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Client Update: Queensland strata law changes require developer action

12 April 2011

In brief: Changes to Queensland's Body Corporate and Community Management Act 1997, which commenced on 14 April, relating to lot entitlement methods of calculation and the disclosure of those to buyers will have an immediate impact on disclosure documents. The changes affect the sale of both off-the-plan lots and registered lots in a community titles scheme. Partner Tony Davies (view CV) and Lawyer Mark Steele look at how these legislative changes will affect developers.

Existing off-the-plan buyers

Assuming lot entitlement for lots will not change (and our preliminary advice from body corporate consultants is that they will not change), nothing is required immediately. This is because all that will change is explanations contained in the Schedule A of the Community Management Statement (CMS) as to the basis of lot entitlement calculations. It appears that this will not trigger the need for a further statement. In any event, even if our view is challenged (ie it is claimed a further statement must be given), the test for termination of a contract by buyers is material prejudice. Our view is that so long as lot entitlements do not change, it would be very unlikely to claim material prejudice just because words of explanation were not disclosed to existing buyers.

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Future off-the-plan buyers

Disclosure Statements (including the CMS attached to them) should be updated to include the new explanations relating to calculation of lot entitlements. If developers have pre-printed stocks of disclosure statements, these will need to be updated (old stock must not be used).

This category also includes buyers who have been issued with contracts where those contracts have not been signed by the seller.

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Registered lot buyers

Where developers are selling lots in an existing scheme, the disclosure statement must now refer in more detail to the method of calculation of lot entitlements and also have a copy of the existing CMS attached to it.

Where a new CMS is recorded before settlement of a contract, a copy of that new CMS must be given to the buyer within 14 days (or a longer period agreed to by the parties) after it is recorded. This may be particularly relevant to schemes being staged given a new CMS must be recorded for each stage.

The consequence of failure to give a copy of the new CMS is that a buyer may terminate the contract if it can prove material prejudice.

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Plain English

The explanation relating to the lot entitlement method of calculation must be:

  • written in plain English; and
  • simple enough, and only as detailed as is necessary, for an ordinary person to understand the explanation or details.

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New Form 14 (BCCM Information Sheet)

As a consequence of the changes a new Form 14 will be required to be attached to contracts. It will be essential that this is used on all future contracts from the date the law commences.

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Consequences of failure to comply

If a disclosure statement (including the new requirement to refer to methods of calculation of lot entitlement) is not given to buyers, they may terminate their contracts but it would appear any termination right is subject to proving material prejudice.

Despite what we say in the above paragraph, a failure to include required lot entitlement explanations in the CMS could arguably mean the disclosure statement is not substantially complete, as distinct from being inaccurate. If a court held the disclosure statement was substantially incomplete that would give a buyer an automatic right of termination without having to prove material prejudice.

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What you will need to do

Developers need to:

  • review all contracts, disclosure statements and CMSs and update them to comply with the new requirements once they become law; and
  • ensure any contract documents submitted to buyers which have not been entered into before the amendments commence, are replaced with compliant contract documents.

For further information, please contact:

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