the development.  A Class A adaptable unit is required to have at least one PWD carspace – the standard sets out various minimum dimensions and clearances designed to ensure PWD carspaces are large enough to enable a person with a wheelchair to get in and out of both the car and the parking space.  The standard also requires PWD parking spaces to be identified with a PWD symbol but goes on to provide that this does not apply for a privately owned PWD carspace associated with a single residence and intended primarily for use by the occupants of that residence.

Lot 107 was constructed as an adaptable unit and, although the standard did not require it, the carspace allocated to lot 107 was marked with a PWD symbol and the unit number.  The buyer objected on the basis that, because of the PWD parking symbol, it was likely that a visitor to the carpark would believe the space was available to anyone with a disability.  He therefore argued that in reality he would be deprived of exclusive use of the carspace and that this amounted to a substantial and material departure from the terms of the contract entitling him to rescind, which he did.

The buyer commenced proceedings, seeking recovery of the deposit.  He also claimed relief under the Australian Consumer Law alleging reliance on misrepresentations by the seller that Lot 107 would be provided with a dedicated carspace for his exclusive use and for the failure to disclose that the lot was to be constructed as an adaptable unit.

The legal principles applying to variations

Justice Darke summarised the development of the law with regard to discrepancies between the description of the property in the contract and the actual property:

The fundamental duties of a seller are:

• to produce property corresponding substantially in all respects with the description contained in the contract; and
• to transfer legal title in the property to the buyer on completion;
• at common law, any difference, however trivial, between the land described in the contract and the land produced constituted a defect which entitled the purchaser to rescind;
• the Courts of Equity introduced the principle of compensation for deficiency – unless the deficiency was so substantial as to give the purchaser something entirely different from what was contracted, equity would require the buyer to complete subject to an appropriate adjustment of the price as compensation for the deficiency;
• conversely, under the rule known as the rule in Flight v Booth, in the absence of fraud, where the property is misdescribed in a material and substantial particular so that the buyer would not have entered into the contract had it known of the misdescription, the buyer is entitled to rescind the contract;
• the rule in Flight v Booth can only be ousted by very clear words or very clear implication.

Did the buyer have exclusive use of the carspace?

Applying these principles, Justice Darke found that:

• the buyer, had he settled, would have been legally entitled to the exclusive right to use of the lot and the carspace;
• the risk that holders of a disabled parking permit would park in the carspace was small: access to the basement carpark was controlled by a security system so only residents or persons authorised by residents could access the carpark. In addition, there were a number of visitor parking spaces on the level above and the carspace was marked with the unit number indicating it was not available for others;
• the risk could be readily eliminated by the buyer painting or covering over the PWD symbol;
• even if the presence of the PWD sign amounted to a discrepancy it was not substantial; and
• the Buyer was therefore not entitled to rescind the contract under the rule in Flight v Booth.

It also followed that the seller had not falsely represented that the buyer as the owner of the lot would have exclusive rights of possession and use of the carspace.

Failure to disclose

With regard to the claim of misrepresentation for failing to disclose that Lot 107 would be an adaptable unit:

• it had not been established that there was any significant difference between the apartment shown on the contract plans and the lot identified on the registered strata plan;
• the seller made no representation at all about whether proposed Lot 107 might ultimately be constructed as an adaptable unit. It was silent about that matter;
• both parties were in a position (because of the planning scheme) to appreciate that the proposed lot might ultimately be constructed as an adaptable unit; and
• therefore in the absence of any enquiry by the buyer, the seller was not required to volunteer any information about the matter and therefore the seller’s silence did not amount to misrepresentation.

Whilst the facts of the case are somewhat unusual, the principles apply equally to any discrepancy between the property described in the contract and the as constructed property.  In Queensland, apartment developers must also run the gauntlet of Chapter 5 of the Body Corporate and Community Management Act 1997.  This imposes a lower threshold (a “material prejudice” test) but has a more limited application with respect to changes to the apartment itself.

The decision also serves as useful reminder that in some circumstances (although not in this case) a failure by a seller (or its agent) to disclose some material fact about the property could give rise to rights under the Australian Consumer Law.