Unit Titles Act 2010 Developers and Disclosure
The impact of the Unit Titles Act 2010 on developers
Disclosure requirements in general are introduced in a previous blog. What follows is an analysis of the specific implications for developers and the additional “turnover disclosure” that is relevant when a development is completed.
Pre-contract disclosure requires an analysis of process and an understanding of the nature and complexities of unit title ownership. It is expected to be general rather than specific to a development and is unlikely to create a requirement for developers to have all development documentation finalised before a contract is created.
The pre-settlement disclosure requirements are likely to be different though.
Because a pre-settlement disclosure statement must include a certificate from the body corporate certifying it is correct, and because the body corporate does not come into existence until the unit title plan is deposited, pre-settlement disclosure cannot be made until very close to settlement.
Although a buyer may delay settlement or cancel the agreement if the pre-settlement disclosure requirements are not met the legislation does not give a purchaser the right to cancel an agreement if they receive the information but are not satisfied with it. That arrangement will need to be created by contract and no doubt agreements will be requested by purchasers that are conditional on the purchaser approving the pre-settlement disclosure information provided.
A developer cannot contract out of the obligation to provide the information but they will be able to negotiate whether the purchaser can cancel if they are not satisfied with what is provided.
If purchasers start to make their contracts conditional on approving the pre-settlement disclosure documents or if purchasers’ lenders do the same with their finance offers, the risk to developers will be significantly increased. To manage the risk a likely outcome is that some form of disclosure will be put into agreements (or delivered in some other way) and a condition will be imposed that only allows the purchaser to refuse approval if the pre-settlement disclosure is significantly different from the information provided earlier.
Just what pre-settlement disclosure will be is yet to be finalised but on current information it is likely to include information about:
• the contribution required from the owner to the body corporate;
• operational body corporate rules; and
• details of the long term maintenance plan.
To manage the developer’s risk that information will need to be sufficiently developed at the time the agreement for sale and purchase is signed.
A buyer can ask for additional information to be disclosed by the developer in limited circumstances. The legislation refers to one request only and the timeframe imposed for such a request is short. Unless there is a short settlement date additional information must be asked for within the 5 working days after the agreement is signed. If there is a short settlement date the time period within which the request is to be made is ever shorter.
The purpose of the additional disclosure requirement is to enable the purchaser access to body corporate records about management, finance and governance. With a pre-sale contract the body corporate will not exist 5 working days after the agreement is signed and very limited disclosure information will be available, perhaps only ground lease terms.
A developer, as the original owner of a unit title development, must provide “turnover disclosure”. It is information that must be given to the body corporate at the stage the developer (or associates) no longer have control over 75% of the voting power within the body corporate. That control could arise through ownership, by the giving of proxies or by some contractual relationship.
Once that control is relinquished the developer must notify the body corporate that the control period has come to an end. The body corporate must hold a meeting within 3 months of that notice and at that meeting the developer is required to provide a further layer of information. Regulation will prescribe exactly what that information will be but it is likely to include:
• As built plans and specifications
• Asset schedules
• Code compliance certificates
• Maintenance schedules
• Warranty and guarantee details
• Fire evacuation plans
• Building warrant of fitness
• Maintenance and service contracts
• Details of any direct or indirect interest the original owner has in a contract or arrangement made by the body corporate