BY LAWYERS CONTRACT OF SALE OF LAND (VIC) – INCLUDING s 32 VENDOR STATEMENT

Russell Cocks and By Lawyers have come together to release a new form of Contract of Sale of Land in Victoria which is available to LEAP users who take up the By Lawyers companion product and also by subscription to the By Lawyers website for non-LEAP users. This new contract is intended to make standard conveyancing in Victoria more efficient by smoothing the bumps in the conveyancing highway arising from shortfalls in the existing standard contract.

Russell is ideally placed to make these changes having been one of the authors of the standard contract over the last 25 years. Russell was largely responsible for the substantial changes achieved in the 2008 review of the standard contract and sees this NEW CONTRACT as a culmination of the desire to achieve efficiency in the standard conveyancing process. The advent of electronic conveyancing makes this the perfect time to make these changes.

First, a word about the ‘standard’ contract. For decades, a committee of the Law Institute of Victoria provided the Victorian government with a form of contract that was adopted in Regulations as the form of contract to be used by real estate agents if the proposed contract was not provided to the real estate agent by a solicitor or, more recently, a conveyancer. In practice, most contracts are provided to agents by solicitors and agents and, by and large, those contracts are in the standard form because that form has been adopted by the various proprietary software providers. The Law Institute of Victoria and Real Estate Institute of Victoria both produce a version of that contract, for which they charge, but it is the format, rather than the content, that is subject to copyright.

In September 2018 the Law Institute contract became more confusing. Because the LIV form must be based on the regulated form, the LIV cannot change any of the 28 General Conditions. So, the LIV contract now has 28 General Conditions and 12 Special Conditions, some of which in fact change the General Conditions. The NEW CONTRACT simply has 28 General Conditions, although users are entitled to introduce additional Special Conditions, but not such as to derogate from the General Conditions (see below).

The guiding principle for the successive authors of the LIV standard form has been EVENHANDEDNESS – a awkward word but nevertheless a perfect description of the desire for the contract to treat the vendor and purchaser EQUALLY. Give that it is usual practice for the vendor to prepare the contract it would be open to the vendor to produce a contract that unfairly favours the vendor to the detriment of the purchaser. This would lead to inefficiencies, with the purchaser having to negotiate a whole raft of unfair terms before even considering signing the contract. A standard, widely accepted contract avoids these inefficiencies and the NEW CONTRACT will honour those principles.

Another efficiency associated with a standard contract is that all participants in the conveyancing process know what the standard contract says. The 2008 contract sought to enshrine this principle by forbidding amendment of the General Conditions otherwise than by Special Condition so that unexpected changes could not be inserted into the General Conditions. This was achieved by the inclusion of a warranty in the contract and has proven to be successful in preventing changes to the General Conditions. However, the ability to amend by Special Condition has led to a return to past inefficiencies caused by the inclusion of pages of Special Conditions and this is the first important change to be made by the NEW CONTRACT.

The warranty about changes to the General Conditions will be a NON-DEROGATION warranty. Special Conditions can be added to the contract but they cannot DEROGATE from the rights created by the General Conditions.

This will prevent the pages and pages of Special Conditions that have become common in recent years that are designed to remove General Condition 23, or General Condition 8, or change the penalty interest rate to plus 4%, or change the number of bank cheques to 10. Such Special Conditions are not really Special Conditions at all, they are just attempts by some participants in the industry to give their clients an unfair advantage. This exercise totally defeats the advantage of a standard form contract and robs us all of the efficiency benefits that a standard form provides. By agreeing to use the NEW CONTRACT you will acknowledge that you are satisfied that your vendor client is adequately protected by the General Conditions and that your purchaser clients are likewise protected.

In practice, these interminable Special Conditions are inconsequential as they usually address issues already addressed in the standard contract or else are only relevant if default occurs and then simply produce an argument about what the Special Condition actually means. For this so-called benefit, we have to wade through pages of guff and advise our clients about all sorts of unlikely outcomes, thereby losing the benefit of a standard contract. ENOUGH!

However, proper Special Conditions will be permitted. Provided that they do not derogate from the General Conditions, Special Conditions still have a role to play in the contract. These may address aspect of the transaction that are truly unique or special to a particular contract or it may be a set of Special Conditions that relate to a specific type of contract – such as an off the plan contract that will result in the creation of an owners corporation and the vendor wishes to deal with issues that will arise after registration of the plan, or a contract that requires the creation of a covenant. The intention is not to dumb down the contract, it is to remove the unnecessary guff that undermines the efficiency of a standard contract.

When you consider that 90% of contracts relate to residential or small commercial properties, any contract that creates unnecessary hurdles in that environment is an albatross around our collective necks. If we are to enjoy the efficiencies that electronic conveyancing will bring to our practices we must first get the contract in order. It is doubtful that large CBD firms who generate telephone book sized contracts for large off the plan apartment sales will adopt this NEW CONTRACT. But for that huge number of conventional transactions that make up the bulk of our work we need a contract that is fair to both parties, easy to explain to our clients and allows us to conduct conveyancing efficiently. The NEW CONTRACT of SALE of LAND will do that.

Moving from the general to the specific, the NEW CONTRACT will improve the process in the following ways:

VENDOR STATEMENT

It takes the logical step of putting the VENDOR STATEMENT before the CONTRACT.

This allows for a front page that the user can adopt to ‘brand’ the document with firm specific details, such as name and logo, to emphasise the role of the firm in preparing the document.

The vendor statement must satisfy the disclosure requirements of s.32 Sale of Land Act but there is room to prepare the Statement in such a way that irrelevant information is deleted.

This is achieved by a Summary Feature that automatically includes the compulsory information and allows for non-applicable options to be deleted. If there is no Owners Corporation or no Notice or GAIC is not applicable then these options are deleted from the form at the outset and those irrelevant parts “collapse” and disappear from the form. This produces a much more user-friendly VENDOR STATEMENT that satisfies all relevant disclosure obligations.

The form also includes some handy commentary about requirements relating to Owners Corporation Certificates and Owner Builder Insurance that will assist in satisfying those requirements, if applicable.

CONTRACT

The preliminary pages satisfy the various ‘notice’ obligations and provide a convenient execution page.

1. PARTICULARS OF SALE

Allows for the relevant details to be set out in table form.

Reference to Foreign Resident Withholding is noted in ‘payment’ section.

Applicability of GST is addressed. The price is GST inclusive. If the vendor wishes to recover GST then the price must be increased to reflect the vendor’s GST liability.

Reference is made to GST Withholding obligations.

Settlement is to be on a nominated date. If it is an off the plan contract then settlement is to be 14 days after notification of registration and reference to the ‘sunset date’ is included at this point. The default period of 18 months is adopted but may be changed. The important point is that the actual date for registration is available in the PARTICULARS and it is not necessary to wade through interminable Special Conditions to locate the sunset date. The General Condition has been amended accordingly.

Standard provisions for LEASE and LOAN are included and a new provision for BUILDING/PEST REPORT is added.

Whilst reference is made to TERMS CONTRACT there are NO TERMS CONTRACT General Conditions and this rarity must be dealt with in Special Conditions.

2. GENERAL CONDITIONS

This is where existing practices that cause roadblocks in conveyancing have been identified and, hopefully, improved. The guiding principle has remained EVEN-HANDEDNESS so that the Conditions are, as much as possible, fair to both vendor and purchaser. 28 General Conditions have been retained so as to keep the NEW CONTRACT as close as possible to the familiar standard contract and changes have only been made where improvement was necessary.

3. WARRANTY

This is where the all-important non-derogation warranty is made by the vendor that the General Conditions comply with the then current copyright form of contract (2018 version at present) and that the General Conditions will prevail over any Special Conditions.

GC.1 to GC.5                     no changes.

GC.6                                     recognises the possibility of electronic settlement.

GC.7                                     introduces an abbreviated electronic settlement Condition.

Existing GC.7 relating to PPSR has been deleted. It is simply not relevant to 99% of standard transactions. The long electronic settlement condition usually added as a Special Condition has been abbreviated and inserted as GC.7.

GC.8                                      requires the vendor to produce builder warranty insurance, if applicable.

GC.9                                      introduces an Off the Plan Condition.

Existing GC.9 relating to General Law land has been deleted. Again, rarely applicable.

The Off the Plan Condition links back to the sunset date specified in the Particulars of Sale (default period of 18 months from contract unless otherwise specified). Also gives EITHER party, not just the purchaser, the right to terminate. This General Condition replaces the pages of Special Conditions that simply repeat the provisions of the Sale of Land Act.

GC.10                                  new obligation on vendor to provide keys at settlement. Settlement to be conducted between 10am and 3pm, rather than 4pm as at present.

GC 11.                                  formatting change.

GC.12                                   stakeholding. Substantial change.

Release of deposit is a huge roadblock in the efficient conduct of a conveyancing file. Unreasonable refusal is an enormous time waster. GC.12 provides that if there is no mortgage or caveat then, provided that loan approval has been obtained, there is no outstanding SPECIAL CONDITION benefiting the purchaser and no valid objection to title within 28 days, the deposit may be released.

If there is a mortgage or caveat, the vendor must provide satisfactory proof that the amount owing does not exceed 70% of the price, allowing for the possibility of FRCGTW, or 80% if the vendor provides a FRCGTW Clearance Certificate.

GC.13                                 GST

Whilst some changes to the wording have been made, the meaning and intent is maintained. The condition has been expanded to take account of the purchaser’s GST Withholding obligation.

GC.14                                    loan approval

The current condition creates unnecessary work for both vendor and purchaser and exposes purchasers to potential loss. Time for approval is extended from 14 days to the more realistic 21 days. This new condition allows for automatic extension of loan approval, subject to the absolute ability of the vendor to end the contract if an extension is requested.

A similar building/pest report condition is added. To avoid disputes, the purchaser must be satisfied with the report(s) or is able to end the contract. The purchaser has an unfettered ability to end the contract and the vendor must accept that the contract is NOT binding on the purchaser until 7 days have elapsed. However, this is a better option than the possibility of arguments about “major structural defects” as often arise now.

GC.15                                   adjustments

The current condition has been adopted with the addition of an obligation on the purchaser to provide copy certificates and provision for Foreign Resident Capital Gains Tax Withholding.

GC.16                                   time

The current condition is adopted, with the extra provision allowing the parties to agree in writing to extend or reduce the time for performance.

GC.17-20                             no change

GC.21                                    notices

Addition to confirm that the vendor is liable for compliance with notices served BEFORE the date of contract.

GC.22                                    lease

A new condition requiring the vendor to provide the purchaser with the original or an acknowledged copy of any lease affecting the property.

GC.23                                   terms contract provisions deleted and replaced with existing GC.24

GC.24                                   abandoned goods

This new Condition passes ownership of abandoned goods to the purchaser.

GC.25                                    default

Perhaps the greatest waste of time in a conveyancing transaction occurs when one or other of the parties default in performance of the contract. Claim and counterclaim occur in a time-poor environment and additional costs are rarely recovered. This default condition allows for interest and limited costs to be claimed at settlement and postpones claims for other losses until after settlement.

GC.26                                    interest – no change

GC.27                                  default notice

A two-tier notice regime calls for a default notice as the first step with 7 days to remedy the default and specified costs of $440 on the notice.

GC.28                                    rescission notice

This follows if the default is not remedied and ends the contract after 10 days. Again, costs on the notice are specified at $440.

Consequences of ending the contract are in conformity with the standard contract.

SUMMARY

The most significant change effected by the NEW CONTRACT is the non-derogation principle whereby the General Conditions prevail over Special Conditions. This will result in a standard contract that will promote efficient conveyancing in the electronic environment.

Substantial improvements to deposit release, loan approval and consequences of default, together with improvements relating to off the plan sales, adjustments, leases and abandoned goods are designed to allow standard conveyancing files to be handled efficiently and cost effectively in the electronic environment.