By Russell Cocks, Solicitor

First published in the Law Institute Journal

Section 32 Sale of Land Act requires a vendor to provide a purchaser with a Vendors Statement disclosing certain specified information in relation to the property. The purchaser may avoid the contract if there is a breach of s 32,
but the vendor has an ‘escape hatch’ in s 32K.

Last year McHutchison v Asli [2017] VSC 258 considered whether a vendor could rely on s 32K in circumstances where a planning permit for a septic sewerage system was not disclosed. Downing v Lau [2018] VCC 33 is a County Court decision considering s 32K in the context of non-disclosure of a planning permit relating to future development of the property.

Unlike in McHutchison, where the obligation to disclose the notices was contested by the vendor, Downing proceeded on the concession by the vendor that the planning permit was a ‘notice’ affecting the land within the meaning of s 32D(a). This is consistent with the decision in McHutchinson and must now be beyond doubt. The question in Downing therefore became – could the vendor rely on s 32K?

The two elements to s 32K are:

• that the vendor acted honestly and reasonably and ought to be excused; and
• that the purchaser is substantially in as good a position.

The vendor’s failure to disclose related to a current planning permit that had been obtained some time before the sale and which permitted the construction of four units on the land. Unlike the permit in McHutchinson, which imposed conditions on the use of the property and was therefore restrictive, the permit in Downing did not require construction of the units, it was simply a permissive notice. Nevertheless, it should have been disclosed. That it was not disclosed was a decision of the vendor’s conveyancer, who (mistakenly) was of the view that it did not need to be disclosed.

A vendor who has been personally negligent is not likely to qualify as ‘honest and reasonable’, so the question was whether the vendor would be vicariously liable for the vendor’s representative’s negligence. This had previously been considered by the Supreme Court in Paterson v Batrouney & Anor [2000] VSC 313 where elderly vendors were found not to be responsible for their representative’s negligence. Downing considered the question in the context of the law of agency and decided that the representative was retained by the vendor as an expert and was not the vendor’s agent, at least not for the purpose of preparing the Vendor Statement. Whilst the representative might be the vendor’s agent for other parts of the transaction, that agency did not extend to preparation of the Vendor’s Statement and the vendor was therefore not vicariously liable for the expert’s negligence.

Downing, in adopting Paterson v Batrouney, chose not to follow other authority and it may be that the matter will be reconsidered by the Supreme Court in the future.

Having found that the vendor satisfied the first leg of s 32K, the inquiry then turned to whether the ‘purchaser is in substantially as good a position’. The purchaser felt aggrieved because the purchaser had intended to seek a permit to construct eight (or perhaps seven) units and took the view that the existence of the permit for four units substantially affected the purchaser’s ability to get a permit for 7-8 units, notwithstanding that expiry of the four unit permit was imminent. Alternatively, the purchaser argued that a property with a disclosed four unit permit was worth less than a property without such a permit, as this property had been represented.

No valuation evidence was tendered to prove the second point and the court was not satisfied that the existence of the almost expired four unit permit meant that the purchaser could not achieve its desired outcome of a permit for 7-8 units. The court appeared to take the view that the purchaser regarded the property as ‘tainted’ by the four unit permit without being able to prove in any meaningful way that the purchaser was not substantially in as good a position.

The vendor was therefore held to have been entitled to accept the purchaser’s purported termination of the contract for breach of s 32 as a repudiation of the contract and thereby entitled to judgment for the amount of the unpaid deposit and interest at penalty rates.

Tip Box

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

• s.32K allows a vendor to avoid termination for breach of s.32.
• a vendor will not be responsible for the negligence of an expert.
• purchaser cannot avoid if in as good a position.