ByLawyers News and Updates

Inspection – Right to inspect

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By Russell Cocks

First published in the Law Institute Journal

Contracts for the sale of land are known as executory contracts, as there is a time delay between entering into the contract and final performance. Consequently, the condition of the property may change between contract and settlement and the contract will usually give the purchaser the right to inspect the property as settlement approaches.

The right to inspect the property prior to settlement has been General Condition 22 of the LIV. contract of sale since 2008 but is General Condition 29 of the 2019 version of that contract and provides:

The purchaser and/or another person authorised by the purchaser may inspect the property at any reasonable time during the 7 days preceding and including the settlement day.

This General Condition was the subject of close examination in the case of Mediratta v Clark [2019] VSC 685. The purchaser failed to settle and the vendor rescinded. The purchaser claimed that the vendor was not entitled to rescind as the vendor:

  • was in breach of GC 22 by refusing to permit the purchaser and/or a nominee of the purchaser to inspect the property; and
  • was in breach of an implied term by refusing to permit a valuer authorised by the purchaser to inspect the property.

The contract provided for an extended settlement period of 14 months but the purchaser, who had paid a 5% deposit, had not accepted the vendor’s invitation to complete the Duties Online form, had not submitted a Transfer (paper settlement), nor a statement of adjustments. Days from settlement the purchaser requested an extension, which was denied. In those circumstances, the vendor refused to provide the agent with keys to allow the purchaser to inspect the property.

On the day that settlement was due the agent requested keys to allow a valuer to inspect the property. The vendor refused and issued a Default & Rescission Notice alleging failure to deliver the Transfer at least 10 days before settlement (GC 6) and failure to settle (GC 28). The vendor allowed the valuer to inspect within the 14-day default period but settlement did not take place prior to the expiration of the default period and the vendor regarded the contract as terminated. The purchaser requested an inspection after the expiration of the default period, but the vendor refused on the basis that the contract had been terminated and refused subsequent attempts to arrange a settlement.

The court considered the meaning of GC 22. The purchaser argued that the condition was wide enough to allow the purchaser to nominate a valuer to inspect the property for the purpose of obtaining finance. The vendor argued that the purpose of the condition was to allow the purchaser to establish whether the property was in ‘the state commensurate with the Vendor’s contractual obligation’. Derham AsJ traced the history of GC 22 and concluded that its purpose GC 22 is to allow a purchaser who is ready, willing and able to complete the contract to inspect the property for the purpose of being satisfied as to the condition of the property. It is not available to a purchaser who is not in a position to settle on the settlement day, nor for the purpose of valuation, particularly when the contract is not subject to finance.

The purchaser’s alternative argument was that, because it was a fundamental obligation of the purchaser to pay the balance due at settlement, the contract was subject to an implied condition that the vendor would co-operate with the purchaser to allow inspection of the property by a valuer. So much had been held in earlier cases but, as Derham AsJ pointed out, those contracts were subject to finance. Whilst acknowledging that a court might imply a general duty on the vendor to co-operate with the purchaser for the purpose of allowing the purchaser to satisfy the purchaser’s obligations pursuant to the contract, such an implied condition would not be ‘open-ended’. Citing a quote from Simcevski v Dixon [2017] VSC 197 His Honour confirmed that there ‘cannot be a duty to co-operate in bringing about something which a contract does not require to happen’. This contract required the purchaser to settle, it did not require the purchaser to obtain finance. Even if a duty to co-operate by making the property available for valuation were to be implied, it ‘would be limited in time and would not enable inspection at the 12th Hour’.

The purchaser’s final argument was that the vendor’s conduct was unconscientious. This was dismissed on the basis that the vendor was entitled to refuse inspection as the purchaser was in breach of GC 6 and had failed to sign the Duties Online form.

Tip Box

•GC 22 (now 29) entitles the purchaser to a pre-settlement inspection.

•If the contract is subject to finance, the vendor must co operate.

•If not subject to finance, the vendor’s duty is limited.

Contract of Sale of Land – VIC

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With the LIV contract not currently available through LEAP, the By Lawyers Contract of Sale of Land is available to all LEAP users until 1 March 2020. Beyond that date it will remain available to LEAP users who have By Lawyers as a companion product to their LEAP subscription. It can also be accessed by non-LEAP users through the By Lawyers website by subscribing to our Victorian Conveyancing Guide, which has many associated benefits such as full access to 1001 Conveyancing Answers.

Adapting to the use of the Russell Cocks authored By Lawyers contract should present few problems as Russell was the principal author of the LIV contracts, including the 2008 version which effectively overhauled the previous contract and established the current format, making the terms of the By Lawyers contract familiar and making numerous improvements.

The By Lawyers Contract of Sale of Land for Victoria was introduced on 1 March 2018 and its use has been increasing steadily among Victorian legal practitioners and conveyancers. The By Lawyers contract removes the need for special conditions other than those covering special circumstances. It has a number of other advances over the LIV contract which further simplify the conveyancing process.

The By Lawyers legal and editorial teams ensure that the contract is immediately brought up to date with any changes in law or practice.

Recent amendments to the By Lawyers Contract of Sale of Land – Parts 1 and 2.

  • The ‘Payments’ section in Part 1 of the By Lawyers Contract of Sale of Land (VIC) has been amended for clarity regarding payment of GST;
  • A new clause has been added to Special Condition 14(f) of Part 2 which attaches a Flight v Booth type test to the purchaser’s ability to end the contract for unsatisfactory pest or building report;
  • The time for settlement has been moved from 3 pm to 4 pm to reflect current practice.

For further information see our previous post Seven reasons to use the By Lawyers contract.

Retail lease outgoings

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By Russell Cocks, Solicitor

First published in the Law Institute Journal

Phillips v Abel is significant as it continues the march of the Retail Leases Act in terms of the application of the Act to premises that might not, in the past, have been thought to have been retail premises. The April 2017 column considered CB Cold Storage Pty Ltd v IMCC Group (Australia) Pty Ltd [2017] VSC 23, which was subsequently confirmed on appeal, and since that case there has been a general understanding that the Act applies to many more premises than retail shops servicing the public. Phillips v Abel concluded that the Act applies to a quarry that supplied sand and other soil products in bulk. VCAT concluded that, as the buyers of the sand products basically used that sand “for their own purposes” as opposed to being “passed on by the purchaser in an unaltered state”, the buyers were the “ultimate consumer” of the goods and the Act applied.

Having satisfied the jurisdictional question, VCAT then moved on to consider the ability of the landlord to recover outgoings. This question is going to be of considerable significance in the current situation of many leases that may previously been thought not to be retail, now being held to be retail.

A landlord of a non-retail lease that has a right to recover outgoings may seek to exercise that right in a number of ways:

  1. by giving rate notices and other outgoings documents to the tenant for payment during the rating year;
  2. by paying the outgoings as they fall due and seeking reimbursement from the tenant;
  3. by calculating the anticipated outgoings and adding a fixed amount to the recurring rental figure; or
  4. by estimating the annual outgoings and seeking payment in advance from the tenant.

The method is not particularly significant, the important point is that the landlord has the freedom to adopt any of these, or other, methods of recovery of outgoings. However, the unexpected application of the Act means that recovery of outgoings is subject to a far more prescriptive statutory regime.

Section 46 requires a retail landlord to give particulars of outgoings to the tenant prior to entry into the lease, which will be by way of the Disclosure Statement, and again in respect of each of the landlord’s accounting periods during the lease, at least one month BEFORE the start of that period. Assuming that the landlord adopts the financial year as the relevant accounting period, the landlord must give an estimate of outgoings at least one month BEFORE the commencement of each financial year. Failure to provide the estimate means that the tenant is not obliged to contribute to outgoings.

An unexpected retail landlord will now find that a tenant may refuse to contribute to outgoings if, as will be the case, a Disclosure Statement has not been given. This refusal will be extended to each subsequent year unless the landlord has given the prescribed estimates prior to the commencement of the accounting year, which will not have been given as the landlord was of the view that the Act did not apply. Exacerbating the problem for the landlord is the decision in Phillips v Abel that subsequently giving details of prior outgoings does not satisfy the requirement to give estimates in advance. The tenant had not paid land tax or outgoings and the landlord could not recover either, because recovery of land tax is prohibited and the landlord had not complied with s 46 in relation to outgoings.

Australian Asset Consulting P/L v Staples Super P/L [2016] VCAT 1726 held that subsequent provision of a s 46 estimate DID enliven the tenant’s obligation to pay previous outgoings but this case was distinguished, perhaps tenuously, on the basis that the tenant had in fact mistakenly paid the outgoings and was seeking recovery.

Richmond Football Club Ltd v Verraty [2011] VCAT 2104 held that a retail tenant who mistakenly pays land tax is entitled to a refund as recovery of land tax is prohibited, but that a landlord who fails to comply with s.46 is not obliged to refund the outgoings, as the landlord had given good consideration for those payments.

Disputes relating to land tax and outgoings are likely to be a feature of the ever-widening retail leasing landscape.

Tip Box

•retail landlords must provide estimates of outgoings in advance

•if a timely estimate is not given the tenant is not obliged to pay

•a tenant who has paid is not entitled to a refund

Land tax – VIC

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Land tax Victoria – Absentee owner surcharge

The land tax surcharge where applicable to Victorian property increases from 1.5% to 2% with effect from 1 January 2020.

The By Lawyers  Victorian Conveyancing publications, as well as the Trusts publication, have been updated accordingly.

By Lawyers wish everyone a happy holiday season.

Land tax – NSW

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Land tax NSW – Increases to threshold values

Land tax thresholds are indexed to rise on 1 January each year.

The 2020 threshold combined land value will increase to $734,000 for all liable land. Special trusts and non-concessional companies are excepted.

A marginal tax rate of 1.6% of the aggregate taxable value above the tax-free threshold plus $100 applies.

If the aggregate taxable value exceeds the premium rate threshold of $4,488,000 then $60,164 is payable plus a marginal tax rate of 2% over that amount.

All relevant commentary and precedents in By Lawyers Conveyancing & Property Guides have been updated accordingly.

By Lawyers wish everyone a happy holiday season.

 

Off the plan contracts – NSW

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Significant changes to off the plan contracts commenced 1 December 2019.

The changes arise from the Conveyancing Legislation Amendment Act 2018 (NSW) and the Conveyancing (Sale of Land) Amendment Regulation 2019 (NSW). They place further disclosure obligations on vendors. They also create new remedies and stronger protections for purchasers when entering into residential off the plan contracts.

Changes to off the plan contracts – summary:

  • Certain prescribed documents must be attached to residential off the plan contracts. These include a prescribed Disclosure Statement, a draft plan prepared by a registered surveyor and other draft documents, as set out in clause 4A of the Conveyancing (Sale of Land) Regulation 2017.
  • A purchaser can rescind the contract within 14 days if the Disclosure Statement, draft plan or relevant prescribed documents are not attached to off the plan contracts exchanged on or after 1 December 2019.
  • There is an ongoing obligation on the vendor to notify purchasers of changes to material particulars using the prescribed Notice of Changes form. Purchasers may be able to rescind or claim compensation if there is a change to a material particular.
  • The cooling-off period for residential off the plan contracts is extended to 10 business days.
  • The final registered plan must be provided to the purchaser at least 21 days before settlement.
  • Deposits must be retained by the stakeholder in a trust or controlled monies account.

An off the plan contract is defined in the amending act to mean a contract for the sale of a residential lot that does not exist at the time the contract is entered into.

The following are not caught by the amendments:

  • The sale of a commercial property off the plan.
  • The sale of a residential lot off the plan if it is sold at the point when the title is registered but an occupation certificate has not been issued.
  • Contracts arising out of the exercise of an option that was entered into before 1 December 2019.

Updates to By Lawyers publications

  • The By Lawyers Conveyancing Publication, including Sale and Purchase Guides and 1001 Conveyancing Answers, all contain dedicated commentary regarding off the plan contracts. These commentaries now cover the new requirements in detail.
  • The By Lawyers Contract for Sale of Land has been amended as follows:
    • Statutory cooling off notice – 10 business days;
    • Statutory attachments table includes Disclosure Statement;
    • Price and deposit clause addresses the requirement for deposit and instalment payments to be held as trust or controlled money;
    • New clause 16(d) ‘Residential off the plan contracts’; and
    • Off the plan settlement changed to 21 days after notice of registration of plan.
  • All precedents making reference to cooling off periods have been updated to accord with the new period.
  • Disclosure Statement and Notice of Changes forms are available on the Sale matter plan.
  • New notices for rescission and compensation claims have been added to the ‘Claims, disputes and notices’ folder. Precedent letters serving these notices on the relevant parties have also been added.

By Lawyers are proud to assist subscribers to understand and comply with these amendments. Like all By Lawyers publications, our Conveyancing Guides provide all the necessary commentary and precedents in one place. Enjoy practice more!

 

 

Measurements

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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

Transfer by direction – SA

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Requirements for a transfer by direction have been relaxed in SA.

A recent Revenue Ruling SDA009[V2] states that, unless additional consideration is being paid by the transferee, a Deed of Assignment or Nomination is no longer necessary for any purchaser to direct the vendor to transfer the property to any other person or entity – whether related or not.

The Ruling states that Revenue SA:

  • acknowledges that a purchaser named in a contract has a common law right to direct the vendor to transfer the land to any party the purchaser chooses. This common law right to a transfer by direction exists whether or not the purchaser executes the contract with “and/or nominee”; and
  • no longer requires a letter of agency/nomination, nor any formal assignment, where a purchaser named in a contract and the person named in the transfer pursuant to that contract are not the same.

However, stamp duty will still be payable where an assignment document is prepared and executed, or when Section 68 of the Stamp Duties Act 1923 applies.

The ruling contains an example direction to the vendor.

The Sale and Purchase commentaries in the by Lawyers SA Conveyancing publication have been updated accordingly.

Avoiding off the plan contracts – A sequel

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By Russell Cocks, Solicitor

First published in the Law Institute Journal

Avoiding off the plan contracts is a common topic for this column. March 2019 and July 2018 considered sunset clauses, October 2015 looked at avoiding for quality defects and May 2015 considered the various statutory avoidance rights.

Harris v K7&@Surry Hills P/L [2019] VSC 551 is a decision of the Supreme Court that considers the purchaser’s right to terminate an off the plan contract for the sale of a residential unit and two car parking spaces. The contract was preceded by lengthy negotiations between the purchaser, the agent and the vendor as the purchaser wished to combine two of the proposed lots into one occupancy, although the contract related to 2 lots (lots 306 & 307). These lots each had a car space and a full length (as opposed to an ‘over the bonnet’) storage cage as part of each lot on the proposed plan. The contract, having identified the property sold as lots 306 & 307, included a provision that the proposed plan would be revised so as to incorporate the combined lots as one lot on the final plan.

As is often the case when purchasers seek to ‘fiddle’ with off the plan contracts, the contract ended up containing conflicting terms, some that were standard terms for the sale of lots on the plan generally and which give the vendor wide powers to amend the plan, and some that were specific to this contract that were designed to protect the changes that the purchaser had negotiated. One such specific term added to the contract as Special Condition 38 required the vendor to provide “two (2) car parks that are adjacent”.

The vendor undertook the task of revising the plan to accommodate the purchaser’s wishes, but disputes arose. In particular the revised plan only included one ‘over the bonnet’ storage cage (instead of the two full length storage cages the purchaser believed it was entitled to) and one car space on title and the right to share a car stacker for a second space. The purchaser sought assurances that the plan would be amended to provide the purchaser with 2 full length storage cages and 2 adjacent car spaces and the vendor declined to do so stating that “allocation of car spaces and storage spaces are only finalised at the time of construction completion”. It is fair to say that this is a common approach amongst developers who seek to rely on Special Conditions giving them wide ranging powers to adjust the plan of subdivision to accommodate construction needs. This case is important as it indicates that developers need to take account of specific needs of purchasers and that purchasers need to be specific in specifying those needs in the contract.

The purchaser terminated the contract on three bases:

  1. that the vendor had repudiated the contract;
  2. that there was a ‘material change’ to the plan invoking s.9AC(2) Sale of Land Act; and
  3. that the vendor had engaged in misleading and deceptive conduct contrary to s.18 Australian Consumer Law.

Repudiation – the Court accepted the purchaser’s argument that by submitting an amended plan that did not include “two carparks that are adjacent” in accordance with Special Condition 38 the vendor repudiated an essential term of the contract and that the purchaser was entitled to end the contract. The vendor argued that the amended plan might not necessarily be the final plan, but the Court held that a purchaser in such circumstances is entitled to assume that an amended plan is intended to constitute a final plan.

Material change – the Court also accepted that by submitting the amended plan that did not included a full length storage cage the vendor gave the purchaser the right to terminate the contract pursuant to s.9AC(2) as that plan contained a ‘material change’.

ACL – the Purchaser’s argument based on the ACL alleged that the vendor’s agent had, immediately before contracts were exchanged and as an incentive for the purchaser to sign, represented that the purchaser would receive 2 full length storage cages and that in breach of that representation the amended plan did not include those storage cages. The plan in the contract in fact did not include 2 full length storage cages but the Court accepted that the representations had been made and rejected the argument that Special Conditions allowing the vendor wide discretion to amend the plan could be used to overcome those representations.

Developers tend to ride rough-shod over complaints made by purchasers of off the plan apartments but this case confirms that if a purchaser is prepared to see it through, the law will often provide a remedy, or three.

Tip Box

  • Specific amendments to off the plan contracts will prevail over standard conditions
  • The application of s.9AC will be judged on plans submitted from time to time
  • The ACL will provide a remedy for misrepresentation

Off the plan amendments – NSW

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Off the plan amendments

Off the plan amendments for residential properties are being introduced by the Conveyancing Legislation (Amendment) Act 2018 and the Conveyancing (Sale of Land) Amendment Regulation 2019. The bulk of the amendments will commence on 1 December 2019, however, the provisions affecting statutory cooling off commenced on 25 October 2019, introducing a transition period until 30 November 2019.

The cooling off period for off-the-plan contracts has been extended from 5 to 10 business days. The cooling off warning notice form, prescribed by Schedule 5 of the Conveyancing (Sale of Land) Regulation 2017, has also been amended to reflect this change. A contract for the sale of residential property entered into during the transitional period may include the new cooling off warning notice form or the old form in force immediately before the amendment. There is no obligation for a contract to include the new form of notice until 1 December 2019. 

A summary of the amendments that will commence 1 December 2019 include:

  • Increased vendor disclosure requirements including a Disclosure Statement and draft documents to be attached to the contract. Purchasers can rescind the contract within 14 days of exchange if the Disclosure Statement or relevant prescribed documents are not attached to an off-the-plan contract before it is signed. These new requirements are additional to the existing disclosure regime imposed by Part 2 of the Conveyancing (Sale of Land) Regulation 2017. There is no need to attach more than one copy of the same document to the contract and the Disclosure Statement;
  • Vendors to notify changes to ‘material particulars’. Purchasers can rescind or claim compensation for some changes to material particulars. Notification of changes must be made on an approved form which will be available on the By Lawyers Sale matter plan soon;
  • 10-Business-Day cooling-off period. All contracts for sale of land may use either the old form or new form of warning notice until 30 November 2019. Contracts for established properties may use the old form or new form of warning notice for 6 months after commencement. From 2 June 2020, all contracts for sale, whether for off-the-plan or established properties, will need to use the new form of cooling off warning notice;
  • Purchasers to be given registered plans 21 days before settlement;
  • Deposit to be held in trust. Any money paid by the purchaser by way of deposit or installment under the contract must be retained by the stakeholder in a trust or controlled money account during the contract period. This money cannot be released to the vendor before settlement. This measure will ensure deposit and instalment monies are protected in the event of the developer’s insolvency;
  • Stronger sunset clause protections. The amendments extend the definition of a sunset clause to capture other events which trigger termination of the contract, like the issue of an occupation certificate. Changes also confirm that the Court can award damages if the vendor is permitted to end the contract under a sunset clause. These changes are contained in new Section 66ZS introduced by the Conveyancing Legislation (Amendment) Act 2018. New sunset clause provisions will apply to all off-the-plan contracts, irrespective of whether they were signed before or after commencement.

The By Lawyers Conveyancing (NSW) Publication will be updated accordingly. This will include new provisions in the By Lawyers Contract for the sale of land 2019, precedents and commentary.

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