ByLawyers News and Updates

Inspection – Right to inspect

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By Russell Cocks

First published in the Law Institute Journal

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

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

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

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 The purchaser failed to settle and the vendor rescinded.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

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

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

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

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

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

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

Tip Box

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

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

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

Contract of Sale of Land – VIC

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

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

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

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

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

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

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

Retail lease outgoings

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By Russell Cocks, Solicitor

First published in the Law Institute Journal

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

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

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

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

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

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

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

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

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

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

Tip Box

•retail landlords must provide estimates of outgoings in advance

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

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

Land tax – VIC

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Land tax Victoria – Absentee owner surcharge

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

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

By Lawyers wish everyone a happy holiday season.

Measurements

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By Russell Cocks, Solicitor

First published in the Law Institute Journal

Contracts for the sale of land often present a discrepancy between the title dimensions and the physical dimension on the ground. This problem has traditionally been dealt with by an IDENTITY condition in the contract.

Wollert Epping Developments P/L v Batten [2019] VSC 618 (Wollert) is the first case on the topic for some years and the first to consider the current standard identity clause, being General Condition 3 of the LIV/REIV contract in use between 2008 and 2019 and General Condition 7 of the LIV/REIV contract that was adopted in August 2019. As was said in Wollert, quoting from a previous judgment by Brooking J, identity clauses:

“had long been common in Victoria in contracts of sale of land under the TLA… since at least the middle of the century”.

The function of the identity clause is to chart a course between the rights of the vendor who is able to deliver title to the land and the rights of a purchaser who complains that the title does not comply with the dimensions of the land as represented by the physical boundaries, typically the fences.

The common law took a strict view in relation to dimensions and any small discrepancy entitled the purchaser to avoid the contract. Equity sought to ameliorate this harsh outcome and introduced the alternative remedy of compensation for deficiency. The standard identity clause prior to 2008 adopted this compromise by denying the right to avoid but allowing the possibility of compensation. Since 2008 the standard identity clause has denied the right to avoid and also denied a right to compensation. As explained in Wollert, by reference to an article by myself, this was justified by the fact that modern conveyancing is conducted under the auspices of s.32 Sale of Land Act and a purchaser has full details of the vendor’s title before entering into the contract and consequently has the ability to undertake a comparison of the occupational boundaries as against the title dimensions before committing to the purchase.

Wollert concerned the sale of valuable development land on the outskirts of Melbourne. The vendors were long-time farmers and the purchaser was a subdivisional developer. After signing the contract, the purchaser discovered an encroachment on one boundary. The title dimensions showed the land to be 58.1 ha. and the encroachment was approximately 500sm. or 0.92% of the area. The purchaser argued that this constituted a breach of the warranties in General Condition 2.3(c)&(e) concerning possession of the land and passing unencumbered title at settlement, and General Condition 10(1)(b) requiring delivery of vacant possession. The vendor argued that GC.3 prevailed over those warranties and that the discrepancy did not give rise to a right to avoid or claim damages.

The first point to be considered was whether the property was sold by title or sold by description. The contract referred to both the title description and the land description and if the sale was by description (rather than title) there was no misdescription as the property at the address in the contract was capable of being delivered. Wollert settled this argument by deciding that the sale was by title, not description. The second question therefore was how did the warranty conditions interact with the identity condition.

After a consideration of the law relating to identity clauses generally, Derham AsJ. concluded that the identity clause (GC.3) prevailed over the warranty conditions in circumstances where the “difference in the measurements of the land as shown in the Certificate of Title compared with the land as occupied by the Vendors is not of such consequence that it may be reasonably supposed that but for the error or misdescription the purchaser would not have entered into the Contract.” His Honour had previously referred to “the common law principle – the so-called rule in Flight v Booth, to the effect that a significant discrepancy will justify avoidance of the contract by the purchaser, and the associated ‘rule of thumb’ that a 5% or greater diminution in area is likely to be considered significant.”

It is fair to say that this judgment has settled a long-standing uncertainty in relation to measurement disputes in Victoria and has come down on the side of the identity condition adopted by the standard contract of sale. Notwithstanding the rise of consumer protection and the demand for vendor disclosure, the purchaser still bears a due diligence obligation in relation to the basic compliance between title dimensions and occupational boundaries. Only a ‘significant’ discrepancy will entitle a purchaser to avoid the contract.

Tip Box

  • Identity conditions are common in contracts for the sale of land
  • A discrepancy between title and occupation will not invalidate the sale unless significant
  • As a rule of thumb a 5% discrepancy will be significant

Avoiding off the plan contracts – A sequel

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By Russell Cocks, Solicitor

First published in the Law Institute Journal

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

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

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

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

The purchaser terminated the contract on three bases:

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

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

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

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

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

Tip Box

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

Companies – FED

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Following an extensive author review, the By Lawyers Companies guide has been substantially enhanced. Users will find new commentary and a number of helpful new precedents.

The commentary now includes sections on Running a company and Company disputes.

With trademark By Lawyers practicality, the new sections of commentary assist practitioners to advise clients about most of the common issues which arise in the operation of small private companies, from managing company business, conducting meetings, issuing new shares and dealing with various types of company disputes, to negotiating share sales, handling insolvency events and participating in voluntarily winding up. Some aspects of the existing commentary on Setting up a company have also been enhanced and new precedents added.

Users will find the following new precedents have been added to the By Lawyers Companies Guide:

  • Retainer instructions – Company disputes;
  • Initial letter to company which has received a statutory demand;
  • Letter to the client  to make an appointment to sign documentation required for incorporation;
  • Letter to the client advising that the company has been incorporated;
  • Letter to the client with draft shareholder’s agreement;
  • New letters gathering information relevant to company disputes:
    • Letter to client requesting relevant documents;
    • Letter to director requesting inspection of company minutes;
    • Letter to director requesting company records; and
    • Letter to director advising of intention to seek a s 247A order to inspect company records;
  • New option precedents:
    • Notice of exercise of call option;
    • Notice of exercise of option to purchase
    • Notice of exercise of put option;
    • Notice of appointment of nominee;
    • Letter to seller’s solicitor exercising option; and
    • Letter to buyer’s solicitor exercising option;
  • Company resolution; and
  • Minutes of meeting – Directors.

These substantial enhancements to this already popular publication are part of By Lawyers commitment to constantly add value for our users and keep our content updated.

We invite you to peruse the new commentary and precedents in the Companies Guide, located in the Companies, Trusts, Partnerships and Superannuation publication. Also available in the Reference materials folder on each of these matter plans is the helpful reference manual Business structures and comparative table, which compares and contrasts the different types of business structures and considers their advantages and disadvantages, including from a taxation point of view.

 

 

 

Powers of Attorney – All states

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The By Lawyers Powers of Attorney Guides have been updated. Amendments address the issue of attorneys who require access to the principal’s will to enable them to make informed decisions.

Generally, attorneys are not entitled to access their principal’s will. However, in some cases it is important that the attorney reviews the principal’s will, to ensure the attorney acts in accordance with the best interests and the wishes of the principal.

For example, the attorney may need to sell one of the principal’s assets to fund medical care of the principal. By reviewing the principal’s will, the attorney can learn that a particular asset has been specifically bequeathed. The attorney may therefore decide not to sell the bequeathed asset and instead sell an asset that will form part of the residue of the principal’s estate.

The following changes have been made to the Powers of Attorney publications in each state:

  1. New sections of Commentary discussing the issue;
  2. A new question in the Retainer Instructions to prompt consideration of the issue; and
  3. A new precedent clause Access to will has been added in the Library of Clauses for Power of Attorney.

Magistrates’ Court – Review

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The By Lawyers Magistrates’ Court Civil (VIC) Publication has been reviewed and updated to ensure that the content is in line with current law and practice.

Publication review

The extensive review was performed by our author Nawaar Hassan, barrister at Isaacs Chambers. Like all By Lawyers authors, Nawaar takes a pragmatic approach to practice and procedure, drawing on her considerable litigation experience to provide information that will help lawyers confidently represent their clients.

Some of the enhancements to the By Lawyers Magistrates’ Court Civil (VIC) Publication as a result of this review include:

Expanded commentary on –

  • Limitation periods.
  • Costs disclosure and ensuring costs are fair and reasonable.
  • Calderbank offers.
  • Terms of settlement.
  • Civil Procedure Act obligations.
  • Pre-hearing conference.

New commentary on –

  • Electronic filing.
  • Small claims procedure.
  • Case management.
  • Use of audio-visual evidence.
  • Bringing and defending counterclaims.
  • Appeals to the Supreme Court.

We invite subscribers to explore this publication and to consider the wealth of assistance it offers lawyers appearing for clients in civil matters in the Magistrates’ Court.

County Court – VIC

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The By Lawyers County Court Civil (VIC) Publication has been reviewed and updated to ensure that the precedents and commentaries are in line with current law and practice.

Publication review

The extensive review was performed by our author Nawaar Hassan, barrister at Isaacs Chambers. Like all By Lawyers authors, Nawaar takes a pragmatic approach to practice and procedure in the County Court, drawing on her considerable litigation experience to provide information that will help lawyers confidently represent their clients.

Some of the enhancements to the By Lawyers County Court Civil (VIC) Publication as a result of this review include:

Expanded commentary on –

  • Limitation periods.
  • Costs disclosure and ensuring costs are fair and reasonable.
  • Alternative dispute resolution and settlement.
  • Civil Procedure Act obligations.
  • Preparing and filing a defence.

New commentary on –

  • Electronic filing.
  • Calculating time limits.
  • Effectively communicating with the court.
  • Case management procedure including practice notes and directions.
  • Practical tips when briefing counsel.

New precedent

A new precedent Example content – Consent orders – Discontinuance of proceedings has been added to both plaintiff and defendant guides. All of the existing precedents in the guides have also been reviewed to ensure they reflect current law and practice.

We invite subscribers to explore this publication and to consider the wealth of assistance it offers for lawyers appearing for clients in civil matters in the County Court.

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