ByLawyers News and Updates

Vendor statements and the Australian Consumer Law

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By Russell Cocks, Solicitor

First published in the Law Institute Journal

Section 48A of the Sale of Land Act 1962 provides dissatisfied purchasers with an alternative to avoidance for breach of           s 32.

Given the significance of Vendor Statements in the conveyancing process it is surprising that there are not more reported cases relating to the vendor’s obligation to disclose the matters described in s 32 of the Sale of Land Act 1962. Readers will be familiar with Baker v Knight [1994] Vic SC 420 relating to planning permits but there have not been many cases in recent years on the disclosure obligation.

This may be because, until recently, a breach of s 32 was an ‘all or nothing’ situation. Section 32K (and its predecessor) gives the purchaser the right to avoid the contract for breach of s 32, but not a right to damages. Thus the purchaser must decide whether the alleged breach is sufficient to justify avoidance and then whether the purchaser wants to avoid. In a rising market, such as prevails at the moment, purchasers may be reluctant to walk away from a property that is, save for the breach of s 32, to their liking.

Section 48A of the Sale of Land Act is a relatively recent amendment that was designed to align the Act with the wider consumer protection legislation known as the Australian Consumer Law and creates for a purchaser a right to damages for breach of s 32. It has been considered by VCAT on two occasions, both with unrepresented parties and the decisions are of limited significance but perhaps indicative of where the law may be heading.

Wagner v Usatov [2014] VCAT 1198 concerned a breach of s 32 by way of failure to disclose restrictions attached to a planning permit that affected the land. The permit required the vendor to enter into a s 173 agreement with the Council in relation to future use of the land. The vendor entered into that agreement, in relation to the subject land and other land, during the course of the contract so that at settlement the land was subject to a restriction that had not been disclosed as required by s 32. Rather than seek to avoid the contract the purchasers settled and then successfully took action to have the s 173 agreement removed, incurring $5,000 costs in doing so and the VCAT application was an action for damages to recover this amount. VCAT concluded that there was a breach of s 32 and that s 48A adopted the provisions of the ACL for the purpose of allowing a person who suffers loss as a result of a breach of s 32 to recover the amount of that loss.

Importantly, VCAT noted that whilst a claim under the ACL itself will usually require that the transaction was ‘in trade or commerce’ no such restriction applies for a claim made under s 48A – it is sufficient that a loss has been caused by a contravention of s 32. This means that ‘residential’ vendors will be subject to the consumer rights in favour of purchasers in respect of breaches of s 32.

Hobson v Robinson [2017] VCAT 524 also had self-represented parties with the purchaser seeking damages resulting from a breach of s 32. The vendor sold ‘vacant’ land to the purchaser who, after settlement discovered that a house had previously been demolished on the land and complications arising from the demolition resulted in the purchaser incurring additional expenses. The house on the land had burnt down and the vendor’s insurer had arranged for demolition but, as is often the case in such demolitions, the hidden infrastructure such as pipes and connections to services were not adequately terminated. As a result, when the purchaser came to commence building on the vacant land, the purchaser was unable to have electricity connected and incurred $6,000 hire costs of a generator for 3 months. The purchaser claimed this amount from the vendor as damages for breach of s 32.

The first breach alleged was the failure to disclose that a demolition permit had been issued but this was not successful as s 32E requires the disclosure of building permits, not demolition permits, and only in respect of the sale of a residence, not vacant land.

However the purchaser was successful in establishing a breach of the s 32H obligation to disclose services that are NOT connected and was awarded judgment for the cost of the generator hire.

VCAT is designed to offer a costs-free jurisdiction for the resolution of Small Claims such as these cases, but in doing so may be required to consider important questions of law. These cases involved relatively small amounts but the principles discussed will apply equally to claims made by dissatisfied purchasers that may involve far more substantial losses claimed to flow from a vendor’s breach of the s 32 obligations.

Dissatisfied purchasers will no longer be required to take ‘all or nothing’. Instead of having to elect to proceed or withdraw they may now consider the s 48A option of claiming damages in VCAT after settlement and, importantly, that applies equally to residential and commercial sales.

Tip Box

  • Whilst written for Victoria this article has interest and relevance for practitioners in all states.
  • Section 32 allows for avoidance but s 48A may allow for damages as an alternative.
  • Whilst the ACL generally only applies to sales in trade or commerce, s 48A applies to residential sales.

Off the plan duty concessions

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By Russell Cocks, Solicitor

First published in the Law Institute Journal

Duty concessions available for off the plan sales need to be understood by both vendors and purchasers.

Vendors selling off the plan properties often emphasise the potential for ‘huge stamp duty savings’ and, indeed, duty is calculated on such transfers at a concessional rate, making them appealing to potential purchasers. But unless the parties understand the extent of the concession the purchaser may be disappointed and the vendor potentially liable for misrepresentation.

The duty concession is available wherever the contract anticipates building work being performed during the course of the contract, on the basis that duty is calculated on the value of the property as at the contract date, and is not payable on the value of any building works constructed between contract and settlement. The concession is available whether the property is a stand-alone home, a unit in a small development or a lot on a multi-storey plan of subdivision. It is also available, on a proportional basis, provided that any construction is to be undertaken, with the full concession available if total construction takes place during the contract, diminishing to no concession if construction was complete as at the contract date.

Calculating duty is an important task for the solicitor for the purchaser but can only be undertaken on the basis of information provided by the vendor in the form of an Off the Plan Statutory Declaration that provides the basis for calculating dutiable value. The vendor’s obligation to provide this document arises from GC 10.1(a)(ii) of the standard contract that requires the vendor to do all things necessary to enable the purchaser to become registered. The purchaser is unable to register the Transfer until duty is assessed and duty cannot be assessed in relation to these transactions without the Declaration.

The vendor may choose to use the Fixed Percentage Method or Alternative Method to calculate the cost of construction. Unless the contract requires the vendor to adopt the Alternative Method, the vendor will generally adopt the simpler Fixed Percentage Method. The percentage of the contract price allocated to construction is:

  • single dwelling 45%
  • multi-dwelling 60%
  • high rise 75%

If construction has not commenced as at the contract date then the concession will be calculated by reducing the contract price by the amount equal to the full construction cost calculated by reference to the Fixed Percentage and then calculating duty on the reduced consideration.

If the contract price is $600,000 and the contract is signed prior to commencement of construction then duty is calculated as follows:

Single dwelling

Contract price $600,000

Less: 45% construction cost $270,000

Dutiable value $330,000

Multi-lot

Contract price $600,000

Less: 60% construction cost $360,000

(up to 3 storey)

Dutiable value $240,000

High rise

Contract price $600,000

Less: 75% construction cost $450,000

(4 storey & above)

Dutiable value $150,000

If construction is 25% complete when the contract is signed then the cost of post contract construction will be reduced to 75% of the construction cost. The deduction from the contract price will therefore be less, resulting in a higher dutiable value and higher duty as the percentage of post contract construction deceases.

Tip Box

Whilst written for Victoria this article has interest and relevance for practitioners in all states.

Priority notice

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By Russell Cocks, Solicitor

First published in the Law Institute Journal

Land Titles Office will introduce the Priority Notice in December 2016

As part of the shift from paper-based conveyancing to electronic conveyancing the Land Titles Office will introduce Priority Notices in December 2016. This facility is viewed by the LTO as an important tool in the prevention of fraud in the electronic environment and is supported by s 91C Transfer of Land Act.

Traditionally the paper title has been a bulwark against fraud, with a person dealing with the title having an expectation that the paper duplicate would be produced at settlement. However, removal of the paper title in the electronic environment, hastened by the bulk conversion of over 2 million titles held by the Big Four banks on the weekend of 22 October 2016, means that the ‘protection’ provided by a paper title is diminishing. Priority Notices are intended by the Registrar to constitute a ‘unique baton’ to provide protection during the settlement period.

It is intended that a person dealing with the registered proprietor of land will lodge a Priority Notice to foreshadow that a dealing will be lodged at a future time and will thereby ‘protect’ that dealing. The Priority Notice can only be lodged electronically (presently using PEXA) whether the foreshadowed transaction will be conducted in paper or electronically.

Priority Notices resemble the familiar caveat in many ways. Indeed, there is little difference between the two and practitioners may be hard pressed to decide which of the two to lodge.

Virtues of the Priority Notice are:

  • will appear on any search of the relevant title;
  •  gives notification to the world of an intended dealing;
  •  may be lodged in respect of any intended dealing;
  •  temporarily prevents the registration of any other dealing; and
  • gives priority for 60 days from recording of the Priority Notice on the Register to the instrument foreshadowed in the Priority Notice;

A person lodging an instrument, such as a Transfer of Land, within 60 days of lodging a Priority Notice foreshadowing that Transfer is therefore entitled to expect that the Transfer will be registered in priority to any other dealing lodged during that 60 day period.

Disadvantages of a Priority Notice are:

  • cannot be amended;
  • consent cannot be given to registration of a dealing not protected by the Notice;
  • can be withdrawn and re-lodged, but priority will be lost to any dealing awaiting registration;
  • lapses after 60 days; and
  • a subsequent competing dealing lodged in the 60 day period will be registered immediately the Priority Notice expires.

From the Registrar’s point of view, the Priority Notice regime is an improvement on Caveats as the Registrar is NOT obliged to give notice to the registered proprietor of lodgement of a Priority Notice. There is no doubt that the obligation to give notice (often to an old address) imposes a considerable administrative burden on the Registrar, as does the need to play a role in the removal of caveats by disgruntled registered proprietors. The Priority Notice regime involves much less participation by the Registrar and refers all disputes immediately to the court, with the potential to make orders for removal and compensation. Presumably, as the Priority Notice has a limited life span of 60 days, disputes may be resolved by the effluxion of time, although there will no doubt be circumstances where a registered proprietor may need to seek the assistance of the court.

Caveats appear to provide all of the benefits of Priority Notices and few of the disadvantages in that caveats:

  • may be amended;
  • consent can be given to registration of a dealing: and
  • do NOT automatically expire.

It is this latter point that will have practitioners thinking. 60 day settlements are common, as are 90 day settlements. Both can unexpectedly blow out and so lodging a Priority Notice when entering into a 60 or 90 day contract may find the Priority Notice expiring shortly, or even well, before final settlement leaving the Transfer unprotected. A protocol of lodging 30 days prior to the anticipated settlement date may overcome this problem, but leaves the prior contractual period unprotected.

The small price differential between lodging a Caveat or a Priority Notice will not affect this decision.

Like many of the changes flowing from electronic conveyancing, we will just have to see how they work out at the coalface.

Tip Box

  • Whilst written for Victoria this article has interest and relevance for practitioners in all states.
  • Priority Notices are intended to provide protection against fraud.
  • The limited lifespan of Priority Notices may cause concern.

Lease – Retail lease cost

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By Russell Cocks, Solicitor

First published in the Law Institute Journal

A lease of land is essentially a contractual relationship between the landlord and tenant. The lease also creates a proprietary interest in the land in favour of the tenant and the tension between contractual and proprietary rights has been reflected in the law relating to termination of the lease for breach by repudiation. See Progressive Mailing House P/L v Tabali P/L [1985] HCA 14.

As a contractual relationship, the law allows the parties to negotiate the terms of their agreement in relative freedom, subject to limited restrictions in relation to illegality and the like. This freedom presumes that the parties are of relatively equal bargaining power, as the freedom to negotiate is of little value if one party has relatively little power within the negotiations. And yet the three fundamental contractual relationships that occur in day-to-day life – buying, borrowing and renting – have rarely involved parties of equal bargaining power.

Vendors have traditionally been protected by the doctrine of caveat emptor, lenders by the requirement that any amount claimed be repaid before a complaint is heard and landlords by the ability to dictate the terms of the agreement. But the world has changed in the last 50 years and the age of the consumer means that vendors have pre-contract disclosure obligations, lenders are subject to consumer credit codes and tenants are provided with statutory protection, such as the Residential Tenancies Act and the Retail Leases Act.

One area where the ability of the landlord to dictate the terms of the lease has been removed is the area of the landlord’s legal costs associated with the lease. Traditionally, the lease prepared by the landlord for signing by the tenant would provide that the tenant is to pay the landlord’s legal costs relating to the lease. Such a contractual provision is now statutorily prohibited in the residential and retail markets and, whilst still prevalent in commercial and industrial leases, is now more often subject to negotiation by a tenant exercising bargaining power in the face of an awareness that such obligations are not ‘set in stone’.

Section 51 Retail Leases Act prohibits the landlord claiming legal costs in respect of the lease and any contractual provision contrary to this prohibition is void pursuant to s 94. The prohibition is wider than simply prohibiting the landlord from claiming costs from the tenant, as the Act prohibits claiming costs ‘from any person’. This prevents the landlord requiring payment from a party associated with the tenant, such as a guarantor. The prohibition also prevents the landlord from recovering any costs associated with the landlord obtaining the consent of a mortgagee of the freehold to the lease, if the lease includes such a requirement. Further, the prohibition is not just in respect of costs on the lease but rather costs associated with ‘the landlord’s compliance with this Act’ and therefore also prohibits a claim for costs in respect of the disclosure statement.

Assignment

Section 51(1) allows the landlord to claim from the tenant the landlord’s reasonable legal costs associated with an assignment of the lease. Presumably this is based on the fact that the assignment is requested by the tenant and therefore the tenant should bear the costs. The landlord may also claim any costs associated with seeking mortgagee’s consent to the assignment.

It is normal that a tenant who sells a business and seeks an assignment of the lease to a new tenant will be required to bear these costs and general condition 7.6(b) of the LIV May 2014 copyright contract of sale of business adopts this view, correcting a reversal in the previous LIV contract.

If, as part of the assignment, the incoming tenant requests a variation to the existing lease, such as by way of the addition of further terms, the landlord is effectively able to recover the landlord’s costs in agreeing to such a variation within the broad scope of the consideration of the application to approve the assignment.

However, a landlord must exercise caution in the situation where the outgoing and incoming tenants agree that the landlord will be asked to enter into a new lease with the incoming tenant. If the landlord agrees, the new lease is a retail lease and the landlord is prohibited from claiming costs and cannot rely on the ‘assignment’ exemption. The prohibition on key-money (s 23) would appear to prohibit the landlord placing a premium on consent and a landlord may therefore find itself agreeing to a new lease at its own cost. However, the landlord is able to negotiate the terms of the lease, including rent, and may therefore be satisfied to enter into the new lease notwithstanding costs are not paid by the tenant.

Renewal

Renewal creates a new lease and the general prohibition against costs applies. If the tenant also seeks a variation in addition to renewal, this is simply part of the negotiations and the landlord is not able to seek costs relating to those negotiations. Just as the landlord must recover its costs within the rent for a new lease, it must also do so if negotiating a variation upon renewal.

Tip Box

Whilst written for Victoria this article has interest and relevance for practitioners in all states.

Leases NSW

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OCTOBER 
  • Costs Agreements
    • Disputes section improved, fields for client and firm details added, trust account details added, solicitor’s lien added, execution clauses for individuals and corporations added and general formatting and grammatical improvements.
    • Included reference to time limit for bringing costs assessment included total estimate of legal costs section with provision for variables and included authority to receive money into trust.
SEPTEMBER 
  • LEASE – Retail – Annexures A and B – Mortgage consent fees have been updated accordingly.

Agreement to lease

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By Russell Cocks, Solicitor

First published in the Law Institute Journal

‘An agreement to lease is as enforceable as a lease’

Property lawyers deal with leases all of the time; sometimes in the context of a relationship between landlord and tenant, sometimes where a property that is to be sold is leased and sometimes in more obtuse ways, such as in relation to the assessment of duty or tax.

Generally speaking, such leases will be in a written form and the terms of the lease will be readily identifiable. However, unlike contracts for the sale of land which the law requires to be in writing and signed by the parties, the law has long recognised that a lease relationship can be created in a less formal way than a written and signed lease. Hence, courts will enforce a lease if the court can be satisfied that the parties reached an agreement to lease and this has given rise to the mantra of ‘an agreement to lease is as enforceable as a lease’.

Walsh v. Lonsdale (1882) 21 Ch D 9 is the historical authority for this proposition and Waltons Stores (Interstate) Ltd v. Maher [1988] HCA 7 restated the proposition in the modern language of estoppel and unconscionability, concluding that a court will enforce a written agreement to lease where it would be unconscionable for a party to the agreement to resile from that agreement.

2016 has seen something of a flurry of cases, at all levels, concerning agreements to lease:

North East Solutions P/L v. Masters Improvements Aust. P/L [2016] VSC 1 analysed the obligations of parties who entered into a written agreement to lease which included a term that the parties would negotiate in good faith to resolve any disputes that arose during the term of the agreement. The enforceability of the agreement to lease was never in doubt; the issue was the meaning and extent of the ‘good faith’ obligation and whether one party had breached that obligation.

Risi P/L v. Pin Oak Holdings [2016] VCAT 1112 also related to a written agreement to lease but found that the lease prepared pursuant to that written agreement should be varied to comply with an oral agreement that the parties made prior to entering into the written agreement to lease. The landlord had sought to include a demolition clause in the written lease and the Tribunal ordered that the demolition clause be removed as it had not been a term of the agreement that the parties had concluded.

Crown Melbourne Ltd v. Cosmopolitan Hotel (Vic) P/L [2016] HCA 26 saw the issue return to the High Court in a slightly different form. The tenant entered into a 5 year lease with an expectation that the tenant would be offered a further term. No promise to do so was included in the written lease nor specifically offered to the tenant – all the tenant could rely on were words to the effect that the tenant would be ‘looked after’ when the lease came up for renewal. The Court was not satisfied that these words meant to there was an agreement for a new lease or even an obligation on the landlord to submit terms for a new lease to the tenant for negotiation.

The concept of ‘business efficacy’ has also crept into the language of these cases with courts apparently prepared to analyse the conduct of the parties through the ‘business efficacy’ prism.

Tips

  • Whilst written for Victoria this article has interest and relevance for practitioners in all states.
  • Courts will enforce informal agreements to lease.
  • Adequate proof as to the terms of any such agreement remains essential.

Conveyancing QLD

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Conveyancing

OCTOBER
  • Costs Agreements
    • Disputes section improved, fields for client and firm details added, trust account details added, solicitor’s lien added, execution clauses for individuals and corporations added and general formatting and grammatical improvements.
    • Clause on recovery of fees added when purchaser not proceeding.
AUGUST
  • Purchase and Sale of Real Property commentaries – further content on Foreign Resident Capital Gains Withholding Payments added.
  • Sale of Real Property – commentary updated to include discussion of how co-ownership may be brought to an end via partitioning.
JUNE
  • Update First Home Owners’ Grants for 1 July 2016 changes.
MAY
  • Foreign resident capital gains withholding payments amendments made to Commentaries and Retainer instructions.
  • Include foreign resident capital gains withholding payments when over $2 million to all necessary precedents and to do lists.
APRIL
  • File Cover Sheets for all publications have been completely re-formatted for a better look.
MARCH
  • New section included in the commentary on powers of attorney for land transactions to accompany power of attorney precedents.
FEBRUARY 
  • Making life a little easier for practitioners – look out for Blank Deed, Agreement and Execution Clauses folder in the matter plan at the end of each Getting the Matter Underway.

Conveyancing SA

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Conveyancing

OCTOBER
  • Sale and Purchase of Real Property – added in commentary discussing foreign resident clearance certificates.
  • Purchase of Real Property Commentary – clause added on payment of fees when purchaser not proceeding.
  • New Precedents
    • To do list – Sale of real property
    • To do list – Purchase of real property
  • Costs Agreements
    • Disputes section improved, fields for client and firm details added, trust account details added, solicitor’s lien added, execution clauses for individuals and corporations added and general formatting and grammatical improvements.
    • Clause on recovery of fees added when purchaser not proceeding.
AUGUST
  • Sale of Real Property – commentary updated to include discussion on bringing co-ownership arrangements to an end via partitioning.
  • Sale and Purchase of Real Property commentaries – added further content on Foreign Resident Capital Gains Withholding Payments.
MAY
  • Foreign resident capital gains withholding payments amendments made to Commentaries and Retainer instructions.
  • Include foreign resident capital gains withholding payments when over $2 million to all necessary precedents and to do lists.
APRIL
  • File Cover Sheets for all publications have been completely re-formatted for a better look.
MARCH 
  • New section included in the commentary on powers of attorney for land transactions to accompany power of attorney precedents.
FEBRUARY
  • Making life a little easier for practitioners – look out for Blank Deed, Agreement and Execution Clauses folder in the matter plan at the end of each Getting the Matter Underway.

Conveyancing TAS

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Conveyancing

OCTOBER
  • Added commentary discussing valid clearance certificates for foreign residents.
  • Costs Agreements
    • Clause added on payment of fees when purchaser not proceeding
    • Added client and firm fields company execution clause trust account details solicitor’s lien.
    • Disputes section improved, fields for client and firm details added, trust account details added, solicitor’s lien added, execution clauses for individuals and corporations added and general formatting and grammatical improvements.
AUGUST
  • Sale of Real Property – commentary updated to include discussion on bringing co -ownership arrangements to an end via partitioning.
  • Sale and Purchase of Real Property commentaries – further content on Foreign Resident Capital Gains Withholding Payments added.
MAY
  • Foreign resident capital gains withholding payments amendments made to Commentaries and Retainer instructions.
  • Include foreign resident capital gains withholding payments when over $2 million to all necessary precedents and to do lists.
APRIL
  • File Cover Sheets for all publications have been completely re-formatted for a better look.
MARCH
  • New section included in the commentary on powers of attorney for land transactions to accompany power of attorney precedents.
FEBRUARY
  • Making life a little easier for practitioners – look out for Blank Deed, Agreement and Execution Clauses folder in the matter plan at the end of each Getting the Matter Underway.

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