ByLawyers News and Updates

Leases – Exercising option to renew

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Leases – Exercising option to renew

The commentary within all By Lawyers Leases Publications and 1001 Conveyancing Answers Reference manuals have been updated to include reference to the New South Wales Supreme Court decision in Kegran Pty Ltd v Warrik Pty Ltd [2018] NSWSC 1357.

The court ordered the specific performance of an option to renew, after the lessor challenged the exercise of the option on the basis that the notice was not properly served by the lessee.

Notice of renewal was given by the lessee to the lessor by way of email, although the option to renew clause in the lease did not identify email as a valid method of service.

The court held that the language of the notice provisions was ‘facultative and not mandatory’, and that the lessee has validly exercised the option to renew by the email. The court stated that the notice provisions were not to be strictly applied to the exclusion of all other methods of service.

The decision in this case highlights that whether a lessee has validly exercised an option for renewal can depend on the interpretation of the terms of the lease when read as a whole.

Compensation for loss

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By Russell Cocks, Solicitor

First published in the Law Institute Journal

What are the consequences of a breach of a contract of sale of land? Is it compensation or damages? Is there a difference?

This is a significant question in the context of the standard contract of sale of land when dealing with the consequences of a breach of that contract by one of the parties to the contract. General Condition 25(a) provides that a party in breach must pay to the other party “compensation for any reasonably foreseeable loss”. This article is not concerned with calculating the quantum of any such claim, but rather determining when such a payment must be made. Specifically, can the innocent party seek to adjust the balance payable at settlement on the basis of an entitlement to “compensation”?

It is common for a vendor to claim that the purchaser’s breach has caused the vendor to suffer significant “loss”. Putting aside for the moment whether the loss is reasonably foreseeable and, indeed, was reasonably foreseeable as at the date of the contract, can the vendor demand that the purchaser pay those losses at settlement? Likewise, can a purchaser who establishes loss flowing from the vendor’s breach, difficult though that may be, demand that the vendor compensates the purchaser by way of a reduction in the amount payable at settlement?

It is fair to say that many vendors, and some purchasers, do seek to adjust the amount payable at settlement by a party in breach, however the suggestion that one party may unilaterally adjust the amount payable pursuant to the contract at settlement to recover alleged loss is not supported by the contract. The contract allows the innocent party to claim “compensation”; it does not support a claim for “damages” which is a common law remedy for breach of contract that may be pursued AFTER completion of the contract.

A right to compensation has traditionally been distinguished from a right to damages – King v Poggioli [1923] HCA 11. Compensation is a remedy that entitles a purchaser to abate the purchase price where the vendor breaches the contract by failing to deliver the whole of the property contracted to be sold, either as a result of a defect in the physical attributes of the property or the vendor’s interest in, or title to, the property. (Voumard: The Sale of Land [7320])

General Condition 25(a) therefore creates a very limited contractual remedy for breach of contract. It is a remedy limited to a claim by the purchaser seeking to abate the purchase price consequent upon a significant physical or legal defect in the property. It does not justify a claim for consequential loss, although the purchaser might pursue such a claim for damages for consequential loss after settlement. General Condition 25(a) does not support a contractual claim for “compensation” by the vendor at all, although the vendor, like the purchaser, might pursue a claim for damages for consequential loss flowing from the purchaser’s breach of contract after settlement.

General Condition 25(b) gives the vendor a contractual right to claim interest as a result of a breach of the contract and General Condition 26 sets out how that interest is to be calculated. As interest is payable “on any money owing under this contract” this contractual right to claim interest is limited to the vendor, as only the vendor is owed money under the contract.

In summary, the purchaser’s contractual right following a breach by the vendor is to compensation pursuant to GC.25(a) and the vendor contractual right following a breach by the purchaser is to interest pursuant to GC. 25(b). Both parties have additional common law rights for consequential losses flowing from a breach of contract, but those common law rights must be pursued after settlement and do not justify an adjustment of the amount payable at settlement.

The contractual right of the parties to a contract for the sale of land that adopts the standard General Conditions to claim an adjustment of the amount due at settlement consequent on a breach of the contract by the other party is limited as set out above. However, a party in default faces the possibility of proceedings after settlement to recover damages for breach of contract and therefore it is sensible for the parties to seek to compromise any such claim at settlement. Whether the breach is by the vendor or the purchaser, the innocent party should provide details of losses suffered by the innocent party as a result of the breach and which were reasonably foreseeable to the parties as at the date of the contract. The party in default might then agree to compromise the claim on the basis that a claim for consequential loss after settlement will involve both parties in significant additional expenditure and ought to be avoided. However, the innocent party cannot seek an adjustment of the amount payable at settlement or seek to delay settlement until the dispute is resolved. The show must go on.

Conveyancing – updated letters – QLD, NSW, VIC, SA, WA

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A number of the precedent letters in the By Lawyers guides for Conveyancing – Sale and Purchase have been updated to cater for developments in electronic conveyancing.

The content covered in these amendments include additional options for signing the transfer, payment of duty and registration of the transfer.

These updates occurred partly as a result of feedback received from our users. We always value and respond to feedback from practitioners using our content. We especially love to hear from property lawyers and conveyancers as to how we can make it a little easier for them to deal with the pace of change in electronic conveyancing.

Please don’t hesitate to contact us at askus@bylawyers.com.au if you have any feedback for us.

By Lawyers Contract for the Sale of Land now in Infotrack

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Vic_contract_sale_of_land

The By Lawyers Contract of Sale of Land – incorporating the s 32 Vendor Statement is now available to order through InfoTrack.

The contract, co-authored by Guy Dawson, Editor in Chief of By Lawyers and Russell Cocks, highly experienced and practical Victorian property lawyer, is particularly useful for busy practitioners as it incorporates an automated and functional section 32 statement as well as placing the relevant transaction details all together in Part 1 of the document.

This contract makes extensive use of InfoTrack’s innovative technology enabling it to be ordered, compiled, edited and signed electronically, quickly and easily wherever you may be.

To order the contract through InfoTrack, select the ‘By Lawyers Contract of Sale of Land’ from the Property Enquiries Menu.

The contract is also available to LEAP users who take the By Lawyers companion product, as well as to website subscribers through www.bylawyers.com.au

Further information about the contract itself is available here: Seven reasons to use the By Lawyers contract.

Sunset clause – Vendor ending a contract – Purchaser’s consent or court order required

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By Russell Cocks, Solicitor

First published in the Law Institute Journal

Retrospective amendments to the Sale of Land Act will substantially limit a vendor’s ability to end a residential off-the-plan contract.

The Sale of Land Amendment Bill 2018 was expected to pass Parliament in late 2018 but was delayed by the Victorian State election. It is expected to be passed early in 2019 and will require vendors who wish to end residential off-the-plan contracts pursuant to sunset clauses to either obtain the purchasers consent, or an order from the Supreme Court.

The changes do not affect the purchaser’s current statutory right to end the contract if the plan of subdivision is not approved by the sunset date. This purchaser right is created by s.9AF (2) Sale of Land Act and allows the purchaser to end what is currently known as a “prescribed contract” (but which will be known as a residential off-the-plan contract when the amending Act is passed) if the plan of subdivision is not approved within 18 months of the contract date. The contract may specify another period, but if no other period is specified, the default period is 18 months.

It is common for vendors to also include a contractual right for the vendor to terminate the contract if approval is not obtained by the sunset date. There has been a perception that vendors were seeking to use this contractual right to unfairly end contracts in a rising market and these changes are designed to prevent such outcomes.

Rescission in accordance with the Act

By s.12(1) of the Amendment Act, new s.10A Sale of Land Act provides that if a sunset clause in a contract allows the vendor to rescind the contract, then rescission must be in accordance with the Act and s.10C overcomes any inconsistent contractual provision. Section 2(1) of the Amendment Act provides that s.12(1) is taken to have come into effect on 23 August 2018.

Purchaser’s consent

Section 12(1) also introduces s.10B Sale of Land Act which prohibits a vendor from relying on a sunset clause unless the vendor obtains the purchaser’s written consent to any such rescission. By virtue of new s.54(1), s.10B applies to all residential off-the-plan contracts entered into and in force before commencement of s.12(1) (23 August 2018) unless proceedings concerning the sunset clause had been commenced before that date.

A vendor seeking to obtain the purchaser’s consent must give the purchaser 28 days notice setting out the reason that the vendor proposes to rescind, the reason for the delay in registration of the plan and advice that the purchaser is not obliged to consent to the proposed rescission.

Court order

By s.12(2) of the Amending Act, new s.10D Sale of Land Act provides that the vendor may apply to the Supreme Court for an order permitting the vendor to rescind a contract pursuant to a sunset clause. By s.2(2) of the Amending Act, s.12(2) comes into operation on the day after the day on which the Amending Act receives Royal Assent. By virtue of new s.54(3), s.10D applies to all residential off-the-plan contracts entered into and in force on the day after the day that the Act receives Royal Assent, unless proceedings concerning the sunset clause had been commenced before that date.

The Court must consider a wide variety of matters relating to the contract and the property, including increase in value and, if an Order is made, may include compensation to the purchaser. The vendor is liable for the purchaser’s costs.

Notice

New s.10E requires residential off-the-plan contracts that include a sunset clause to include a Notice setting out that the:

    • vendor may give a notice proposing to rescind the contract;
    • purchaser may consent to rescission, but is not obliged to consent;
    • vendor may apply to the Court for an order permitting rescission;
    • Court may make such an order.

This requirement applies to all contracts entered into after the day that the Act receives Royal Assent.

Tip Box

•Sunset clauses must be exercised in accordance with the Act.

•Purchaser’s consent or a court order is required.

•Residential off-the-plan contracts need additional disclosure.

ARNECC Model Participation Rules Version 5

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The ARNECC Model Participation Rules Version 5 for e-conveyancing are in effect from 25 February 2019 in NSW, VIC, QLD, WA and SA.

Client Authorisation Forms

There are now two separate types of Client Authorisation Forms:

  • Client Authorisation Representative– authorises a solicitor or conveyancer to act for the client in a conveyancing transaction;
  • Client Authorisation Attorney– authorises a person acting under a power of attorney to act for the donor in a conveyancing transaction, the donor being the person giving the power.

The Client Authorisation Attorney form only applies to Subscribers signing as Attorneys and not any other Subscriber who may happen to be an Attorney e.g. a conveyancer or lawyer generally acting as their Client’s Attorney. A Representative Subscriber (conveyancers and lawyers) should continue to use the Client Authorisation – Representative form.

See rules 5.6 and 6.3 for requirements.

A new Guidance Note is currently being drafted by ARNECC that will provide further information regarding this new provision.

Practitioners must ensure they use the correct Client Authorisation Form for each conveyancing transaction.

These forms are available on all By Lawyers Conveyancing matter plans within Folder ‘A. Getting the matter underway > Verification of identity folder’.

Verification of Identity in mortgage transactions

Responsibilities for verifying the identity of mortgagors have been updated. Practitioners acting for a mortgagee, must take reasonable steps to verify the identity of mortgagors in accordance with r 6.5.1(b), even where the mortgagor is represented.

Additional identity documents

Australian Evidence of Immigration Status ‘ImmiCard’ and Australian Migration Status ‘ImmiCards’ are now acceptable types of identity documents and have been added to the table in Schedule 8 of the Model Participation Rules.

All relevant By Lawyers publications have been updated to reflect the ARNECC Model Participation Rules Version 5, including the detailed Verification of Identity commentary located in all conveyancing and property matter plans under Folder ‘A. Getting the matter underway’.

Retirement Villages Amendment Act 2018 NSW – Schedule 1 [10], [17]-[20] commenced

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Commencing 11 February 2019, the Retirement Villages Amendment Act 2018 introduces rules of conduct for operators (Schedule 1 [10]), provides for the sharing of village information and allows for mediation of disputes (Schedule 1[17]-[20]).

Yet to commence are provisions implementing village contract information meetings, asset management plans, the annual auditing of village accounts and the provision of quarterly accounts to the Residents Committee. The commentary will be updated when the main provisions commence.

Leases – Demolition and relocation clause – Commercial lease

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A new demolition and relocation clause for use in commercial leases has been added to the Library of clauses in all By Lawyers Leases publications. This clause was added as a result of a request from a By Lawyers user.

The new clause provides for termination by either the lessor or lessee in the event that the lessor proposes to demolish the building or a substantial portion of the building of which the premises form part, on the lessor providing 90 days written notice to the lessee. This clause also addresses the costs of relocation of the lessee’s business and requires the proposal for demolition to be genuine.

Please email us at askus@bylawyers.com.au or call 02 4858 0619 with any feedback or suggestions. We would love to hear from you!

Author review of Conveyancing (VIC) Publication

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Conveyancing (VIC) – Author review

The By Lawyers Conveyancing (VIC) Publication, which includes the 1001 Conveyancing Answers, Sale of Real Property and Purchase of Real Property guides, has been reviewed to ensure that the commentaries and precedents (including the By Lawyers Contract of Sale of Land) are in line with current law and conveyancing practice, including electronic conveyancing.

The extensive review was performed by our author Russell Cocks. As with all our authors, Russell takes a practical approach drawing on his considerable experience to cover all aspects of procedure, with a focus on practical tips that will help solicitors and conveyancers confidently run a sale or purchase matter to completion.

We invite you to explore this updated publication and to consider the wealth of assistance the guides offers for solicitors and conveyancers acting in the sale and purchase of residential property in Victoria.

Sale of land amendments

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By Russell Cocks, Solicitor

 First published in the Law Institute Journal

The Bill, soon to be an Act, that amended SUNSET CLAUSES also introduces other amendments to

Terms Contracts

Terms contracts were an important method of funding property acquisition in the mid-twentieth century when mortgage funding was not as available as it is in the current de-regulated finance market. Many working people were unable to obtain traditional finance and many a family home can be traced to a terms contract paid off over a number of years. The Sale of Land Act was in fact introduced in 1962 to regulate this method of sale, as it always had the potential to facilitate sharp practices.

Essentially, a terms contract allows a purchaser to take possession of the property and pay the purchase price over an extended period of time, such that the property provides both a home and an investment. However, in recent years various sharp operators have been using terms contracts to lure unsuspecting, and generally under-funded, purchasers in outer metropolitan and regional areas into entering into terms contracts that were doomed to fail and cause those purchasers extensive losses. A report by the Consumer Law Action Centre highlighted these dangers and has resulted in s.29EA and subsequent sections prohibiting terms contracts of residential land at a sale price of less than a prescribed amount (expected to be $400,000). Section 55 gives VCAT jurisdiction to review existing terms contracts on fairness grounds.

Rent-to-Buy

A variation on the unfair terms contract is a rent-to-buy arrangement whereby the purchaser takes possession of the property on a rental basis with an option to purchase the property at a future time. Again, these schemes invariably fail as a result of the inability of the purchaser to manage the financial obligations imposed by these arrangements, with the result being substantial loss for the purchaser. Section 29WA prohibits rent-to-buy arrangements, with limited exceptions, and s.56 gives VCAT jurisdiction to review existing arrangements on fairness grounds.

Land Banking

A third scheme that has involved substantial losses for unsuspecting consumers have been land banking schemes, which involve consumers buying a small interest in a large parcel of land purchased by developers with the hope that the land will become suitable for development at some time in the, often distant, future. When sold to the purchaser via an option arrangement the purchaser’s deposit is not protected and there have been many examples of the arrangements collapsing and purchasers losing their investment.

Section 29WH prohibits the sale of options in land banking schemes unless the scheme is a registered scheme or the deposit is held in a trust account and provides that the deposit must be returned to the purchaser if the event triggering the option does not occur within 5 years.

There is no provision for review of current schemes.

Past Use

From time to time a purchaser will complain that the property that has been purchased has “prior history”, such as a sensational death or inappropriate use, such as a drug lab. Such history is in the nature of a quality defect and subject to the principle of caveat emptor, meaning that in the absence of fraud or common law misrepresentation, the purchaser is obliged to proceed with the contract.

Section 12 Sale of Land Act presently creates an offence (but not a purchaser’s right) in relation to false, misleading or deceptive representations and prohibits fraudulent concealment of “material facts”. Section 14 of the amending Act substitutes “knowingly” for “fraudulently” in s.12(d), thereby reducing the onus of proof and making it an offence to knowingly conceal material facts. New section 12A allows the Director of Consumer Affairs Victoria to publish guidelines designed to assist vendors and agents to understand what is meant by “material facts” and presumably such matters as sensational deaths and drug lab use will be included in such guidelines.

However, making non-disclosure by an owner or agent of such matters an offence will not, of itself, give a purchaser a right to rescission or damages. The basic principle of caveat emptor will still apply.

Tip Box

Whilst written for Victoria this article has interest and relevance for practitioners in all states the Sale of Land Act, notably in relation to terms contracts.

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