ByLawyers News and Updates

Self managed superannuation funds

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By Russell Cocks, Solicitor

First published in the Law Institute Journal

Many clients choose, often on the advice of accountants, to establish a private superannuation fund rather than invest their superannuation in an industry or retail fund.

The fund is established by a Superannuation Deed and the fund itself is not a legal entity. The Trustee of the fund is the relevant legal entity, holding the assets of the fund on trust for the members of the fund. The Trustee may be one or more natural persons, usually members of the fund, or the Deed may appoint a corporate Trustee. It is the Trustee that enters into contracts on behalf of the fund and becomes the registered proprietor of property owned by the Fund. Section 37 Transfer of Land Act prohibits the notation of a trust on a certificate of title so, whilst reference to the purchaser on a contract as being AS TRUSTEE FOR or ATF is permissible, no reference to the trust capacity is permitted on the Transfer of Land. Accountants, and the ATO, prefer to see reference to the trust capacity on the contract but it is not strictly necessary.

Superannuation funds cannot purchase a property that is used as a residence by a member or related party but can purchase other residential property, or commercial property. Subject to contribution rules, a member can transfer a property to a SMSF and a duty exemption exists pursuant to s 41 Duties Act provided that no consideration is paid by the fund to the member. Alternatively, a member might sell a property to the fund, thereby extracting funds from the fund, but duty must be paid on the value of the property transferred. The Trustee must lodge a Notice of Trust Acquisition pursuant to s 46K Land Tax Act but land held by a Trustee of a SMSF does not attract special land tax.

As superannuation contributions receive the benefit of substantial tax concessions, Government policy requires protection of superannuation funds to avoid dissipation of those funds. Therefore borrowing by a SMSF is regulated and may only be conducted in accordance with the Limited Recourse borrowing regime. This requires the establishment of a separate bare trust, the purpose of which is to hold the property on trust for the trustee of the SMSF, borrow any necessary loan funds using the property as security and, upon repayment of those loans funds, transfer the property to the SMSF Trustee. The loan agreement that the bare trustee enters into acknowledges that, in the event of default, the lender has Limited Recourse to the property that has been purchased and offered as security and that there is no recourse to other assets of the SMSF.

If the bare trust has been established prior to entering into the purchase contract then the purchaser will be the trustee of the bare trust. If the Trustee of the SMSF has entered into the purchase contract before establishment of the bare trust then the SMSF Trustee nominates the trustee of the bare trust to be the transferee.

PRECEDE

Self Managed Superannuation Funds are active participants in the property market.

Tip Box

•It is the Trustee of the SMSF rather than the Fund itself which must be the purchaser and registered proprietor

•SMSF may borrow to fund a purchase but those borrowings must be in accordance with the Limited Recourse Loan regime

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

Conveyancing NSW

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Conveyancing updates

JANUARY 2017
  • ALERT – Requisition Fees – From 1 January 2017, LPI will charge fees for requisitions sent in relation to documents, plans and associated instruments lodged for registration. The fee for a requisition in relation to a dealing, application, request or caveat will be $50. The fee for a requisition in relation to a plan or associated instrument will be $100.
DECEMBER 2016
  • Contract for sale of land – By Lawyers 2016 – Part 1 of 2 – Included Co-Agent on the front page
NOVEMBER 2016
  • Update information regarding strata schemes for commencement of the Strata Schemes Management Act 2015 the Strata Schemes Development Act 2015 and their accompanying regulations on 30 November 2016. Expand commentary on priority notices which can be lodged via PEXA from 28 November 2016.
  • Include reference to OSR Purchaser Declaration on required precedents
OCTOBER  2016
  • Retainer instructions – Sale and Purchase of real property – added s. 47 requirements
  • Costs Agreements
    • 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.
    • 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.
  • Purchase of Real Property – clause added on payment of fees when purchaser not proceeding
SEPTEMBER 2016
  • Purchase of Real Property
    • added case law concerning off the plan contracts for sale
    • reviewed Detailed Cover Sheet to include Mortgagee
  • Sale of Real Property
    • content added in discussion of case law concerning off the plan contracts for sale
AUGUST
  • Sale of Real Property
    • Retainer Instructions – clarify home building warranty for owner builders
    • commentary has been expended to include discussion of circumstances where co-ownership of property can be brought to an end via partitioning
  • Purchase of Real Property
    • commentary on caveat after exchange moved and new commentary on priority notices added
    • further content added on Foreign Resident Capital Gains Withholding Payments
    • Retainer instructions – include reference to purchaser declaration and surcharge duty. Update home warranty information.
MAY
  • By Lawyers Contract for Sale of Land has been updated to 2016 Edition.
  • Included foreign resident capital gains withholding payments when over $2 million to all necessary precedents, commentaries and contracts.
  • Added to Commentary – Verification of identity including new RPA Conveyancing Rules.
APRIL
  • New ‘to do list’ item – Foreign resident CGT withholding payments check.
  • File Cover Sheets for all publications have been completely re-formatted for a better look.
MARCH
  • Alert for swimming pool certificates required from 29 April 2016 added
  • 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.
JANUARY
  • Added commentary in Purchase on declarations of trust and a potential double stamp duty pitfall.

Retail repairs revisited

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By Russell Cocks, Solicitor

First published in the Law Institute Journal

Section 52 Retail Leases Act 2003 makes the landlord of retail premises responsible for maintaining the structure, fittings, plant & equipment and appliances. But for how long?

Traditionally leases were drawn by the landlord’s lawyer and offered to a prospective tenant on a ‘take it or leave it basis’. All the power lay with the landlord. However such a disproportionate relationship is anathema to the consumer protection society and retail tenants, like their residential cousins before them, have become the beneficiaries of protection designed to create a more balanced relationship between landlord and tenant.

Section 52 implies into every retail lease a maintenance obligation on the landlord. This may be contrasted with the traditional approach of foisting repair obligations (excluding the euphemistic ‘structural’ repairs) on to tenants. In a retail environment the obligation to maintain (and therefore repair) primarily falls on the landlord, although leases continue to try to pass ‘residual’ repair obligations on to the tenant.

A number of cases have considered the length of time of the maintenance obligation. From the beginning of the lease the landlord must maintain the premises. For a relatively short term lease, such as 2 years, it might be expected that the premises might not deteriorate substantially and this maintenance obligation might not be too burdensome. However for a long term lease, such as 10 years, it might be expected that substantial maintenance may be required. Indeed, a tenant may take advantage of a number of options to extend the lease to a period of 15 or 20 years. The landlord could expect that the level of maintenance required in such circumstances will involve a substantial cost that needs to be taken into account when negotiating rental.

Ross-Hunt P/L v Cianjan P/L [2009] VCAT 829 considered the landlord’s obligation to repair the air conditioning in a retail office. Air conditioning falls within s 52 and is a facility that deteriorates over time. The cost of maintaining the air conditioning system can be significant and the replacement cost at the end of the life of the equipment can amount to a substantial proportion of the annual rental. The lease had been renewed and the Tribunal concluded that the need for repairs to the air conditioning arose early in the renewed term and was the landlord’s responsibility. The Tribunal concluded that the ‘comparator’ date was the date of renewal. This means that the condition of the premises at the date that complaint is made is compared with the condition of the premises at the last renewal and the landlord is responsible for maintaining the premises in the condition that they were at the time of the last renewal.

Versus v ANH Nominees P/L [2015] VSC 515 however cast doubt on this ‘comparator’ date, at least in respect of damage to the premises requiring repair that arose during the previous term and had not be repaired before the expiration of the previous term. The landlord had argued that the renewal created a new comparator, that the premises after renewal were in precisely the same condition that they were in at the time of renewal and that the landlord therefore had no obligation to improve the premises. Croft J. rejected this argument on the basis that the landlord cannot be permitted to be in a better position after renewal precisely because the landlord had failed to fulfill its s 52 duties during the previous term. Such an outcome would also be contrary to the ameliorating and remedial intention of the Act.

Croft J. also commented that there is no basis to suggest that Parliament could not have intended the landlord to have a continuing repair obligation in a particularly long term lease, such as 20 years. Provided that the landlord observes the repair obligation during the term, the premises should be in a similar state of repair after 20 years, fair wear and tear excepted, and the continuing obligation to repair should not be excessively onerous.

Tip Box

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

Certificates of title in electronic conveyancing

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By Russell Cocks, Solicitor

First published in the Law Institute Journal

Proof of ownership of land has traditionally been linked to a document. Prior to the advent of the Torrens system of land ownership, proof of ownership depended entirely on possession of all prior documents establishing a chain of title and transfer of ownership was achieved by the addition of another document to that chain. The Torrens system simplified that process but still relied on documentary evidence to establish ownership.

The Transfer of Land Act is the statutory foundation for the Torrens system and that Act created an official record of ownership, being the ‘original’ certificate of title retained by the Registrar as a folio of the Register Book and a copy or duplicate certificate of title held by the owner as proof of ownership. The Land Titles Office has been moving away from this paper based system progressively over 20 years and whilst the fundamental principles of Torrens have been retained, reliance on paper has been diminished.

A major signpost in this change was the conversion of the original certificate of title from paper form to a computer based record and the consequent removal of reference to the ‘duplicate’ certificate of title. The document held by the owner to establish ownership was thereafter simply known as the certificate of title but the Act still required production of the certificate of title before the great majority of dealings could be registered. The production of the certificate of title was therefore part of the process of ‘making title’ that harked back to the obligation to produce the chain of title in pre-Torrens days.

Electronic conveyancing has now progressed to the stage that the need to produce a paper title as part of that process cannot be accommodated. To undertake an electronic conveyancing transaction the paper title (pCT) must be converted to an electronic title (eCT) and once that conversion has occurred the Registrar is not required to produce a replacement paper title unless requested to do so (s 27B). Ultimately, all paper titles will be replaced by a digital record in the Register and proof of ownership will be established by a printout of the Register. Hence the need for a strict Verification of Identity protocol.

What then of the requirement to ‘make title’? The relationship between a vendor and purchaser is principally governed by the contract of sale of land and most sales have adopted the standard contract. This in turn has adopted many of the principles developed by the Common Law; such as the doctrine of fixtures and principles relating to misdescription and liability for notices. The requirement to ‘make title’ in previous versions of the standard contract was reflected in conditions that required the vendor to ‘produce all documents necessary to allow the purchaser to become the registered proprietor’ but the current contract requires the vendor to ‘do all things necessary to enable the purchaser to become the registered proprietor’, thus removing the need to produce a document.

To fulfill this contractual obligation where the title has been converted to an eCT the vendor must ensure that the eCT will be available at the Titles Office for the purpose of registering the proposed transfer of land and associated transactions. This is achieved by an Administrative Notice undertaken in the electronic environment whereby the eCT is nominated by the party in control of the eCT to be available for registration of the forthcoming instruments.

A Register Search Statement obtained by a purchaser prior to settlement will confirm this nomination and that the vendor has thus fulfilled the contractual obligation to ‘do all things necessary’ to allow the purchaser to become registered. If the transaction is being conducted as a paper settlement, the RSS will note that the eCT has been nominated to a paper instrument and the stamped Transfer is lodged at the Land Titles Office in the normal way after settlement to meet up with the eCT and be registered. In the ordinary course, a paper title will not issue after registration of that dealing and the title will remain an eCT under the control of the registered proprietor or mortgagee.

Electronic conveyancing has been a long time coming, but it is now coming with a rush. The bulk conversion of some 2 million titles held by the major banks in October 2016 means that many more transactions will involve eCTs. Fundamental principles have been massaged to accommodate the digital world and practitioners will need to understand the changing landscape to be able to continue to service the needs of their clients.

Tip Box

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

Contract – Misleading contracts

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By Russell Cocks, Solicitor

First published in the Law Institute Journal

The conveyancing process in Victoria has the advantage of a ‘standard’ contract of sale that is, more or less, universally adopted. This contract has the imprimatur of government by being adopted by regulation, although it is not obligatory. It contains 29 General Conditions that provide a workable template for a conveyancing transaction and, importantly, are designed to strike a fair balance between the interests of the vendor and the purchaser.

The contract recognises that a particular transaction may require one or more Special Conditions to address specific requirements of that transaction and provision is made for the General Conditions to be supplemented by Special Conditions. However it was not intended that those Special Conditions would fundamentally alter and undermine the balance of power between the parties established by the General Conditions.

A practice has arisen since the ‘new’ contract was introduced in 2008 of vendors adding extensive Special Conditions to the contract which, rather than seeking to address the particular needs of the transaction, actually result in the underlying General Conditions being substantially changed and effectively emasculated. Authors of such contracts need to bear in mind the possibility that such contracts may be found by a court to be misleading and consequently unenforceable, or at least partly so.

Changes that increase the penalty interest rate, shorten the period of time for notice, increase the number of bank cheques, remove rights given to the purchaser in GCs 8 and 24, tinker with obligations at settlement, alter the way that adjustments are calculated and change pre-settlement inspection rights are all designed to alter the relative balance of power between the parties to favour the vendor. There is no doubt that the parties are free to contract on the terms of their choosing but a dissatisfied purchaser may well argue that a contract that is presented in a standard form but includes many changes to that standard form that favour one party only is misleading.

Off the plan contracts

Such changes are particularly prevalent in off the plan contracts. Putting aside whether extensive Special Conditions that largely repeat relevant statutory provisions are even necessary, the adoption of the standard form contract and then alteration of over half of the General Conditions is ludicrous.

Such sales are inevitably in trade and commerce with purchasers regarded as consumers and courts are all too ready to grant protection in circumstances of unequal bargaining power, let alone circumstances where it is clear that the purchaser was lulled into believing that the transaction was governed by a ‘standard’ contract.

Speaking as one of the authors of the standard contract, and on behalf of the other two authors, I say to such draftspeople: by all means draft a contract that provides greater advantage to your vendor client but DO NOT seek to mask that unfair contract within the cloak of the standard contract. That particular Trojan Horse may fall foul of the Australian Consumer Law and Fair Trading Act 2012.

PRECEDE

Altering the General Conditions of sale may create a misleading contract.

Tip Box

  • Special Conditions are meant to supplement the General Conditions
  • Altering the balance of power between vendor and purchaser in the context of a standard contract might be misleading
  • Whilst written for Victoria this article has interest and relevance for practitioners in all states

Contract – Avoiding off the plan contracts 2

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By Russell Cocks, Solicitor

First published in the Law Institute Journal

Quality disputes in off the plan contracts often relate to the size of the finished product

A summary of the provisions of the Sale of Land Act 1962 that allow for avoidance of off the plan contracts was published in the May 2015 Law Institute Journal. Those provisions only relate to a purchaser’s complaints with the terms of the contract, changes to the plan of subdivision or failure to complete the project within the permissible time. Those provisions do not assist a purchaser who is concerned with the end product presented by the developer at the time of settlement.

These disputes relate to the quality of the final product and generally contrast the developer’s commercial aspirations with the purchaser’s aesthetic aspirations. The purchaser was provided with architectural drawings, artist impressions, glossy brochures and perhaps even video impressions upon which the purchaser constructed a home in the sky, but the developer had a black and white construction contract with the builder and a tightly controlled budget. Inevitably, expectation comes up against the rock hard face of reality and tears are often the result.

Developers may include a self-serving ‘entire contract’ Special Condition in the contract in an attempt to quarantine these marketing tools but that is not likely to be successful – Nifsan Developments P/L v Buskey [2011] QSC 314. Thus the dissatisfied purchaser waves the marketing publications and complains that the finished product that the developer wants to be paid for ‘next week’ is nothing like the apartment that the purchaser was expecting.

Apart from the lack of panoramic views which were promised by the development (as in Nifsan), the most common complaint is size. The purchaser is often appalled when the actual size of the built apartment is substantially less than their expectations and the existence of architectural drawings can lend some weight to those complaints. The problem is that there are at least three methods of measuring the area of a building and inevitably the developer will have adopted the ‘external walls’ method and the purchaser will wish to adopt the ‘internal walls’ method. Purchaser’s financiers seem to adopt the third method which might be described as the ‘minimalist’ method, which focuses on useable space.

A purchaser was successful in avoiding a contract in such circumstances in Birch v Robek Aust P/L [2014] VCC 68. Because the vendors in these transactions will generally be engaged in trade and commerce, the provisions of the Australian Consumer Law will apply. This provides the purchaser with a whole suite of rights and remedies beyond those available in relation to a quality dispute under the common law, limited as it is by the principle of caveat emptor.

The court considered the purchaser’s claim based on the ACL and held that the marketing information, specifically the architectural plans with dimensions of the apartment, gave the purchaser an entitlement to expect that the final product would be reasonably consistent with those plans. That the developer might have intended the dimensions shown on those plans to be the external dimension of the building and that the purchaser expected them to represent the internal dimensions was not relevant when the court was satisfied that the actual dimensions were substantially less than the plans represented.

On one method there was a deficiency of 16%, on another 12% and on the developer’s method, 2%. The court was satisfied that the discrepancy exceeded 5% and adopted the principle in Flight v Booth (1834) 131 ER 1160 that such a discrepancy justified avoidance. The court also found a breach of the ACL which would justify avoidance. Arguably, such a breach might also form the basis for a claim for compensation by a purchaser who resolved to settle notwithstanding some deficiency.

This decision may be compared with Sivakriskul v Vynotes P/L [1996] VicSC 497 (unreported) that was apparently not cited to the court. That decision denied a purchaser’s claim and adopted the ‘external walls’ method, although that decision was made prior to the introduction of the ACL.

Tip Box

  • Quality disputes relating to off the plan purchases may attract the Australian Consumer Law
  • Discrepancies in measurements may give purchasers rights to avoid or claim damages
  • Whilst written for Victoria this article has interest and relevance for practitioners in all states

Time of the essence

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By Russell Cocks

First published in the Law Institute Journal

‘Time is of the essence’ is indeed a time honoured phrase. Both the common law and equity have recognised the significance of the obligation of contracting parties to comply with time constraints included in their contract. Whilst the common law typically adopted a hard-line approach, equity was more inclined to enforce such obligations if the failure to comply prompted the service of a notice requiring compliance with the contract and the defaulting party failed to comply with that notice.

Thus the various iterations of the standard form contract of sale of land in Victoria have for 50 years included a provision specifying that time is of the essence in relation to the obligations of the parties and providing that a party that is in default in performance of the contract may be served with a notice identifying that default and requiring the defaulting party to remedy that default, failing which the contract could be ended.

The current contract (being the 2008 version, as amended) includes these 3 components in 3 parts:

  • GC 16
    makes time of the essence;
  • GC 27
    requires the service of a default notice; and
  • GC 2
    specifies the consequences of non-compliance.

Carbon Black Lab P/L v Launer [2015] VSCA 126 is the first reported case to consider the operation of these new General Conditions, previous cases having considered the issues of time and default in the context of Condition 6 of Table A of the 7th Schedule of the Transfer of Land Act 1958 that governed such issues until the 2008 contract was adopted. The case has decided that a previously accepted requirement in relation to rescission of the contract by notice does not apply to the new provisions.

The case concerned an application to remove a purchaser’s caveat. The vendor claimed that the contract had been ended by notice but the purchaser argued that the procedure adopted by the vendor was deficient. The first issue concerned the question of time being of the essence and the Court concluded that, notwithstanding that the vendor had granted the purchaser one formal extension of time and a further “indulgence”, time was again made ‘of the essence’ when the vendor served a default notice requiring the purchaser to settle within 14 days. The vendor relied on this notice to terminate the contract at the end of that 14 days but the purchaser argued, on the basis of reasonably well settled authority arising from the Table A process, that the vendor’s notice had only made time of the essence again and that the purchaser was therefore only in default at the expiration of that notice and that the vendor was required to give a further 14 day notice based on that default.

The Court acknowledged that the wording of Table A had previously been interpreted as requiring two notices – one to make time of the essence again and one to give notice of default – but concluded that the wording of GCs 27 and 28 did not require an antecedent notice making time of the essence before service of a default notice that operated to successfully end the contract. The default notice served to achieve both purposes – to make time of the essence again AND to end the contract after 14 days if the defaulting party did not remedy the default.

Tip Box

•Time is of the essence in land contracts

•Time may cease to be of the essence, but may be made of the essence again by service of an appropriate notice

•That notice can also operate as a default notice under GC 27 and may operate to end the contract if GC 28 is complied with.

Contract – Avoiding off the plan contracts 1

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By Russell Cocks, Solicitor

First published in the Law Institute Journal

Contracts that relate to the sale of land prior to approval of a plan of subdivision are the subject of ss 9 and 10 Sale of Land Act. Whilst not specifically defined as such, Off the Plan contracts are referred to as ‘prescribed contracts’ (s 9AA(7)).

s 9AA

This essentially relates to the deposit that is payable under a prescribed contract.

A prescribed contract must provide that the deposit be held on trust for the purchaser pending registration of the plan (s 9AA (1)(a)) and limits the deposit to a maximum of 10% of the purchaser price (s 9AA(1)(b)). For an abundance of caution s 9AA(2) provides that the deposit must in fact be paid into a trust account.

Failure by the vendor to comply with s 9AA(1) or (2) entitles the purchaser to rescind the contract at any time before the registration of the plan – s 9AE.

The LIV copyright contract includes the required conditions.

s 9AB

Creates an obligation on the vendor of a prescribed contract to disclose in the contract (s 9AB(1)) and as an ongoing obligation during the contract (s 9AB(2)) works affecting the natural surface level of the lot or adjoining land.

Breach of this obligation also justifies rescission under s 9AE. It is common in large scale land subdivision to see these ‘fill plans’ as land subdividers effectively push and pull land around to create relatively flat building allotments. Purchasers are entitled to know where large amounts of fill may be deposited as this can have a substantial effect on building costs. But it is rare to see ‘fill plans’ in sales of residential units. Everest Projects P/L v Mendoza [2008] VSC 366 accepted the argument that lots on upper floor did not have a ‘natural surface level’ for the purposes of this requirement, reserving for another day any argument about lots that may be constructed or adjoining ground level.

s 9AC

The amendment of a plan of subdivision in a prescribed contract between the date of the contract and the time of registration of the plan of subdivision may justify rescission.

The sub-section envisages the possibility of an amendment arising from the actions of one of two sources:

  1. the Registrar of Titles may ‘require’ an amendment; or
  2. the vendor may ‘request’ an amendment.

The vendor is obliged to ‘advise the purchaser in writing of the proposed amendment’ and that advice must be provided within 14 days of the Registrar’s requirement or the vendor’s request.

The purchaser’s right to end the contract pursuant to s 9AC does NOT end upon registration of the plan. It ends 14 days after sufficiently specific advice of the proposed amendment is provided to the purchaser. If the vendor has amended the plan after contract and has not provided the purchaser with any, or any sufficient, advice about the amendment then the purchaser remains entitled to end the contract within 14 days of receiving such advice. If the vendor advises the purchaser that the plan is registered the contract will generally require the purchaser to settle within a period of 7 to 14 days from advice of registration. The purchaser must at that stage satisfy itself in relation to amendments as the purchaser is contractually bound to settle unless the purchaser can rely on this statutory right to avoid, which right has survived registration of the plan.

The mere provision of an amended plan by the vendor without more might not satisfy the vendor’s advice obligation.

Once advice is given by the vendor to the purchaser, the purchaser has 14 days in which to rescind the contract, but may only do so if the amendment ‘materially effects’ the lot.

Besser v Alma Homes P/L [2012] VSC 460 held that an amendment to the entitlement and liability Schedule materially affected the purchaser’s lot and the purchaser was entitled to rescind.

Lockwood v PSP Investments P/L [2013] VSC 10 held that a change in car parking arrangements was ‘material’. The court held that the purchaser satisfied the sub-section by proving ‘material effect’ and did not have to additionally prove detriment. Other changes to the plan were held to be not “material” and reference in this regard was made to Gold Coast Carlton P/L v Wilson [1985] Qd R 182 where minor changes to anticipated Owners Corporation charges were NOT material.

These provisions put a heavy burden on purchaser’s advisors in respect of checking registered plans against contractual plans.

s 10

That we have both s 9AC and s 10 is probably a legislative quirk and there would be benefit achieved if they could be merged as they both address amendments to the proposed plan of subdivision. Importantly, s 10 is limited in its application to PRIOR to registration of the plan and if the purchaser has not exercised the s 10 rights before registration, those rights expire.

Section 10 has a ‘restriction’ focus and in fact excludes restrictions imposed by a public authority as part of the subdivisional process from justifying avoidance. However such a restriction would generally ‘materially effect’ the lot and s 9AC would apply.

s 9AE

Section 9AE(1) is the penalty provision for breach of other provisions and allows for rescission for breach of ss 9AA(1) or (2) or 9AB.

9AE(2) is a stand alone provision creating an obligation and a right to rescind for breach. The obligation is to have the plan registered within what is known as a sunset period, being 18 months from the date of the relevant contract, or such other date as is specified in the contract.

Solid Investments P/L v Clifford [2010] VSCA 59 established that whilst the vendor is free to nominate in the contract a period other than the default period of 18 months established by the sub-section, that nominated period is fixed and cannot be unilaterally extended by the vendor.

Tip Box

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

Subject to contract

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By Russell Cocks, Solicitor

First published in the Law Institute Journal

Whilst it is relatively simple to state legal principles, the application of those principles always depends upon the specific facts of the case. That is why it is not possible for a lawyer to advise a client what the outcome of any particular dispute will be. The best that we can do is weigh up the competing arguments and take our best shot – 80/20, 60/40, 50/50. It is for the client to decide whether they want to roll the dice and we then spend our time hoping to get a result.

One principle that is fairly well entrenched in the law relating to contracts for the sale of land is the need for the parties to have reached a concluded agreement and the unlikelihood of that requirement being satisfied if the negotiations between the parties include the expression ‘subject to contract’ and no formal contract is ultimately entered into.

Establishing the existence of a legally binding contract of sale is a serious matter for our courts and where one party to negotiations, let alone both parties, have included the phrase ‘subject to contract’ in their offer or acceptance it is usually concluded that the parties had not, as at that point in time, reached the point where they intend to be legally bound to proceed with the transaction. Faced with those facts, a reasonably experienced property lawyer would probably predict an 80/20 outcome in favour of NO CONTRACT.

BUT NO. The Queensland Supreme Court case of Stellard P/L v North Queensland Fuel P/L [2015] QSC 119 defied the odds and concluded that the negotiations had indeed been consummated notwithstanding the words ‘[T]his offer is of course subject to contract’ in the email containing the offer and the words ‘subject to execution of the contract provided’ being used in the subsequent email acceptance. Significantly, after acceptance of the offer, the purchaser submitted another form of contract and indicated that the purchaser was anxious ‘to exchange this contract as soon as possible’. The betting went to 90/10 at that stage but the result still went the other way.

It appeared significant that the vendor had another purchaser ‘on the line’ and appeared to be playing one off against the other, but that hardly seems sufficient to overcome what appeared to be a fairly clear case of both parties consciously delaying final commitment until the formal signing and exchange of contracts.

The case also considered the role of email communications in the exchange of contract environment. Victoria requires an enforceable contract to be signed by a party, or a person authorised in writing by the party, s 126 Instruments Act, and the Queensland provision requires signing by a party or a person authorised by a party. Both States have adopted the uniform Electronic Transactions Act.

There was no contest that the negotiators were authorised to bind the respective parties but the acceptance email made no reference to the representative character of the author. However the court was satisfied that this requirement could be satisfied by reference to surrounding circumstances, including telephone conversations and the offer email. This approach is reflective of the fairly ‘embracing’ attitude shown by courts to the adoption of the various Electronic Transactions Acts.

Tip Box

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

Avoiding off the plan contracts – Statutory rights

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By Russell Cocks, Solicitor

First published in the Law Institute Journal

Contracts that relate to the sale of land prior to approval of a plan of subdivision are the subject of ss 9 and 10 of the Sale of Land Act. Whilst not specifically defined as such, Off the Plan contracts are referred to as ‘prescribed contracts’ s 9AA(7).

Section 9AA

This essentially relates to the deposit that is payable under a prescribed contract.

A prescribed contract must provide that the deposit be held on trust for the purchaser pending registration of the plan, s 9AA (1)(a), and limits the deposit to a maximum of 10% of the purchase price, s 9AA(1)(b). For an abundance of caution s 9AA(2) provides that the deposit must in fact be paid into a trust account.

Failure by the vendor to comply with s 9AA(1) or (2) entitles the purchaser to rescind the contract at any time before the registration of the plan – s 9AE.

The Law Institute of Victoria copyright contract includes the required conditions.

Section 9AB

Creates an obligation on the vendor of a prescribed contract to disclose in the contract, s 9AB(1), and as an ongoing obligation during the contract, s 9AB(2), works affecting the natural surface level of the lot or adjoining land.

Breach of this obligation also justifies rescission under s 9AE. It is common in large scale land subdivision to see these ‘fill plans’ as land subdividers effectively push and pull land around to create relatively flat building allotments. Purchasers are entitled to know where large amounts of fill may be deposited as this can have a substantial effect on building costs. But it is rare to see ‘fill plans’ in sales of residential units. Everest Projects P/L v Mendoza [2008] VSC 366 accepted the argument that lots on upper floor did not have a ‘natural surface level’ for the purposes of this requirement, reserving for another day any argument about lots that may be constructed or adjoining ground level.

Section 9AC

The amendment of a plan of subdivision in a prescribed contract between the date of the contract and the time of registration of the plan of subdivision may justify rescission.

The sub-section envisages the possibility of an amendment arising from the actions of one of two sources:

  1. the Registrar of Titles may ’require’ an amendment; or
  2. the vendor may ‘request’ an amendment.

The vendor is obliged to ‘advise the purchaser in writing of the proposed amendment’ and that advice must be provided within 14 days of the registrar’s requirement or the vendor’s request.

The purchaser’s right to end the contract pursuant to s 9AC does NOT end upon registration of the plan. It ends 14 days after sufficiently specific advice of the proposed amendment is provided to the purchaser. If the vendor has amended the plan after contract and has not provided the purchaser with any, or any sufficient, advice about the amendment then the purchaser remains entitled to end the contract within 14 days of receiving such advice. If the vendor advises the purchaser that the plan is registered the contract will generally require the purchaser to settle within a period of 7 to 14 days from advice of registration. The purchaser must at that stage satisfy itself in relation to amendments as the purchaser is contractually bound to settle unless the purchaser can rely on this statutory right to avoid, which right has survived registration of the plan.

The mere provision of an amended plan by the vendor without more might not satisfy the vendor’s advice obligation.

Once advice is given by the vendor to the purchaser, the purchaser has 14 days in which to rescind the contract, but may only do so if the amendment ‘materially effects’ the lot Besser v Alma Homes P/L [2012] VSC 460 held that an amendment to the entitlement and liability Schedule materially affected the purchaser’s lot and the purchaser was entitled to rescind.

Lockwood v PSP Investments P/L [2013] VSC 10 held that a change in car parking arrangements was ‘material’. The Court held that the purchaser satisfied the sub-section by proving ‘material effect’ and did not have to additionally prove detriment. Other changes to the plan were held to be not ‘material’ and reference in this regard was made to Gold Coast Carlton P/L v Wilson [1985] Qd R 182 where minor changes to anticipated Owners Corporation charges were NOT material.

These provisions put a heavy burden on purchaser’s advisors in respect of checking registered plans against contractual plans.

Section 10

That we have both s 9AC and s 10 is probably a legislative quirk and there would be benefit achieved if they could be merged as they both address amendments to the proposed plan of subdivision. Importantly, s 10 is limited in its application to PRIOR to registration of the plan and if the purchaser has not exercised the s 10 rights before registration, those rights expire.

Section 10 has a ‘restriction’ focus and in fact excludes restrictions imposed by a public authority as part of the subdivisional process from justifying avoidance. However such a restriction would generally ‘materially effect’ the lot and s 9AC would apply.

Section 9AE

Section 9AE(1) is the penalty provision for breach of other provisions and allows for rescission for breach of s 9AA(1) or (2) or s 9AB.

Section 9AE(2) is a stand-alone provision creating an obligation and a right to rescind for breach. The obligation is to have the plan registered within what is known as a sunset period, being 18 months from the date of the relevant contract or such other date as is specified in the contract.

Solid Investments P/L v Clifford [2010] VSCA 59 established that whilst the vendor is free to nominate in the contract a period other than the default period of 18 months established by the sub-section, that nominated period is fixed and cannot be unilaterally extended by the vendor.

Tips

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

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