ByLawyers News and Updates

Vendor statements and the Australian Consumer Law

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By Russell Cocks, Solicitor

First published in the Law Institute Journal

Section 48A of the Sale of Land Act 1962 provides dissatisfied purchasers with an alternative to avoidance for breach of           s 32.

Given the significance of Vendor Statements in the conveyancing process it is surprising that there are not more reported cases relating to the vendor’s obligation to disclose the matters described in s 32 of the Sale of Land Act 1962. Readers will be familiar with Baker v Knight [1994] Vic SC 420 relating to planning permits but there have not been many cases in recent years on the disclosure obligation.

This may be because, until recently, a breach of s 32 was an ‘all or nothing’ situation. Section 32K (and its predecessor) gives the purchaser the right to avoid the contract for breach of s 32, but not a right to damages. Thus the purchaser must decide whether the alleged breach is sufficient to justify avoidance and then whether the purchaser wants to avoid. In a rising market, such as prevails at the moment, purchasers may be reluctant to walk away from a property that is, save for the breach of s 32, to their liking.

Section 48A of the Sale of Land Act is a relatively recent amendment that was designed to align the Act with the wider consumer protection legislation known as the Australian Consumer Law and creates for a purchaser a right to damages for breach of s 32. It has been considered by VCAT on two occasions, both with unrepresented parties and the decisions are of limited significance but perhaps indicative of where the law may be heading.

Wagner v Usatov [2014] VCAT 1198 concerned a breach of s 32 by way of failure to disclose restrictions attached to a planning permit that affected the land. The permit required the vendor to enter into a s 173 agreement with the Council in relation to future use of the land. The vendor entered into that agreement, in relation to the subject land and other land, during the course of the contract so that at settlement the land was subject to a restriction that had not been disclosed as required by s 32. Rather than seek to avoid the contract the purchasers settled and then successfully took action to have the s 173 agreement removed, incurring $5,000 costs in doing so and the VCAT application was an action for damages to recover this amount. VCAT concluded that there was a breach of s 32 and that s 48A adopted the provisions of the ACL for the purpose of allowing a person who suffers loss as a result of a breach of s 32 to recover the amount of that loss.

Importantly, VCAT noted that whilst a claim under the ACL itself will usually require that the transaction was ‘in trade or commerce’ no such restriction applies for a claim made under s 48A – it is sufficient that a loss has been caused by a contravention of s 32. This means that ‘residential’ vendors will be subject to the consumer rights in favour of purchasers in respect of breaches of s 32.

Hobson v Robinson [2017] VCAT 524 also had self-represented parties with the purchaser seeking damages resulting from a breach of s 32. The vendor sold ‘vacant’ land to the purchaser who, after settlement discovered that a house had previously been demolished on the land and complications arising from the demolition resulted in the purchaser incurring additional expenses. The house on the land had burnt down and the vendor’s insurer had arranged for demolition but, as is often the case in such demolitions, the hidden infrastructure such as pipes and connections to services were not adequately terminated. As a result, when the purchaser came to commence building on the vacant land, the purchaser was unable to have electricity connected and incurred $6,000 hire costs of a generator for 3 months. The purchaser claimed this amount from the vendor as damages for breach of s 32.

The first breach alleged was the failure to disclose that a demolition permit had been issued but this was not successful as s 32E requires the disclosure of building permits, not demolition permits, and only in respect of the sale of a residence, not vacant land.

However the purchaser was successful in establishing a breach of the s 32H obligation to disclose services that are NOT connected and was awarded judgment for the cost of the generator hire.

VCAT is designed to offer a costs-free jurisdiction for the resolution of Small Claims such as these cases, but in doing so may be required to consider important questions of law. These cases involved relatively small amounts but the principles discussed will apply equally to claims made by dissatisfied purchasers that may involve far more substantial losses claimed to flow from a vendor’s breach of the s 32 obligations.

Dissatisfied purchasers will no longer be required to take ‘all or nothing’. Instead of having to elect to proceed or withdraw they may now consider the s 48A option of claiming damages in VCAT after settlement and, importantly, that applies equally to residential and commercial sales.

Tip Box

  • Whilst written for Victoria this article has interest and relevance for practitioners in all states.
  • Section 32 allows for avoidance but s 48A may allow for damages as an alternative.
  • Whilst the ACL generally only applies to sales in trade or commerce, s 48A applies to residential sales.

Off the plan duty concessions

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By Russell Cocks, Solicitor

First published in the Law Institute Journal

Duty concessions available for off the plan sales need to be understood by both vendors and purchasers.

Vendors selling off the plan properties often emphasise the potential for ‘huge stamp duty savings’ and, indeed, duty is calculated on such transfers at a concessional rate, making them appealing to potential purchasers. But unless the parties understand the extent of the concession the purchaser may be disappointed and the vendor potentially liable for misrepresentation.

The duty concession is available wherever the contract anticipates building work being performed during the course of the contract, on the basis that duty is calculated on the value of the property as at the contract date, and is not payable on the value of any building works constructed between contract and settlement. The concession is available whether the property is a stand-alone home, a unit in a small development or a lot on a multi-storey plan of subdivision. It is also available, on a proportional basis, provided that any construction is to be undertaken, with the full concession available if total construction takes place during the contract, diminishing to no concession if construction was complete as at the contract date.

Calculating duty is an important task for the solicitor for the purchaser but can only be undertaken on the basis of information provided by the vendor in the form of an Off the Plan Statutory Declaration that provides the basis for calculating dutiable value. The vendor’s obligation to provide this document arises from GC 10.1(a)(ii) of the standard contract that requires the vendor to do all things necessary to enable the purchaser to become registered. The purchaser is unable to register the Transfer until duty is assessed and duty cannot be assessed in relation to these transactions without the Declaration.

The vendor may choose to use the Fixed Percentage Method or Alternative Method to calculate the cost of construction. Unless the contract requires the vendor to adopt the Alternative Method, the vendor will generally adopt the simpler Fixed Percentage Method. The percentage of the contract price allocated to construction is:

  • single dwelling 45%
  • multi-dwelling 60%
  • high rise 75%

If construction has not commenced as at the contract date then the concession will be calculated by reducing the contract price by the amount equal to the full construction cost calculated by reference to the Fixed Percentage and then calculating duty on the reduced consideration.

If the contract price is $600,000 and the contract is signed prior to commencement of construction then duty is calculated as follows:

Single dwelling

Contract price $600,000

Less: 45% construction cost $270,000

Dutiable value $330,000

Multi-lot

Contract price $600,000

Less: 60% construction cost $360,000

(up to 3 storey)

Dutiable value $240,000

High rise

Contract price $600,000

Less: 75% construction cost $450,000

(4 storey & above)

Dutiable value $150,000

If construction is 25% complete when the contract is signed then the cost of post contract construction will be reduced to 75% of the construction cost. The deduction from the contract price will therefore be less, resulting in a higher dutiable value and higher duty as the percentage of post contract construction deceases.

Tip Box

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

Priority notice

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By Russell Cocks, Solicitor

First published in the Law Institute Journal

Land Titles Office will introduce the Priority Notice in December 2016

As part of the shift from paper-based conveyancing to electronic conveyancing the Land Titles Office will introduce Priority Notices in December 2016. This facility is viewed by the LTO as an important tool in the prevention of fraud in the electronic environment and is supported by s 91C Transfer of Land Act.

Traditionally the paper title has been a bulwark against fraud, with a person dealing with the title having an expectation that the paper duplicate would be produced at settlement. However, removal of the paper title in the electronic environment, hastened by the bulk conversion of over 2 million titles held by the Big Four banks on the weekend of 22 October 2016, means that the ‘protection’ provided by a paper title is diminishing. Priority Notices are intended by the Registrar to constitute a ‘unique baton’ to provide protection during the settlement period.

It is intended that a person dealing with the registered proprietor of land will lodge a Priority Notice to foreshadow that a dealing will be lodged at a future time and will thereby ‘protect’ that dealing. The Priority Notice can only be lodged electronically (presently using PEXA) whether the foreshadowed transaction will be conducted in paper or electronically.

Priority Notices resemble the familiar caveat in many ways. Indeed, there is little difference between the two and practitioners may be hard pressed to decide which of the two to lodge.

Virtues of the Priority Notice are:

  • will appear on any search of the relevant title;
  •  gives notification to the world of an intended dealing;
  •  may be lodged in respect of any intended dealing;
  •  temporarily prevents the registration of any other dealing; and
  • gives priority for 60 days from recording of the Priority Notice on the Register to the instrument foreshadowed in the Priority Notice;

A person lodging an instrument, such as a Transfer of Land, within 60 days of lodging a Priority Notice foreshadowing that Transfer is therefore entitled to expect that the Transfer will be registered in priority to any other dealing lodged during that 60 day period.

Disadvantages of a Priority Notice are:

  • cannot be amended;
  • consent cannot be given to registration of a dealing not protected by the Notice;
  • can be withdrawn and re-lodged, but priority will be lost to any dealing awaiting registration;
  • lapses after 60 days; and
  • a subsequent competing dealing lodged in the 60 day period will be registered immediately the Priority Notice expires.

From the Registrar’s point of view, the Priority Notice regime is an improvement on Caveats as the Registrar is NOT obliged to give notice to the registered proprietor of lodgement of a Priority Notice. There is no doubt that the obligation to give notice (often to an old address) imposes a considerable administrative burden on the Registrar, as does the need to play a role in the removal of caveats by disgruntled registered proprietors. The Priority Notice regime involves much less participation by the Registrar and refers all disputes immediately to the court, with the potential to make orders for removal and compensation. Presumably, as the Priority Notice has a limited life span of 60 days, disputes may be resolved by the effluxion of time, although there will no doubt be circumstances where a registered proprietor may need to seek the assistance of the court.

Caveats appear to provide all of the benefits of Priority Notices and few of the disadvantages in that caveats:

  • may be amended;
  • consent can be given to registration of a dealing: and
  • do NOT automatically expire.

It is this latter point that will have practitioners thinking. 60 day settlements are common, as are 90 day settlements. Both can unexpectedly blow out and so lodging a Priority Notice when entering into a 60 or 90 day contract may find the Priority Notice expiring shortly, or even well, before final settlement leaving the Transfer unprotected. A protocol of lodging 30 days prior to the anticipated settlement date may overcome this problem, but leaves the prior contractual period unprotected.

The small price differential between lodging a Caveat or a Priority Notice will not affect this decision.

Like many of the changes flowing from electronic conveyancing, we will just have to see how they work out at the coalface.

Tip Box

  • Whilst written for Victoria this article has interest and relevance for practitioners in all states.
  • Priority Notices are intended to provide protection against fraud.
  • The limited lifespan of Priority Notices may cause concern.

Lease – Retail lease cost

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By Russell Cocks, Solicitor

First published in the Law Institute Journal

A lease of land is essentially a contractual relationship between the landlord and tenant. The lease also creates a proprietary interest in the land in favour of the tenant and the tension between contractual and proprietary rights has been reflected in the law relating to termination of the lease for breach by repudiation. See Progressive Mailing House P/L v Tabali P/L [1985] HCA 14.

As a contractual relationship, the law allows the parties to negotiate the terms of their agreement in relative freedom, subject to limited restrictions in relation to illegality and the like. This freedom presumes that the parties are of relatively equal bargaining power, as the freedom to negotiate is of little value if one party has relatively little power within the negotiations. And yet the three fundamental contractual relationships that occur in day-to-day life – buying, borrowing and renting – have rarely involved parties of equal bargaining power.

Vendors have traditionally been protected by the doctrine of caveat emptor, lenders by the requirement that any amount claimed be repaid before a complaint is heard and landlords by the ability to dictate the terms of the agreement. But the world has changed in the last 50 years and the age of the consumer means that vendors have pre-contract disclosure obligations, lenders are subject to consumer credit codes and tenants are provided with statutory protection, such as the Residential Tenancies Act and the Retail Leases Act.

One area where the ability of the landlord to dictate the terms of the lease has been removed is the area of the landlord’s legal costs associated with the lease. Traditionally, the lease prepared by the landlord for signing by the tenant would provide that the tenant is to pay the landlord’s legal costs relating to the lease. Such a contractual provision is now statutorily prohibited in the residential and retail markets and, whilst still prevalent in commercial and industrial leases, is now more often subject to negotiation by a tenant exercising bargaining power in the face of an awareness that such obligations are not ‘set in stone’.

Section 51 Retail Leases Act prohibits the landlord claiming legal costs in respect of the lease and any contractual provision contrary to this prohibition is void pursuant to s 94. The prohibition is wider than simply prohibiting the landlord from claiming costs from the tenant, as the Act prohibits claiming costs ‘from any person’. This prevents the landlord requiring payment from a party associated with the tenant, such as a guarantor. The prohibition also prevents the landlord from recovering any costs associated with the landlord obtaining the consent of a mortgagee of the freehold to the lease, if the lease includes such a requirement. Further, the prohibition is not just in respect of costs on the lease but rather costs associated with ‘the landlord’s compliance with this Act’ and therefore also prohibits a claim for costs in respect of the disclosure statement.

Assignment

Section 51(1) allows the landlord to claim from the tenant the landlord’s reasonable legal costs associated with an assignment of the lease. Presumably this is based on the fact that the assignment is requested by the tenant and therefore the tenant should bear the costs. The landlord may also claim any costs associated with seeking mortgagee’s consent to the assignment.

It is normal that a tenant who sells a business and seeks an assignment of the lease to a new tenant will be required to bear these costs and general condition 7.6(b) of the LIV May 2014 copyright contract of sale of business adopts this view, correcting a reversal in the previous LIV contract.

If, as part of the assignment, the incoming tenant requests a variation to the existing lease, such as by way of the addition of further terms, the landlord is effectively able to recover the landlord’s costs in agreeing to such a variation within the broad scope of the consideration of the application to approve the assignment.

However, a landlord must exercise caution in the situation where the outgoing and incoming tenants agree that the landlord will be asked to enter into a new lease with the incoming tenant. If the landlord agrees, the new lease is a retail lease and the landlord is prohibited from claiming costs and cannot rely on the ‘assignment’ exemption. The prohibition on key-money (s 23) would appear to prohibit the landlord placing a premium on consent and a landlord may therefore find itself agreeing to a new lease at its own cost. However, the landlord is able to negotiate the terms of the lease, including rent, and may therefore be satisfied to enter into the new lease notwithstanding costs are not paid by the tenant.

Renewal

Renewal creates a new lease and the general prohibition against costs applies. If the tenant also seeks a variation in addition to renewal, this is simply part of the negotiations and the landlord is not able to seek costs relating to those negotiations. Just as the landlord must recover its costs within the rent for a new lease, it must also do so if negotiating a variation upon renewal.

Tip Box

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

Agreement to lease

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By Russell Cocks, Solicitor

First published in the Law Institute Journal

‘An agreement to lease is as enforceable as a lease’

Property lawyers deal with leases all of the time; sometimes in the context of a relationship between landlord and tenant, sometimes where a property that is to be sold is leased and sometimes in more obtuse ways, such as in relation to the assessment of duty or tax.

Generally speaking, such leases will be in a written form and the terms of the lease will be readily identifiable. However, unlike contracts for the sale of land which the law requires to be in writing and signed by the parties, the law has long recognised that a lease relationship can be created in a less formal way than a written and signed lease. Hence, courts will enforce a lease if the court can be satisfied that the parties reached an agreement to lease and this has given rise to the mantra of ‘an agreement to lease is as enforceable as a lease’.

Walsh v. Lonsdale (1882) 21 Ch D 9 is the historical authority for this proposition and Waltons Stores (Interstate) Ltd v. Maher [1988] HCA 7 restated the proposition in the modern language of estoppel and unconscionability, concluding that a court will enforce a written agreement to lease where it would be unconscionable for a party to the agreement to resile from that agreement.

2016 has seen something of a flurry of cases, at all levels, concerning agreements to lease:

North East Solutions P/L v. Masters Improvements Aust. P/L [2016] VSC 1 analysed the obligations of parties who entered into a written agreement to lease which included a term that the parties would negotiate in good faith to resolve any disputes that arose during the term of the agreement. The enforceability of the agreement to lease was never in doubt; the issue was the meaning and extent of the ‘good faith’ obligation and whether one party had breached that obligation.

Risi P/L v. Pin Oak Holdings [2016] VCAT 1112 also related to a written agreement to lease but found that the lease prepared pursuant to that written agreement should be varied to comply with an oral agreement that the parties made prior to entering into the written agreement to lease. The landlord had sought to include a demolition clause in the written lease and the Tribunal ordered that the demolition clause be removed as it had not been a term of the agreement that the parties had concluded.

Crown Melbourne Ltd v. Cosmopolitan Hotel (Vic) P/L [2016] HCA 26 saw the issue return to the High Court in a slightly different form. The tenant entered into a 5 year lease with an expectation that the tenant would be offered a further term. No promise to do so was included in the written lease nor specifically offered to the tenant – all the tenant could rely on were words to the effect that the tenant would be ‘looked after’ when the lease came up for renewal. The Court was not satisfied that these words meant to there was an agreement for a new lease or even an obligation on the landlord to submit terms for a new lease to the tenant for negotiation.

The concept of ‘business efficacy’ has also crept into the language of these cases with courts apparently prepared to analyse the conduct of the parties through the ‘business efficacy’ prism.

Tips

  • Whilst written for Victoria this article has interest and relevance for practitioners in all states.
  • Courts will enforce informal agreements to lease.
  • Adequate proof as to the terms of any such agreement remains essential.

Off the Plan Sales – Best Endeavours – Part 1

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off the plan

The sale of land ‘off the plan’ is a common occurrence in the property market. Its principal virtue is that it provides certainty to both vendor (as to the sale) and purchaser (as to the eventual purchase) of the subject property. Whilst there may be some delay in relation to the eventual settlement, which cannot occur until the proposed plan of subdivision is registered at the Land Titles Office, both parties can be confident that, upon registration, the contract will proceed to settlement on the agreed terms.

Off the plan sales are common in a variety of circumstances, but the two principal scenarios are:

  1. sales of vacant land; and
  2. sales of homes.

Land sales

These sales generally fall into one of two categories:

  1. small-scale subdivisions, perhaps only creating as few as two lots; or
  2. large-scale subdivisions, including ‘greenfield’ sites, creating multiple lots.

Whilst projects in these two categories can have enormous differences in scale – from 2 lots to 1000 or more lots – the same legislative framework guides the subdivisional process (Subdivision Act 1988 (Vic)) and the same legislative framework regulates the vendor’s obligations, and purchaser’s rights, on sale (Sale of Land Act 1962 (Vic)).

Pursuant to the Subdivision Act, the vendor is required to satisfy the local council, acting in a supervisory capacity, that the proposed plan satisfies all of the subdivisional requirements of council and service authorities; and, when satisfied, council will seal the plan and provide a statement of compliance. These documents are then lodged with the Land Titles Office and, in the normal course of events, the plan is registered and settlement may take place.

The Sale of Land Act prohibits completion of the sale until registration of the plan, imposes pre-contract requirements and creates during-contract rights, which are essentially designed to protect purchasers.

The 2008 contract of sale, widely used for sales generally, adopts these broad guidelines; and it is possible to create a contract for an off the plan sale relying on the particulars of sale and general conditions alone, without the need for any special conditions or annexures. This is particularly so for small-scale developments, although larger-scale subdivisions involving substantial earthworks may require the inclusion of a plan showing ‘works affecting the natural surface level’: s 9AB Sale of Land Act.

Home sales

Again, these sales generally fall into one of two categories:

  1. small-scale subdivisions, creating just a few lots for sale; or
  2. multi-unit subdivisions, including high-rise developments.

The same subdivisional and registration processes apply to these developments, with the added complication that councils generally will not issue a statement of compliance until construction of the development is complete.

Such contracts envisage the construction of improvements on the land during the contract, and a special condition will usually be added to the effect that the contract is not a major domestic building contract and that the vendor will enter into a major domestic building contract with a registered builder. The extent of detail provided to the purchaser in respect of the improvements to be erected is not regulated and may vary from reliance by the purchaser on a glossy brochure provided by the vendor (which is not included in the contract) to a full copy of the major domestic building contract (including specification) that the vendor has or will enter into. It is fair to say that purchasers ‘take on faith’ that the vendor will ultimately deliver to the purchaser at the expiration of the contract the product, in all its glory, that was touted as being sold when the purchaser entered into the contract.

Once the contract has been signed and the project is underway, the purchaser enters purgatory – a state of perpetual waiting. Even if the project is a mere land subdivision, ages can pass before the plan is registered. If a home is being constructed, long periods of inactivity cause concern. The default period between contract and settlement (14 days after notification of registration of the plan) is 18 months, but contracts can adopt another period and contracts spanning 60 months are common.

A recent case has considered the vendor’s obligations in terms of completion of the project within the required period: Joseph Street Pty Ltd & Ors v Tan & Anor [2010] VSC 586. The project was a relatively small development by the vendor of six units. The contract completion, or sunset, period was 15 months, and the vendor had entered into a contract with a registered builder for construction of the units. Regrettably, the builder ‘went broke’ and the project was substantially delayed while the vendor put other construction arrangements in place. The sunset period expired, the vendor rescinded the contract and the purchaser sought specific performance. No doubt, given the rising housing market, the property had appreciated and both parties sought to take advantage of that situation.

To succeed, the purchaser had to establish that the vendor was in breach and thus not entitled to rescind. The purchaser sought to do so on the basis of a breach by the vendor of an express contractual obligation to use ‘best endeavours’ to complete the contract within the sunset period. It was also agreed that such an obligation was an implied term of the contract. The court concluded that the true cause of the delay was the collapse of the builder, an occurrence that was beyond the control of the vendor. The vendor had therefore fulfilled its contractual obligations to use best endeavours and was entitled to rescind, thereby retaining the (more valuable) property.

Off the Plan Sales –  Best Endeavours – Part 2

Mortgage Stress

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Whilst there is considerable consistency between the property laws of Victoria and New South Wales, there are also significant differences.

Some differences in practice are:

  • nomination in New South Wales is virtually unheard of as it creates a second duty, but is common in Victoria as it does not; and
  • deposit release is prohibited in New South Wales but common in Victoria.

Some differences in the law are:

  • acquiring an easement by prescription is banned in New South Wales but still available in Victoria; and
  • there is no equivalent in New South Wales to Victoria’s statutory right to clawback fraudulent transactions s 172 Property Law Act 1958.

Perhaps the best known example of the difference was the view previously held in New South Wales that the existence of an illegal structure on land constituted a defect in title and allowed a purchaser to avoid the contract. This was in contrast with the Victorian view that such a defect was merely a quality defect and that the vendor was protected by the principle of caveat emptor. The New South Wales view was ‘corrected’ (that is; brought in line with Victoria) by the Court of Appeal in Carpenter v McGrath 40 NSWLR 39 and consistency has reigned since.

In recent years a significant difference has again occurred with New South Wales taking a ‘radical’ view of the impact of fraud in certain mortgage transactions. In both jurisdictions it is accepted that whilst fraud is an exception to indefeasibility, nevertheless registration of a fraudulent instrument by a party who was not party to the fraud will be indefeasible. Mortgagees have therefore been able to rely on mortgages that have been fraudulently signed provided that the mortgage was registered and the mortgagee was not itself a party to the fraud. However in New South Wales an argument was accepted that it was possible to look ‘behind’ the mortgage at the document that constituted the agreement to repay as it was that document that created the obligation that justified the mortgagee’s security interest and the extent of the mortgagor’s covenant to repay was to be determined by a consideration of the contractual agreement between the parties.

If that contract (loan agreement) created an obligation to repay a specific amount then the covenant to pay protected by the indefeasible mortgage was enforceable. However if the loan agreement referred to an ‘all monies’ mortgage relating to past and future advances then it was said that the mortgagor’s covenant to pay arose contractually from the ancillary documents that related to the actual advances and that if those documents were fraudulent then the covenant to repay arose outside of the protection of the indefeasible mortgage. Essentially, it was said, no money was advanced pursuant to an ‘all monies’ mortgage as the money was advanced pursuant to forged documents.

Victorian mortgagees quaked in trepidation as an army of decisions mounted on the north bank of the Murray River set to wreck havoc on Victorian all money mortgages but Pagone J. in Solak v Bank of Western Australia [2009] VSC 82 manned the ramparts and beat off the hordes by upholding an all monies mortgage and the lenders breathed a sigh of relief. However a Trojan Horse has appeared in the form of Perpetual Trustees Victoria Limited v Xiao [2015] VSC 21. Hargrave J. has adopted the New South Wales analysis of an all monies mortgage and has described the decision in Solak as ‘plainly wrong’.

The scene is now set for a definitive decision by the Victorian Court of Appeal on what is an important point of law. According to Xiao a mortgagee of a forged all monies mortgage is not able to enforce the mortgage or undertake a mortgagee’s sale. Whether confirmation of Xiao will have retrospective repercussions is a matter for the future.

The mortgagor’s victory in Xiao was somewhat pyrrhic as Hargrave J. went on to find that Xiao in fact held the property on trust for the forger (her husband) and that the lender was entitled to judgment against the husband, who had also been joined as a defendant. Hargrave J. was obliged to overcome the presumption of advancement applying to a transfer from husband to wife but did so by finding adequate evidence that it had been the intention of the husband at the time of transfer to retain the beneficial interest in the land.

The mortgagee would therefore be faced with the need to enforce this judgment by way of a Warrant of Execution rather than a mortgagee’s sale. The mortgagee’s possession of the certificate of title would aid that exercise.

Owner-builder insurance

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By Russell Cocks, Solicitor

First published in the Law Institute Journal

The current domestic building warranty insurance regime came into force 20 years ago and it remains largely a mystery to most property lawyers.

Donald Rumsfeld was referring to weapons of mass destruction when he made his infamous comment about ‘knowns, known unknowns and unknown unknowns’ but he may just as well have been referring to the owner builder warranty insurance scheme that has plagued Victorian conveyancing lawyers for 20 years. Whilst insurance is generally a matter relating to the quality of a property and not a matter going to title, it is the draconian consequences of getting the insurance situation wrong that makes this issue one of the great disasters of conveyancing. Quality issues do not generally create a right of avoidance but failure by the vendor to comply with the owner builder insurance obligations does allow the purchaser to avoid, an outcome that can have disastrous consequences for the vendor’s adviser.

KNOWN

What is known about the scheme is that an owner builder who performed building works in the 6.5 years prior to the sale is required to include a Condition Report in relation to those works in the contract and (if the works exceeded $16,000) obtain warranty insurance. It is important to note that the obligation to provide the Condition Report is absolute and does not depend upon the cost of the works.

KNOWN UNKNOWN – what works?

But knowing that the scheme applies to building works creates the first unknown – what building works trigger the obligation?

Section 137B(2) Building Act creates the requirement if a vendor ‘constructs’ a building and the definition of ‘construct’ (s 137B(7)) includes repair or alteration of the building. Clearly adding a room, for instance, would be construction and the requirement arises. But what about essentially cosmetic works that might involve work that could be described as ‘home handyman work’, such as retiling a bathroom or moving a doorway? Where do we draw the line?

A convenient threshold might be to differentiate between works that require a building permit and works that do not, although that arbitrary line is itself somewhat problematic. Essentially, substantial works require a permit and cosmetic works do not. But the Act, by contemplating an obligation even when a building permit has NOT issued, makes it clear that the requirement does relate to non-permit works and so we must presume that this unknown is in fact any and all works undertaken on the home – any repairs or alterations no matter how minor.

UNKNOWN UNKNOWNS – when?

Harder still is the problem of determining when the works were performed.

By s 137B(7) the Act provides a series of alternatives for determining when the 6.5 year period, known as the ‘prescribed period’, commenced. Starting from the contract date, the vendor must look back either:

  1. 6.5 years and see whether an occupancy permit or certificate of final inspection was issued; or
  2. if not, then look back 7 years to see whether a building permit was issued; or
  3. if neither of the above, then look back 6.5 years to see whether the owner has certified that construction had commenced.

Works performed during any of those periods trigger the requirements. The first two alternatives are based on an objectively determined event but the third is a very subjective basis for determining the prescribed period and adds to the prevailing sense of unreality that surrounds the vendor’s obligations in relation to owner builder insurance.

Tip Box

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

Owner Builder works may require a Condition Report and warranty insurance

Even cosmetic works may trigger requirement

For works in preceding 6.5 years

Death in the House

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Death can impact on a conveyancing transaction in a number of ways, whether the death occurs prior to commencement or during the course of the transaction.

Survivorship

One common example is where one joint tenant dies after the parties have separated. The survivor claims the whole of the property by survivorship, but the beneficiaries of the deceased argue that the separation of the parties severed the joint tenancy and that survivorship does not apply. It is impossible to provide a categorical formula for resolving such disputes as each case will very much depend upon the length and circumstances of the separation.

The one thing that is certain however is that the lawyers will, as always, be regarded as the bad guys no matter how the dispute is resolved.

Sales generally

The fact that a registered proprietor has died does not necessarily mean that a proposed sale has to go ‘on hold’. There may be good reasons why an asset should be disposed of promptly after the death of the owner, but equally good reasons why the estate of the deceased may take some considerable time to be finalized.

A sale in such circumstances need not await all of the formalities of a grant of probate as an executor of a will is entitled to enter into a contract to sell an asset of the estate even though the executor has not obtained a grant of probate at the time the contract is entered into. The sale is made subject to the executor obtaining a grant of probate and the proposed settlement date takes that condition into account, for instance by specifying settlement ‘on the 1st June or 14 days after the vendor obtains probate’.

However, an executor in such circumstances cannot enter into a terms contract as the executor is not ‘presently entitled to become the registered proprietor’ as required by s 29D Sale of Land Act.

This ability to ‘intermeddle’ with estate assets is only available to an executor named in the will and is not available to a person who may intend to apply for a grant of letters of administration of a deceased estate as such an appointment is very much at the discretion of the Court.

Sensational deaths

That someone died in a house that is now for sale is a reasonably common event. To date such circumstances have not caused the common law any concern and fall within the ambit of caveat emptor – let the buyer beware, so a vendor in such circumstances has no duty to bring the death to the attention of a prospective purchaser. That someone was murdered in the house does not alter the common law’s view, but modern statutory principles of misleading and deceptive conduct may impose additional vendor disclosure obligations.

A case involving such circumstances came before the New South Wales Administrative Decisions Tribunal late last year in the context of disciplinary proceedings against an agent involved in such a sale: Hinton & Ors v Commissioner for Fair Trading [2006] NSWADT 257 and Hinton & Ors v Commissioner for Fair Trading [2006] NSWADT 299. Whilst the comments do not directly bear on the vendor’s obligations, it is noted that the vendor did in fact agree to release of the purchaser from the contract when the purchaser became aware of the circumstances of the death after entering into the contract.

A vendor proposing to sell such a property might consider including a special condition in the contract to the effect that the purchaser is aware that the former owner died whilst residing in the property and that the death occurred in unusual circumstances.

Death during the course of the contract

If a vendor dies during the course of the contract, the vendor’s lawyer should advise all parties concerned of the death and take steps to establish the ability of the legal personal representative (either executor or administrator) to complete the transaction – (1989) Law Institute Journal 1149 (December) – which may require a ‘temporary’ grant (ad colligendum bona) if settlement is imminent.

Whilst the ‘easy’ solution would appear to be to rely on existing documents (particularly if the transfer of land has been signed by the deceased in anticipation of settlement) such action is fraught with danger. The same may be said of relying on a transfer signed by an attorney under power when the donor/vendor has died.

Settlements conducted in such circumstances are liable to be challenged by the ‘prodigal son’ or other unexpected potential beneficiary of the deceased’s estate who finds that the main asset of the estate has been disposed of and distributed on the basis of a transfer which took place after the death of the deceased.

 

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

By Russell Cocks

First published in the Law Institute Journal

To be or not to Airbnb

by

By Russell Cocks, Solicitor

First published in the Law Institute Journal

A recent case has considered the legal basis of short term holiday rental arrangements

Disruptive innovation is a term used to describe new products in an existing market that create a new market and a new value network and eventually displace established market leaders. Whilst it is a term of recent invention used to describe elements in the modern economy, the T Model Ford created disruptive innovation in the transport market over a century ago, eventually displacing the horse and cart.

Regulation of Uber, a disruptive innovation in the passenger transport market, is occupying the attention of government and the media at the moment and Airbnb is a fellow traveller, disrupting the holiday accommodation market. Whilst recent inventions of the modern economy, it is reassuring to know that these disrupters are, in the final analysis, bound by black letter property law.

Swan v. Uecker [2016] VSC 313 is a decision by Croft J. in the Victorian Supreme Court by way of an appeal from VCAT. The landlord had applied to VCAT for an order terminating the lease on the basis that the tenant had breached the lease by entering into a contract with Airbnb and subsequently accepting ‘guests’ at the property. The landlord argued that by doing so the tenant had subleased the premises in breach of the terms of the lease, thereby entitling the landlord to terminate the lease However VCAT dismissed the application on the basis that the tenant had retained the right to access the premises during the period of the guest’s stay and therefore had given the guest a license to occupy the premises, rather than a sub-lease, and that the licence did not amount to a parting with possession such as to constitute a breach of the lease.

Indeed, the contract between the tenant and Airbnb described the guest’s right as a licence but Croft J., adopting a substance over form approach, confirmed that merely describing an agreement as a licence did not save it from being a lease if the ‘touchstone’ of a leasing relationship, exclusive possession, passed to the guest. The tenant argued that the short nature of the typical guest stay of 3 to 5 days made that possession akin to the rights of a hotel guest but Croft J. rejected the analogy and held that the length of time associated with exclusive possession was irrelevant, concluding that exclusive possession for one day may be sufficient to establish a lease.

Croft J. was careful to caveat that this decision should not be seen as authority for the proposition that an Airbnb guest will always be held to be a tenant, rather than a licensee. If the rights of the guest fall short of exclusive possession of the leased property then it is safe to say that the guest will have a licence, rather than a lease, both as to form and substance. This would have been the case in Swan if the guest had have adopted the option of occupying one room in the property, rather than taking possession of the entire property. It might also have been the case if the Airbnb contract and advertising had have reserved to the tenant the right to access the property at any time during the occupancy of the guest, although the market acceptability of such an arrangement is problematic.

The importance of the decision is to confirm that disruptive or not, these innovations remain subject to established legal principles.

Tip Box

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

Airbnb rental arrangements are subject to normal common law leasing principles.

Exclusive possession will generally mean that the arrangement is a lease rather than a licence.

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