By Russell Cocks, Solicitor

First published in the Law Institute Journal

The conveyancing process in Victoria has the advantage of a ‘standard’ contract of sale that is, more or less, universally adopted. This contract has the imprimatur of government by being adopted by regulation, although it is not obligatory. It contains 29 General Conditions that provide a workable template for a conveyancing transaction and, importantly, are designed to strike a fair balance between the interests of the vendor and the purchaser.

The contract recognises that a particular transaction may require one or more Special Conditions to address specific requirements of that transaction and provision is made for the General Conditions to be supplemented by Special Conditions. However it was not intended that those Special Conditions would fundamentally alter and undermine the balance of power between the parties established by the General Conditions.

A practice has arisen since the ‘new’ contract was introduced in 2008 of vendors adding extensive Special Conditions to the contract which, rather than seeking to address the particular needs of the transaction, actually result in the underlying General Conditions being substantially changed and effectively emasculated. Authors of such contracts need to bear in mind the possibility that such contracts may be found by a court to be misleading and consequently unenforceable, or at least partly so.

Changes that increase the penalty interest rate, shorten the period of time for notice, increase the number of bank cheques, remove rights given to the purchaser in GCs 8 and 24, tinker with obligations at settlement, alter the way that adjustments are calculated and change pre-settlement inspection rights are all designed to alter the relative balance of power between the parties to favour the vendor. There is no doubt that the parties are free to contract on the terms of their choosing but a dissatisfied purchaser may well argue that a contract that is presented in a standard form but includes many changes to that standard form that favour one party only is misleading.

Off the plan contracts

Such changes are particularly prevalent in off the plan contracts. Putting aside whether extensive Special Conditions that largely repeat relevant statutory provisions are even necessary, the adoption of the standard form contract and then alteration of over half of the General Conditions is ludicrous.

Such sales are inevitably in trade and commerce with purchasers regarded as consumers and courts are all too ready to grant protection in circumstances of unequal bargaining power, let alone circumstances where it is clear that the purchaser was lulled into believing that the transaction was governed by a ‘standard’ contract.

Speaking as one of the authors of the standard contract, and on behalf of the other two authors, I say to such draftspeople: by all means draft a contract that provides greater advantage to your vendor client but DO NOT seek to mask that unfair contract within the cloak of the standard contract. That particular Trojan Horse may fall foul of the Australian Consumer Law and Fair Trading Act 2012.

PRECEDE

Altering the General Conditions of sale may create a misleading contract.

Tip Box

• Special Conditions are meant to supplement the General Conditions
• Altering the balance of power between vendor and purchaser in the context of a standard contract might be misleading
• Whilst written for Victoria this article has interest and relevance for practitioners in all states

By Russell Cocks, Solicitor

First published in the Law Institute Journal

Quality disputes in off the plan contracts often relate to the size of the finished product

A summary of the provisions of the Sale of Land Act 1962 that allow for avoidance of off the plan contracts was published in the May 2015 Law Institute Journal. Those provisions only relate to a purchaser’s complaints with the terms of the contract, changes to the plan of subdivision or failure to complete the project within the permissible time. Those provisions do not assist a purchaser who is concerned with the end product presented by the developer at the time of settlement.

These disputes relate to the quality of the final product and generally contrast the developer’s commercial aspirations with the purchaser’s aesthetic aspirations. The purchaser was provided with architectural drawings, artist impressions, glossy brochures and perhaps even video impressions upon which the purchaser constructed a home in the sky, but the developer had a black and white construction contract with the builder and a tightly controlled budget. Inevitably, expectation comes up against the rock hard face of reality and tears are often the result.

Developers may include a self-serving ‘entire contract’ Special Condition in the contract in an attempt to quarantine these marketing tools but that is not likely to be successful – Nifsan Developments P/L v Buskey [2011] QSC 314. Thus the dissatisfied purchaser waves the marketing publications and complains that the finished product that the developer wants to be paid for ‘next week’ is nothing like the apartment that the purchaser was expecting.

Apart from the lack of panoramic views which were promised by the development (as in Nifsan), the most common complaint is size. The purchaser is often appalled when the actual size of the built apartment is substantially less than their expectations and the existence of architectural drawings can lend some weight to those complaints. The problem is that there are at least three methods of measuring the area of a building and inevitably the developer will have adopted the ‘external walls’ method and the purchaser will wish to adopt the ‘internal walls’ method. Purchaser’s financiers seem to adopt the third method which might be described as the ‘minimalist’ method, which focuses on useable space.

A purchaser was successful in avoiding a contract in such circumstances in Birch v Robek Aust P/L [2014] VCC 68. Because the vendors in these transactions will generally be engaged in trade and commerce, the provisions of the Australian Consumer Law will apply. This provides the purchaser with a whole suite of rights and remedies beyond those available in relation to a quality dispute under the common law, limited as it is by the principle of caveat emptor.

The court considered the purchaser’s claim based on the ACL and held that the marketing information, specifically the architectural plans with dimensions of the apartment, gave the purchaser an entitlement to expect that the final product would be reasonably consistent with those plans. That the developer might have intended the dimensions shown on those plans to be the external dimension of the building and that the purchaser expected them to represent the internal dimensions was not relevant when the court was satisfied that the actual dimensions were substantially less than the plans represented.

On one method there was a deficiency of 16%, on another 12% and on the developer’s method, 2%. The court was satisfied that the discrepancy exceeded 5% and adopted the principle in Flight v Booth (1834) 131 ER 1160 that such a discrepancy justified avoidance. The court also found a breach of the ACL which would justify avoidance. Arguably, such a breach might also form the basis for a claim for compensation by a purchaser who resolved to settle notwithstanding some deficiency.

This decision may be compared with Sivakriskul v Vynotes P/L [1996] VicSC 497 (unreported) that was apparently not cited to the court. That decision denied a purchaser’s claim and adopted the ‘external walls’ method, although that decision was made prior to the introduction of the ACL.

Tip Box

• Quality disputes relating to off the plan purchases may attract the Australian Consumer Law
• Discrepancies in measurements may give purchasers rights to avoid or claim damages
• 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

‘Time is of the essence’ is indeed a time honoured phrase. Both the common law and equity have recognised the significance of the obligation of contracting parties to comply with time constraints included in their contract. Whilst the common law typically adopted a hard-line approach, equity was more inclined to enforce such obligations if the failure to comply prompted the service of a notice requiring compliance with the contract and the defaulting party failed to comply with that notice.

Thus the various iterations of the standard form contract of sale of land in Victoria have for 50 years included a provision specifying that time is of the essence in relation to the obligations of the parties and providing that a party that is in default in performance of the contract may be served with a notice identifying that default and requiring the defaulting party to remedy that default, failing which the contract could be ended.

The current contract (being the 2008 version, as amended) includes these 3 components in 3 parts:

• GC 16
  makes time of the essence;
• GC 27
  requires the service of a default notice; and
• GC 2
  specifies the consequences of non-compliance.

Carbon Black Lab P/L v Launer [2015] VSCA 126 is the first reported case to consider the operation of these new General Conditions, previous cases having considered the issues of time and default in the context of Condition 6 of Table A of the 7th Schedule of the Transfer of Land Act 1958 that governed such issues until the 2008 contract was adopted. The case has decided that a previously accepted requirement in relation to rescission of the contract by notice does not apply to the new provisions.

The case concerned an application to remove a purchaser’s caveat. The vendor claimed that the contract had been ended by notice but the purchaser argued that the procedure adopted by the vendor was deficient. The first issue concerned the question of time being of the essence and the Court concluded that, notwithstanding that the vendor had granted the purchaser one formal extension of time and a further “indulgence”, time was again made ‘of the essence’ when the vendor served a default notice requiring the purchaser to settle within 14 days. The vendor relied on this notice to terminate the contract at the end of that 14 days but the purchaser argued, on the basis of reasonably well settled authority arising from the Table A process, that the vendor’s notice had only made time of the essence again and that the purchaser was therefore only in default at the expiration of that notice and that the vendor was required to give a further 14 day notice based on that default.

The Court acknowledged that the wording of Table A had previously been interpreted as requiring two notices – one to make time of the essence again and one to give notice of default – but concluded that the wording of GCs 27 and 28 did not require an antecedent notice making time of the essence before service of a default notice that operated to successfully end the contract. The default notice served to achieve both purposes – to make time of the essence again AND to end the contract after 14 days if the defaulting party did not remedy the default.

Tip Box

•Time is of the essence in land contracts

•Time may cease to be of the essence, but may be made of the essence again by service of an appropriate notice

•That notice can also operate as a default notice under GC 27 and may operate to end the contract if GC 28 is complied with.

By Russell Cocks, Solicitor

First published in the Law Institute Journal

Contracts that relate to the sale of land prior to approval of a plan of subdivision are the subject of ss 9 and 10 Sale of Land Act. Whilst not specifically defined as such, Off the Plan contracts are referred to as ‘prescribed contracts’ (s 9AA(7)).

s 9AA

This essentially relates to the deposit that is payable under a prescribed contract.

A prescribed contract must provide that the deposit be held on trust for the purchaser pending registration of the plan (s 9AA (1)(a)) and limits the deposit to a maximum of 10% of the purchaser price (s 9AA(1)(b)). For an abundance of caution s 9AA(2) provides that the deposit must in fact be paid into a trust account.

Failure by the vendor to comply with s 9AA(1) or (2) entitles the purchaser to rescind the contract at any time before the registration of the plan – s 9AE.

The LIV copyright contract includes the required conditions.

s 9AB

Creates an obligation on the vendor of a prescribed contract to disclose in the contract (s 9AB(1)) and as an ongoing obligation during the contract (s 9AB(2)) works affecting the natural surface level of the lot or adjoining land.

Breach of this obligation also justifies rescission under s 9AE. It is common in large scale land subdivision to see these ‘fill plans’ as land subdividers effectively push and pull land around to create relatively flat building allotments. Purchasers are entitled to know where large amounts of fill may be deposited as this can have a substantial effect on building costs. But it is rare to see ‘fill plans’ in sales of residential units. Everest Projects P/L v Mendoza [2008] VSC 366 accepted the argument that lots on upper floor did not have a ‘natural surface level’ for the purposes of this requirement, reserving for another day any argument about lots that may be constructed or adjoining ground level.

s 9AC

The amendment of a plan of subdivision in a prescribed contract between the date of the contract and the time of registration of the plan of subdivision may justify rescission.

The sub-section envisages the possibility of an amendment arising from the actions of one of two sources:

1. the Registrar of Titles may ‘require’ an amendment; or
2. the vendor may ‘request’ an amendment.

The vendor is obliged to ‘advise the purchaser in writing of the proposed amendment’ and that advice must be provided within 14 days of the Registrar’s requirement or the vendor’s request.

The purchaser’s right to end the contract pursuant to s 9AC does NOT end upon registration of the plan. It ends 14 days after sufficiently specific advice of the proposed amendment is provided to the purchaser. If the vendor has amended the plan after contract and has not provided the purchaser with any, or any sufficient, advice about the amendment then the purchaser remains entitled to end the contract within 14 days of receiving such advice. If the vendor advises the purchaser that the plan is registered the contract will generally require the purchaser to settle within a period of 7 to 14 days from advice of registration. The purchaser must at that stage satisfy itself in relation to amendments as the purchaser is contractually bound to settle unless the purchaser can rely on this statutory right to avoid, which right has survived registration of the plan.

The mere provision of an amended plan by the vendor without more might not satisfy the vendor’s advice obligation.

Once advice is given by the vendor to the purchaser, the purchaser has 14 days in which to rescind the contract, but may only do so if the amendment ‘materially effects’ the lot.

Besser v Alma Homes P/L [2012] VSC 460 held that an amendment to the entitlement and liability Schedule materially affected the purchaser’s lot and the purchaser was entitled to rescind.

Lockwood v PSP Investments P/L [2013] VSC 10 held that a change in car parking arrangements was ‘material’. The court held that the purchaser satisfied the sub-section by proving ‘material effect’ and did not have to additionally prove detriment. Other changes to the plan were held to be not “material” and reference in this regard was made to Gold Coast Carlton P/L v Wilson [1985] Qd R 182 where minor changes to anticipated Owners Corporation charges were NOT material.

These provisions put a heavy burden on purchaser’s advisors in respect of checking registered plans against contractual plans.

s 10

That we have both s 9AC and s 10 is probably a legislative quirk and there would be benefit achieved if they could be merged as they both address amendments to the proposed plan of subdivision. Importantly, s 10 is limited in its application to PRIOR to registration of the plan and if the purchaser has not exercised the s 10 rights before registration, those rights expire.

Section 10 has a ‘restriction’ focus and in fact excludes restrictions imposed by a public authority as part of the subdivisional process from justifying avoidance. However such a restriction would generally ‘materially effect’ the lot and s 9AC would apply.

s 9AE

Section 9AE(1) is the penalty provision for breach of other provisions and allows for rescission for breach of ss 9AA(1) or (2) or 9AB.

9AE(2) is a stand alone provision creating an obligation and a right to rescind for breach. The obligation is to have the plan registered within what is known as a sunset period, being 18 months from the date of the relevant contract, or such other date as is specified in the contract.

Solid Investments P/L v Clifford [2010] VSCA 59 established that whilst the vendor is free to nominate in the contract a period other than the default period of 18 months established by the sub-section, that nominated period is fixed and cannot be unilaterally extended by the vendor.

Tip Box

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

By Russell Cocks, Solicitor

First published in the Law Institute Journal

Contracts that relate to the sale of land prior to approval of a plan of subdivision are the subject of ss 9 and 10 of the Sale of Land Act. Whilst not specifically defined as such, Off the Plan contracts are referred to as ‘prescribed contracts’ s 9AA(7).

Section 9AA

This essentially relates to the deposit that is payable under a prescribed contract.

A prescribed contract must provide that the deposit be held on trust for the purchaser pending registration of the plan, s 9AA (1)(a), and limits the deposit to a maximum of 10% of the purchase price, s 9AA(1)(b). For an abundance of caution s 9AA(2) provides that the deposit must in fact be paid into a trust account.

Failure by the vendor to comply with s 9AA(1) or (2) entitles the purchaser to rescind the contract at any time before the registration of the plan – s 9AE.

The Law Institute of Victoria copyright contract includes the required conditions.

Section 9AB

Creates an obligation on the vendor of a prescribed contract to disclose in the contract, s 9AB(1), and as an ongoing obligation during the contract, s 9AB(2), works affecting the natural surface level of the lot or adjoining land.

Breach of this obligation also justifies rescission under s 9AE. It is common in large scale land subdivision to see these ‘fill plans’ as land subdividers effectively push and pull land around to create relatively flat building allotments. Purchasers are entitled to know where large amounts of fill may be deposited as this can have a substantial effect on building costs. But it is rare to see ‘fill plans’ in sales of residential units. Everest Projects P/L v Mendoza [2008] VSC 366 accepted the argument that lots on upper floor did not have a ‘natural surface level’ for the purposes of this requirement, reserving for another day any argument about lots that may be constructed or adjoining ground level.

Section 9AC

The amendment of a plan of subdivision in a prescribed contract between the date of the contract and the time of registration of the plan of subdivision may justify rescission.

The sub-section envisages the possibility of an amendment arising from the actions of one of two sources:

1. the Registrar of Titles may ’require’ an amendment; or
2. the vendor may ‘request’ an amendment.

The vendor is obliged to ‘advise the purchaser in writing of the proposed amendment’ and that advice must be provided within 14 days of the registrar’s requirement or the vendor’s request.

The purchaser’s right to end the contract pursuant to s 9AC does NOT end upon registration of the plan. It ends 14 days after sufficiently specific advice of the proposed amendment is provided to the purchaser. If the vendor has amended the plan after contract and has not provided the purchaser with any, or any sufficient, advice about the amendment then the purchaser remains entitled to end the contract within 14 days of receiving such advice. If the vendor advises the purchaser that the plan is registered the contract will generally require the purchaser to settle within a period of 7 to 14 days from advice of registration. The purchaser must at that stage satisfy itself in relation to amendments as the purchaser is contractually bound to settle unless the purchaser can rely on this statutory right to avoid, which right has survived registration of the plan.

The mere provision of an amended plan by the vendor without more might not satisfy the vendor’s advice obligation.

Once advice is given by the vendor to the purchaser, the purchaser has 14 days in which to rescind the contract, but may only do so if the amendment ‘materially effects’ the lot Besser v Alma Homes P/L [2012] VSC 460 held that an amendment to the entitlement and liability Schedule materially affected the purchaser’s lot and the purchaser was entitled to rescind.

Lockwood v PSP Investments P/L [2013] VSC 10 held that a change in car parking arrangements was ‘material’. The Court held that the purchaser satisfied the sub-section by proving ‘material effect’ and did not have to additionally prove detriment. Other changes to the plan were held to be not ‘material’ and reference in this regard was made to Gold Coast Carlton P/L v Wilson [1985] Qd R 182 where minor changes to anticipated Owners Corporation charges were NOT material.

These provisions put a heavy burden on purchaser’s advisors in respect of checking registered plans against contractual plans.

Section 10

That we have both s 9AC and s 10 is probably a legislative quirk and there would be benefit achieved if they could be merged as they both address amendments to the proposed plan of subdivision. Importantly, s 10 is limited in its application to PRIOR to registration of the plan and if the purchaser has not exercised the s 10 rights before registration, those rights expire.

Section 10 has a ‘restriction’ focus and in fact excludes restrictions imposed by a public authority as part of the subdivisional process from justifying avoidance. However such a restriction would generally ‘materially effect’ the lot and s 9AC would apply.

Section 9AE

Section 9AE(1) is the penalty provision for breach of other provisions and allows for rescission for breach of s 9AA(1) or (2) or s 9AB.

Section 9AE(2) is a stand-alone provision creating an obligation and a right to rescind for breach. The obligation is to have the plan registered within what is known as a sunset period, being 18 months from the date of the relevant contract or such other date as is specified in the contract.

Solid Investments P/L v Clifford [2010] VSCA 59 established that whilst the vendor is free to nominate in the contract a period other than the default period of 18 months established by the sub-section, that nominated period is fixed and cannot be unilaterally extended by the vendor.

Tips

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

By Russell Cocks, Solicitor

First published in the Law Institute Journal

Quality disputes in off the plan contracts often relate to the size of the finished product

A summary of the provisions of the Sale of Land Act 1962 that allow for avoidance of off the plan contracts was published in the May 2015 Law Institute Journal. Those provisions only relate to a purchaser’s complaints with the terms of the contract, changes to the plan of subdivision or failure to complete the project within the permissible time. Those provisions do not assist a purchaser who is concerned with the end product presented by the developer at the time of settlement.

These disputes relate to the quality of the final product and generally contrast the developer’s commercial aspirations with the purchaser’s aesthetic aspirations. The purchaser was provided with architectural drawings, artist impressions, glossy brochures and perhaps even video impressions upon which the purchaser constructed a home in the sky, but the developer had a black and white construction contract with the builder and a tightly controlled budget. Inevitably, expectation comes up against the rock hard face of reality and tears are often the result.

Developers may include a self-serving ‘entire contract’ Special Condition in the contract in an attempt to quarantine these marketing tools but that is not likely to be successful – Nifsan Developments P/L v Buskey [2011] QSC 314. Thus the dissatisfied purchaser waves the marketing publications and complains that the finished product that the developer wants to be paid for ‘next week’ is nothing like the apartment that the purchaser was expecting.

Apart from the lack of panoramic views which were promised by the development (as in Nifsan), the most common complaint is size. The purchaser is often appalled when the actual size of the built apartment is substantially less than their expectations and the existence of architectural drawings can lend some weight to those complaints. The problem is that there are at least three methods of measuring the area of a building and inevitably the developer will have adopted the ‘external walls’ method and the purchaser will wish to adopt the ‘internal walls’ method. Purchaser’s financiers seem to adopt the third method which might be described as the ‘minimalist’ method, which focuses on useable space.

A purchaser was successful in avoiding a contract in such circumstances in Birch v Robek Aust P/L [2014] VCC 68. Because the vendors in these transactions will generally be engaged in trade and commerce, the provisions of the Australian Consumer Law will apply. This provides the purchaser with a whole suite of rights and remedies beyond those available in relation to a quality dispute under the common law, limited as it is by the principle of caveat emptor.

The court considered the purchaser’s claim based on the Australian Consumer Law and held that the marketing information, specifically the architectural plans with dimensions of the apartment, gave the purchaser an entitlement to expect that the final product would be reasonably consistent with those plans. That the developer might have intended the dimensions shown on those plans to be the external dimension of the building and that the purchaser expected them to represent the internal dimensions was not relevant when the court was satisfied that the actual dimensions were substantially less than the plans represented.

On one method there was a deficiency of 16%, on another 12% and on the developer’s method, 2%. The court was satisfied that the discrepancy exceeded 5% and adopted the principle in Flight v Booth (1834) 131 ER 1160 that such a discrepancy justified avoidance. The court also found a breach of the Australian Consumer Law which would justify avoidance. Arguably, such a breach might also form the basis for a claim for compensation by a purchaser who resolved to settle notwithstanding some deficiency.

This decision may be compared with Sivakriskul v Vynotes P/L [1996] VicSC 479 (unreported) that was apparently not cited to the court. The decision denied a purchaser’s claim and adopted the ‘external walls’ method, although that decision was made prior to the introduction of the Australian Consumer Law.

Tips

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

By Russell Cocks, Solicitor

First published in the Law Institute Journal

The law has a number of special requirements when a property that is affected by an owners corporation is going to be sold. These requirements can mean that the preparation of the obligatory Vendor’s Disclosure Statement is delayed until an Owners Corporation Certificate is obtained from the owners corporation manager and may require the vendor to pay an insurance premium that the vendor was not expecting.

Owners Corporation Certificates

Many owners corporations are well managed, either by a ‘local’ manager who is one of the owners or by a ‘professional’ manager engaged for that purpose. Generally speaking large scale apartment developments retain a professional manager who will provide an Owners Corporation Certificate for a fee and even the smaller managers usually undertake this task expeditiously. The fee is approximately $150 in respect of each owners corporation and the certificate is usually provided within 10 days of request.

However not all owners corporations have appointed managers. Smaller, two, three and four lot owners corporations may have existed for many years without an operational owners corporation. This presents a problem in relation to provision of an Owners Corporation Certificate. A common way of overcoming this problem was for the vendor’s solicitor to prepare and have the vendor sign a standard Owners Corporation Certificate revealing no meetings, no fees and no insurance and include it in the Vendor’s Statement. However, as a result of amendments in 2014, such an owners corporation has been deemed to be ‘inactive’ and no Owners Corporation Certificate is required. This has simplified the situation in relation to TWO lot owners corporations.

However this option is not available for the sale of a lot in an owners corporation of more than two lots as s 11 of the Sale of Land Act requires that a vendor of a lot affected by an owners corporation must ensure that the owners corporation has insurance in place as required by the Owners Corporation Act. In addition s 60 of the Owners Corporation Act REQUIRES the owners corporation to take out public liability insurance in respect of common property (such as a common driveway). TWO lot plans are exempt from this requirement, s 7, and may therefore be exempt from providing an Owners Corporation Certificate if otherwise ‘inactive’; that is they have not met and have no fees.

Insurance

The difficulty with an owners corporation of more than two lots that does not have a manager is that no-one will have arranged this common property insurance. Individual owners simply pay their own building insurance and no common property insurance is taken out. Indeed an individual owner will often make the point that a careful inspection of their individual building insurance policy reveals that it extends to cover the owner’s liability in relation to common property. But that is irrelevant as the Act requires the owners corporation to ‘have’ the insurance, not the individual owner. That there is likely to be ‘double insurance’ in such cases is equally irrelevant.

Many owners corporations ignore this common property insurance obligation for many years with no consequence. But the problem arises for any owner who decides to sell. Section 11 of the Sale of Land Act requires that the insurance be in place at the time of sale and gives the purchaser the right to AVOID the contract at any time up until settlement if the insurance is not in place. No vendor can afford to knowingly enter into a contract that can be avoided by the purchaser at any time; therefore compliance with s 11 is practically mandatory.

The vendor is under time pressure to organise this common property insurance quickly as the sale process has begun. Whilst it is possible for the vendor to approach other owners to contribute to this insurance, that often does not work out as the other owners may not be contactable or may have no interest in contributing to this expense which, unless they too propose to sell, holds no real benefit for them. The selling owner then generally arranges the insurance at their own expense so that the proposed sale can proceed and is very unhappy about having to incur this unexpected expense (usually around $500). Whilst the vendor is able to require the purchaser to contribute to this expense in relation to the balance of the year after settlement as part of the adjustment process, this can only be for a proportional share of the premium based on the number of lots in the plan. Only the proportion that relates to the lot sold can be adjusted and the vendor has to bear the balance of the premium if the vendor is unable to recover a contribution from other lot owners, which is unlikely.

A halfway house in this scenario is that one of the owners, whilst not acting as a manager, has arranged common property insurance and other owners have contributed to the cost. In that case the vendor can provide an informal Owners Corporation Certificate setting out the insurance particulars and a statement that for all other purposes the owners corporation has been ‘inactive’.

Practitioners are invited to photocopy this explanation and send it to clients in appropriate circumstances.

Tip Box

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