By Russell Cocks, Solicitor
First published in the Law Institute Journal
Contracts for the sale of land often present a discrepancy between the title dimensions and the physical dimension on the ground. This problem has traditionally been dealt with by an IDENTITY condition in the contract.
Wollert Epping Developments P/L v Batten [2019] VSC 618 (Wollert) is the first case on the topic for some years and the first to consider the current standard identity clause, being General Condition 3 of the LIV/REIV contract in use between 2008 and 2019 and General Condition 7 of the LIV/REIV contract that was adopted in August 2019. As was said in Wollert, quoting from a previous judgment by Brooking J, identity clauses:
“had long been common in Victoria in contracts of sale of land under the TLA… since at least the middle of the century”.
The function of the identity clause is to chart a course between the rights of the vendor who is able to deliver title to the land and the rights of a purchaser who complains that the title does not comply with the dimensions of the land as represented by the physical boundaries, typically the fences.
The common law took a strict view in relation to dimensions and any small discrepancy entitled the purchaser to avoid the contract. Equity sought to ameliorate this harsh outcome and introduced the alternative remedy of compensation for deficiency. The standard identity clause prior to 2008 adopted this compromise by denying the right to avoid but allowing the possibility of compensation. Since 2008 the standard identity clause has denied the right to avoid and also denied a right to compensation. As explained in Wollert, by reference to an article by myself, this was justified by the fact that modern conveyancing is conducted under the auspices of s.32 Sale of Land Act and a purchaser has full details of the vendor’s title before entering into the contract and consequently has the ability to undertake a comparison of the occupational boundaries as against the title dimensions before committing to the purchase.
Wollert concerned the sale of valuable development land on the outskirts of Melbourne. The vendors were long-time farmers and the purchaser was a subdivisional developer. After signing the contract, the purchaser discovered an encroachment on one boundary. The title dimensions showed the land to be 58.1 ha. and the encroachment was approximately 500sm. or 0.92% of the area. The purchaser argued that this constituted a breach of the warranties in General Condition 2.3(c)&(e) concerning possession of the land and passing unencumbered title at settlement, and General Condition 10(1)(b) requiring delivery of vacant possession. The vendor argued that GC.3 prevailed over those warranties and that the discrepancy did not give rise to a right to avoid or claim damages.
The first point to be considered was whether the property was sold by title or sold by description. The contract referred to both the title description and the land description and if the sale was by description (rather than title) there was no misdescription as the property at the address in the contract was capable of being delivered. Wollert settled this argument by deciding that the sale was by title, not description. The second question therefore was how did the warranty conditions interact with the identity condition.
After a consideration of the law relating to identity clauses generally, Derham AsJ. concluded that the identity clause (GC.3) prevailed over the warranty conditions in circumstances where the “difference in the measurements of the land as shown in the Certificate of Title compared with the land as occupied by the Vendors is not of such consequence that it may be reasonably supposed that but for the error or misdescription the purchaser would not have entered into the Contract.” His Honour had previously referred to “the common law principle – the so-called rule in Flight v Booth, to the effect that a significant discrepancy will justify avoidance of the contract by the purchaser, and the associated ‘rule of thumb’ that a 5% or greater diminution in area is likely to be considered significant.”
It is fair to say that this judgment has settled a long-standing uncertainty in relation to measurement disputes in Victoria and has come down on the side of the identity condition adopted by the standard contract of sale. Notwithstanding the rise of consumer protection and the demand for vendor disclosure, the purchaser still bears a due diligence obligation in relation to the basic compliance between title dimensions and occupational boundaries. Only a ‘significant’ discrepancy will entitle a purchaser to avoid the contract.
Tip Box
- Identity conditions are common in contracts for the sale of land
- A discrepancy between title and occupation will not invalidate the sale unless significant
- As a rule of thumb a 5% discrepancy will be significant