ByLawyers News and Updates

Conveyancing – GST withholding – additional commentary, amendments to contracts and precedents

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The requirement for purchasers to withhold and remit GST on taxable supplies of certain real property under subdivision 14-E Schedule 1 Taxation Administration Act 1953 comes into force on 1 July 2018. This applies to all contracts that settle after 1 July. The transitional arrangements are that contracts entered into prior to 1 July 2018 and settle before 1 July 2020 are exempt from the withholding regime.

The sale and purchase commentaries in all states have been updated, the By Lawyers contracts in NSW and VIC have appropriate new provisions and precedent letters are being updated.

Vendor statement – Honest and reasonable

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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.

VIC Criminal – Proposed bail reform

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A summary of the proposed amendments to the Bail Act 1977 has been added to the Commentary in the Criminal Magistrates’ Court (VIC) Guide.

The cumulative effect of these amendments is a significant overhaul of bail procedure in Victoria. They may or may not achieve their objectives, but regardless the impact is potentially significant.

The commentary will be updated when the legislation commences.

The first stage of these amendments is expected to commence 1 July 2018 with the second stage likely to commence later in the year.

Wills retainer instructions – All states – Burial, cremation and medical research details

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Retainer instructions in all states – for individuals and couples – have been enhanced with the addition of burial, cremation and medical research client details.

For instance, does the client wish to:

  • detail funeral service arrangements;
  • detail wishes regarding burial or cremation of their remains; or
  • make provision for ongoing cemetery or crematorium fees?

VIC – Powers and Advance Care Directives – Precedent coding – New table types

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The Medical Treatment Planning and Decisions Act 2016 came into effect on 12 March 2018 and our Powers and Advance Care Directive publication was updated accordingly.

New precedents reflecting those changes were added:

  • Advance care directive and corresponding revocation form;
  • Appointment of medical treatment decision maker and corresponding resignation and revocation forms;
  • Appointment of support person and corresponding resignation and revocation forms.

These precedents have now been coded with the new table types – Medical Decision Maker and Support Person. You will need to add these table types to existing matters for your forms to populate.

Estate planning – An exciting opportunity for small law firms – By Brad Watts

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Wills have traditionally been seen as valuable because they eventually bring the firm estate work, rather than valued for the fees associated with the wills themselves. However, estate planning is a different thing and many firms are now taking a far more comprehensive approach, with a far more profitable result.

Brad Watts has written an article outlining some of the opportunities for law firms in estate planning: Estate planning – An exciting opportunity for small law firms. We take this opportunity to introduce Brad to those who do not know him.

Brad has contributed to By Lawyers publications for over 10 years, and has this year joined By Lawyers as a Senior Consultant and Editor. Admitted as a solicitor of the Supreme Court of NSW in 1994, Brad worked in general practice for 21 years, before moving to the NSW Crown Solicitors Office as a Solicitor Advocate and then A/Director. Having owned and managed small law firms, with substantial experience in all aspects of general practice and extensive experience in criminal and civil litigation, Brad offers a wealth of knowledge and practical assistance to our subscribers.

 

VIC – Powers and Advance Care Directives – Medical Treatment Planning and Decisions Act 2016

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The Medical Treatment Planning and Decisions Act 2016 commenced 12 March 2018. It gives statutory recognition to advance care directives and simplifies and contemporises laws relating to medical treatment decision making for people without decision making capacity. The By Lawyers VIC Powers and Advance Care Directives matter plan, precedents and commentary have been updated accordingly.

Costs – All costs agreements now able to be signed electronically

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All of the By Lawyers costs agreements now have electronic signature fields allowing them to be signed electronically via DocuSign, which is available to LEAP in the cloud users. The fee disclosure for this service has also been added into the disbursement section of the costs agreements, should the client choose to take advantage of this service.

 

By Lawyers Contract of Sale of Land – Victoria

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A new form of contract, co-authored by Russell Cocks, providing a vendor’s statement and contract in one document.

The contract is specifically designed for residential conveyancing transactions and seeks to smooth some of the traditional road blocks that arise in these transactions.

The By Lawyers Contract of Sale of Land is located in the Contract folder in the Sale of Real Property Guide.

Seven reasons to use the By Lawyers contract

  1. The Contract and Vendor’s Statement are combined into ONE document, with the Vendor’s Statement, logically, coming FIRST. The Vendor’s Statement is formatted in such a way as to deal with the obligatory fields first and then group the optional fields in way that makes removal of those fields simple if they are not required.
  2. Particulars of Sale in the Contract includes a “sunset date” for off the plan approval. No more searching through mountains of Special Conditions.
  3. Non-derogation warranty. General Conditions can be amended by Special Conditions BUT not such as to reduce the rights created by the General Conditions. No more contracts that say one thing on page 1 and reverse that on page 15. This Contract is fair to both parties; if someone wants to create an unfair contract they cannot hide it within this contract.
  4. General Condition 12 – deposit release. Establishes a clear protocol for release by requiring timely objection to title.
  5. General Condition 14 – loan condition. Extends time for approval to 21 days and allows for automatic extension, subject to vendor’s ability to end the extension by notice.
  6. General Condition 25 – losses. Removes disputes relating to default losses from the settlement process and allows the parties to resolve these issues after settlement.
  7. General Conditions 27 & 28 – default and rescission notices. Divides the process into two steps with specified legal cost in respect of notices.

There are also other improvements, such as simple off the plan and electronic conveyancing conditions, a requirement that a vendor produce a copy lease at settlement and a clause passing ownership of abandoned goods to the purchaser. This Contract continues the quest commenced by the 2008 Contract (remember Requisitions?) to simplify conveyancing by ironing out the speedhumps.

Deposit – Forfeiture of deposit

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By Russell Cocks, Solicitor

First published in the Law Institute Journal

A vendor may forfeit a deposit if the contract is ended but there are some circumstances where relief against forfeiture may be granted.

There are two basic principles in property law that generally co-exist but are capable of coming into conflict:

  • a deposit is an earnest paid to secure the performance of the contract; and
  • the law will not enforce a penalty imposed for breach of contract.

These two principles are usually able to co-exist as a result of the law recognising that a payment that constitutes a genuine pre-estimate of a vendor’s losses upon default by the purchaser is not a penalty and that a deposit of 10% of the price is an acceptable pre-estimate of such losses.

It is therefore fair to say that, in circumstances where the purchaser has paid a 10% deposit, a vendor who seeks to forfeit that deposit as a result of the purchaser’s breach of contract will be on safe ground. Section 49 Property Law Act confers on the court a discretion to grant the purchaser relief against forfeiture but it is generally accepted that the purchaser must show exceptional circumstances to justify the exercise of that discretion in circumstances where the deposit is 10%.

An example of such exceptional circumstances may be where the purchaser has taken possession of the property with the agreement of the vendor and has expended money on the property such as to have increased the value of the property. A court might find that the vendor is not entitled to retain the benefit of the funds expended as well as the deposit. But, as a general rule, the vendor can forfeit a deposit of 10% that has been paid by the purchaser. Equally, it will be rare for a vendor to be entitled to retain a deposit of more than 10%, as such a payment exceeds a reasonable pre-estimate of the vendor’s losses and amounts to a penalty.

Often, the deposit is expressed as being ‘10% payable as to $X on signing the contract and balance in 7 days’. Such a formula recognises that a purchaser might not always have a full 10% deposit available at the point of signing the contract and may require a short period of time to arrange for the balance to be available. If the purchaser breaches the contract the vendor needs to call upon the assistance of the court to recover the unpaid deposit and the spectre of a penalty arises. However, it has long been accepted that a vendor is entitled to recover any unpaid part of a 10% deposit notwithstanding that the contract has been ended – Bot v Ristevski [1981] VicRp 13 adopted as recently as Melegant & Sundrum P/L v Zhong [2017] VCC 1868.

However, where the deposit is expressed as some amount less than 10%, the court will not assist the vendor to recover 10%. This has been the situation in NSW for some time and now also applies in Victoria following Simcevski v Dixon (No 2) [2017] VSC 531 were the contract provided for a deposit of 5% and the court rejected a claim by the vendor for a further 5%.

In that case the vendor sought to rely upon a condition in the contract that provided that, if the contract was ended by the vendor, 10% of the price was to be forfeited to the vendor, whether it had been paid or not. Whilst the amount (10%) bore a resemblance to a deposit, the contract provided that the deposit was 5%, so the court had no hesitation in finding that any amount beyond the specified deposit was a penalty and thereby unenforceable, whether supported by a contractual right or not. It may therefore be concluded that any attempt to impose a liability beyond the specified deposit will be an unenforceable penalty.

One formula that has not as yet been scrutinised by a court is ‘deposit of 10% payable as to 5% on signing and the balance of 5% at settlement’. The 10% deposit will not be a penalty and the delay in payment should mean that the vendor is able to recover the full 10% in accordance with Bot v Ristevski.

Tip Box

  • the law will not enforce a penalty for breach of contract
  • a 10% deposit is not a penalty
  • a vendor cannot recover more than the specified deposit

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

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