By Russell Cocks, Solicitor
First published in the Law Institute Journal
Many properties are sold ‘off the plan’. This is the phrase used to describe a property that is a lot on a proposed plan of subdivision, meaning that the plan of subdivision creating the lot has been drawn but it is not yet registered at the Land Titles Office.
Historically, it was not permissible to sell ‘off the plan’. Until amendments to the Sale of Land Act 1962 it was basically illegal to enter into a contract for the sale of a piece of land unless that land had its own title. Unfortunately the subdivision process can be very time consuming as the infrastructure required for the plan to get to a stage where responsible authorities are satisfied that the plan can be registered and separate titles issued is often substantial. In the case of land subdivision, this involves the provision of roads and services; and, in the case of building subdivision, it involves construction of the building. However the market consisted of vendors who were keen to secure purchasers for these separate lots and purchasers who were keen to secure their ‘little piece of heaven’ and so the restriction on sale that was a dampener on economic activity was eased.
However, in recognition that such contracts generally involve a developer and a consumer and therefore are conducted in an uneven bargaining environment, some restrictions still apply to such sales. These restrictions also recognise that there is likely to be a substantial delay between contract and settlement. Indeed, this very month, an obligation to include a conspicuous Notice to that effect in every off the plan contract has come into force. Other statutory provisions relating to such sale include limitation on the amount of the deposit and an obligation that it be held on trust, an obligation to include information about land surface works, a default period for registration (sunset clause) after which time the purchaser may avoid the contract and protection against changes to the proposed plan. These obligations require the inclusion of various provisions in the contract and these are included in the General Conditions.
Despite the fact that off the plan sales form a substantial part of the market, there have been relatively few decisions that have considered the meaning of these statutory protections. In the apartment market, there were some proceedings involving dissatisfied purchasers in the early days of the Docklands project, but those complaints tended to relate to price rather than off the plan issues. In the land subdivision market, the lack of cases probably reflects the fact that it is just too expensive for John Citizen to consider taking a land developer to Court in relation to such matters.
In recent years off the plan sales have become popular in an area that is something of a combination of the other two areas. Urban renewal and infill housing has created a market for small land subdivisions that involve the subdivider either constructing a home on the subdivided land or arranging for that construction. This scenario produced the recent case of Joseph Street P/L v Tan [2012] VSCA 113 discussed in the September 2012 column and has now produced Besser v Alma Homes P/L [2012] VSC 460.
This case involved a 4 lot plan of subdivision of a large block on a main road in Caulfield and the purchaser entered into an off the plan contract for a ‘front’ unit for $1,250,000. The contract included a copy of the proposed plan of subdivision which included a plan showing a common driveway between the two front blocks giving road access for the two rear units and revealed that an owners corporation would be created with each unit having a 25% entitlement and liability. After registration of the plan the purchaser became aware that the lot entitlement and liability had changed so that each front unit had an entitlement and liability of 1 out of 202 – less than 0.5%. This unilateral decision by the developer had apparently been made on the basis that the front units would not use the common property and, on a liability basis, could be seen to advantage the front units.
However this proposal had not been communicated to the purchaser, who took the view that the change amounted to “an amendment to the plan of subdivision which will materially affect the lot” thereby entitling the purchaser to avoid the contract pursuant to s 9AC of the Sale of Land Act 1962. The vendor argued that the change to the lot entitlement and liability schedule was not a change to the plan, but that argument was rejected. Similarly, the vendor’s argument that the amendment did not “materially affect” the lot was, not surprisingly, rejected. Pagone J. alluded to the loss of voting rights consequent upon the amendment, but the affect on insurance entitlement in the case of a combined building policy would also be a powerful reason to find material affectation.
Interestingly, the fact that the notification of the amendment and the purchaser’s avoidance was made after registration of the plan was not an issue. Section 9AC(1) does include the words ‘before the registration of the plan’ but presumably the vendor accepted that as notification came after registration of the plan, an attempt to limit the purchaser’s avoidance right to prior to registration would be doomed to fail. The interaction between s 9AC and s 10, which also creates an avoidance right but is limited to exercise prior to registration, is uncertain and legislative clarification of the purchaser’s rights in this regard is needed.
Tip Box
Whilst written for Victoria this article has interest and relevance for practitioners in all states.