ByLawyers News and Updates

De-regulated Contract of Sale of Land

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By Russell Cocks, Solicitor

First published in the Law Institute Journal

What are the consequences of the sunsetting of the regulations prescribing the standard Contract of Sale of Land?

The Estate Agents (Contracts) Regulations 2008 reached their sunset date on 11 August 2018, pursuant to the Subordinate Legislation Act 1994. As a consequence, those regulations, and amending regulations in 2011 and 2014, are revoked. The standard form contract almost universally used in Victoria for the sale of land is described in those now revoked regulations as the ‘prescribed’ contract and the thought that the prescribed contract has now lost its regulatory basis would appear, at first glance at least, to be a worrying development.

However, fear not. The ‘prescription’ only relates to the form of contract to be used by a licenced real estate agent. It does not prescribe the form of contract that may be prepared by a legal practitioner or conveyancer.

Section 91 Estate Agents Act 1980 authorises the making of regulations specifying the form of contracts to be used by estate agents. For many years the Law Institute of Victoria developed a standard form contract that was adopted as the prescribed contract and printed in the Regulations for use by estate agents. In fact, estate agents, in real estate sales at least, rarely prepare their own contract and usually request a contract from the vendor’s legal practitioner or conveyancer. As the ‘prescribed’ form is acknowledged as a universally accepted form and is available without charge as a public document, it is the form in common use. Proprietary conveyancing programs are permitted to replicate the form prescribed in the regulations and the LIV and REIV sell their version of the form (with appropriate logos) to their members in print or digital form.

The revocation of the Regulations notionally leaves that minority of estate agents who choose to prepare contracts, rather than requesting them from legal practitioners or conveyancers, without a prescribed form of contract. But s 53A Estate Agents Act 1980 authorises agents to use contracts that are approved by a professional association within the meaning of the Legal Profession Act 2004 and the prescribed contract was so approved by the LIV before being prescribed in the Regulations and the revocation of the Regulation does not affect that approval, at least at present.

The short answer for estate agents concerned by this development is to stop preparing contracts and request contracts from the vendor’s legal practitioner or conveyancer. This, with respect, is simply good practice in any event.

The de-regulation has no effect on legal practitioners, who are free to adopt any form of contract, subject to other statutory constraints such as the Australian Consumer Law and Fair Trading Act 2012. Whilst the current contract does include a warranty in GC2 1 that the general conditions of the contract are identical with the general conditions prescribed in the Regulations, that warranty would appear to be unaffected by the revocation of the Regulations as proof of the form of the de-regulated contract will remain possible from parliamentary records. Thus, we can expect that the ‘prescribed’ contract will continue in general use into the near future.

Allowing the Regulations to sunset appears to have been a deliberate choice by the government. This may be due to a desire by the government to undertake wide ranging reform of the property law sector as a result of the Consumer Property Law Review 2016. That Review investigated a proposal to prescribe a form of contract of sale of land that would be obligatory for ALL sales, or at least to prescribe certain minimum terms that would be obligatory in all contracts. Whilst those proposals have not as yet seen the light of day, the decision to allow the Regulations to sunset without replacement indicates that changes might not be far away. Indeed, the government could have chosen to extend the Regulation for a further 12 months, but apparently decided not to do so.

It would be fair to say that recent changes, including CGT and GST Withholding, have resulted in unwieldy Special Conditions being introduced into the LIV contract. Whether the deregulation of the contract and the other changes that may flow from the Review will result in other forms of contract becoming common is yet to be seen but the life of a property lawyer, despite widely held expectations to the contrary, is never dull.

Tip Box

  • ‘Prescribed’ contract regulations revoked.
  • Only affects estate agents.
  • Does not affect legal practitioners or conveyancers.

Lost trust deeds

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By Russell Cocks, Solicitor

First published in the Law Institute Journal

Many properties are held in the name of Trustees. Having access to the original Trust Deeds can present problems.

Property lawyers often have to deal with properties owned by trustees, either corporate or individuals, and this adds another layer of complication to what is regarded by the public as the ‘simple’ process of conveyancing. Often the client is not even aware that the property is owned by a trustee, or at best has a minimal understanding of the consequences of such ownership. The process is complicated even further when the transactions involves a financier, which is often the case.

The concept of a trust has been around for centuries, but its impact on day to day transactions greatly increased in the 1970s and 80s when accountants decided that the trust concept provided substantial advantages for the average taxpayer, partly as an asset protection mechanism but principally as a tax-saving device by distribution of income within the family. Hence the prevalence of the ubiquitous Family Trust that seemed to push its way between the Average Joe (or Josephine) and their assets. In fact, the asset protection motivation was quickly dissipated by financiers requiring personal guarantees in respect of trust borrowings and the tax benefits were whittled away by the imposition of maximum tax rates on income directed to infants. But like a runaway horse, once mounted, it is difficult to get off a Family Trust.

The Family Discretionary Trust typically consists of a trust deed with extensive Trustee powers recited in standard form and then a Schedule setting out the particulars relevant to the particular trust. Such documents were often purchased ‘off the shelf’, much the same as company incorporation documents, and as they were a mechanism designed principally for tax minimisation, little regard was had to the niceties of trust law. Four copies of the Trust Deed would usually be executed, with the accountant, lawyer and client having a copy each and the fourth copy generally staying with either the lawyer or the accountant. It would be fair to say that the execution process might not always be carefully undertaken and some of the four copies might remain unsigned. From time to time financiers might seek copies of the Deed and a prudent lawyer, accountant or client would hopefully ensure that the original Deeds were held in safekeeping but, as is fitting for a document that was designed to record a fantasy, that was often not the case.

Forty or fifty years after these structures were put in place, problems are arising when the original documents cannot be found. The purpose of the documents were to record the Trustee as the legal owner of assets, both real estate and personal property such as bank accounts and shares, and when it comes time to deal with these assets the Trust Deed establishing the Trustees right to deal may need to be produced. This situation was considered by the Supreme Court in Application by South Melbourne Continental P/L 2018 [VSC] 398.

This was a typical situation of a small business established by a patriarch thirty-five years previously that had been conducted successfully over those years, held substantial assets and was now ‘operated’ by a son on behalf of the family. But the Trust Deed could not be found and this presented problems in dealing with the assets and the business generally. The Supreme Court has a number of powers relating to trust property, including Order 54 Supreme Court (General Civil Procedure) Rules 2015 and an ability to make orders under the Trustee Act 1958. However, the Application was unsuccessful as the McMillan J. was not satisfied that all possible attempts to locate the Trust Deeds had been carried out and it may be concluded from the judgment that the powers vested in the Court will not be made available without extensive evidence relating to the original terms of the Trust Deed and the attempts to locate the documents.

This outcome may be contrasted with the successful Application in D.R.McKendry Nominees P/L 2015 [VSC] 560 where an argument based on the presumption of regularity, that does not appear to have been argued in South Melbourne Continental, was successful. A similar argument found favour with McMillan J. in a case concerning a lost Superannuation Deed in Re Thomson 2015 [VSC] 370.

A full description of the sale and purchase process – Conveyancing – NSW

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By Lawyers is pleased to announce the publication of new reference materials within our Conveyancing Guides which provide a full description of the conveyancing process for both sale and purchase. These descriptions provide details on the procedure to follow when conducting a sale or purchase, using the precedents available in the By Lawyers Conveyancing (NSW) Guides, together with LEAP and InfoTrack.

The full descriptions follow the typical progression of a residential sale or purchase and include screen shots to assist with the procedural aspects of running the matter in LEAP. These descriptions are not intended to be a substitute for our comprehensive Conveyancing commentaries, or the detailed Matter Plans and To Do lists provided in our Guides – rather they are intended to be complementary, providing the user with more detailed explanations on the very practical aspects of running a conveyancing matter from start to finish.

Areas covered include:

  • How to open a file;
  • How and when to order quality and title searches;
  • How to create the contract with the correct order of documents;
  • How and when to enter matter information into LEAP;
  • Arranging an exchange;
  • Completing settlement figures and directions – adjusting council rates, water, sewerage, strata.
  • Preparing for settlement – both paper and electronic.
  • Post-settlement procedure.

While these new resources are ideally suited to those with little or no hands-on experience with conducting conveyancing matters, they will also be of benefit to those unfamiliar with running conveyancing matters in LEAP, or who need to step in and conduct a conveyancing file for another team member who is on leave.

Another great advantage provided by these full descriptions is the ability to delegate conveyancing tasks to junior staff and have them understand the conveyancing process without having to direct them every step of the way.

Like all of the practical resources in the By Lawyers Conveyancing Guides, these new reference materials provide firms not currently taking on conveyancing work the ability to do so easily.

Qld – PEXA settlements – Transfer duty

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New commentary has been added to the By Lawyers Purchase Guide and 1001 Conveyancing Answers Queensland to clarify the specific stamping requirements for PEXA settlements.

Stamping must commence in the PEXA Workspace so that an ELN Transaction Number generates. This allows OSRconnect to directly verify the transfer duty once stamping has been submitted.

If stamping has already occurred in paper then the ELN Transaction Number does not exist and the system is unable to verify transfer duty so settlement in PEXA is not possible. The transaction will then need to revert to a paper settlement.

See the heading ‘Duties and Grants’ in the By Lawyers Purchase Commentary for details on the procedure to be followed.

Conveyancing – GST withholding – Letter to client

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GST withholding obligations for purchasers of new residential properties and some vacant land commenced on 1 July 2018.

The commentaries in all By Lawyers Conveyancing Guides – Sale and Purchase, for each state, have previously been amended to deal with the new GST withholding requirements. See the commentaries for details of when the new provisions apply.

Now included in the precedents for both Sale and Purchase is a new ‘Letter to client regarding GST withholding payment’ which explains to clients the new requirements and outlines for them the procedures involved in complying, whether they are a vendor or a purchaser.

This helpful precedent allows you to quickly and correctly advise the client on this important new development in conveyancing procedure, where applicable.

 

Sheriff – Enforcement procedure

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By Russell Cocks, Solicitor

First published in the Law Institute Journal

The Sheriff for the State of Victoria performs an important function within the Court system, providing an ultimate enforcement procedure for judgments obtain in the Courts.

The Sheriff has been around for a long time. Fans of Robin Hood generally disparage his work but without an ultimate enforcer, Court judgments risk becoming pyrrhic. As an arm of the judicial process, the Sheriff has considerable power to influence the lives of citizens and is liable to review by the Courts. It would be fair to say that the traditional sale process adopted by the Sheriff gave the impression of a preference to the rights of the judgment creditor over the rights of the judgment debtor and appeared to be based on a policy of realising the judgment debtor’s property at all costs, indeed often at great cost to the judgment debtor.

Cases in 2011 and 2012 in the Supreme Court critically analysed the role of the Sheriff and promoted a more proactive role for the Sheriff in analysing the sale process to ensure a fairer outcome for the judgment creditor. This, on at least one occasion, led to the Sheriff’s auction being conducted on-site, rather than at the Sheriff’s Office and an enthusiastic crowd making multiple bids. (see LIJ columns in September 2011 & June 2013) Reform of the sales process had been called for as long ago as 1982, recognising a need for the process to become more transparent by adopting a more commercial focus and perhaps contracting out the auctions to a panel of licenced estate agents.

But Sheriff’s auctions labour under some unique difficulties:

  • the Sheriff has no right to access the property during the sales process to allow for inspection;
  • indeed, the Sheriff has no right to access the property on the day of the auction and cannot guarantee possession to the purchaser after the auction;

Additionally, the Sheriff only sells the interest of the judgment debtor, meaning that the purchaser takes the property subject to any encumbrances, and the Sheriff is not obliged to hand over the duplicate Certificate of Title (or its electronic equivalent). Given that the purchaser must secure registration of the Transfer from the Sheriff before the writ for possession expires, it can be seen that a purchaser from the Sheriff takes a considerable risk and the Sheriff has developed a formula to take account of this risk.

Hoskin v Griffin (The Sheriff) [2018] VSC 216 revealed that the Sheriff’s process involves a 25% discount being applied to the value of the subject property to take account of these difficulties. The problem with that case is that the starting point, the valuation obtained by the Sheriff, was too low to begin with and the application of the 25% discount to this low value meant that the sale was defective.

The judgment debt arose as a result of failure to repay a mortgage of $165,000 in 2015. By the time the judgment debtor had unsuccessfully sought to contest the judgment, costs and interest had more than doubled the debt to $380,000 in 2017. The Sheriff had obtained a valuation from the Valuer-General in 2015 of $450,000 and a fresh valuation in 2017 of $475,000. The Sheriff then calculated the reserve for the auction by applying the 25% discount, to achieve a figure of $340,000, but increased it to $380,000 in view of the judgment debt. The purchaser at the Sheriff’s auction, held in the Sheriff’s Office, made one bid, equal to the reserve and purchased the property. Evidence before the Court established that the true value of the property was at least $700,000. This meant that the purchaser had acquired the judgment debtor’s equity of around $300,000 for free. The Court concluded that the sale process had failed to obtain a fair price and was therefore in breach of the Sheriff’s duty to the judgment debtor. Unravelling the consequences of that finding was left to another day.

There is little doubt that the judgment debtor made some poor decisions during this unhappy episode. A simple debt more than doubled, opportunities to resolve the dispute were ignored and multiple representatives were engaged. The Sheriff faces a difficult task of balancing the rights of the debtor and creditor and it appears that in this case he was dealt a bad hand by the valuation. But if the Sheriff had have accepted the judgment debtor’s valuation of $700,000, the 25% discount would have resulted in a reserve of $525,000 and it is likely that a prospective purchaser, facing all the problems associated with buying from the Sheriff, would have been reluctant to take the risk. This would have resulted in a second Sheriff’s auction without reserve, an evil criticised in the 2011 & 2012 cases.

The call for meaningful reform, now 35 years unanswered, remains.

Tip Box

•Sheriff’s sales are a necessary evil

•Sheriff’s sales involve risks for purchasers

•Reform is overdue

TAS – transfer duty concessions

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New commentary and forms have been added to the Purchase of real property (TAS) Guide in relation to the availability of new transfer duty concessions for first home owners purchasing an established home and also pensioners downsizing to an established home.

First home transfer duty concessions – Established home

A 50% discount is available on transfer duty for first home buyers of established homes which have a dutiable value of $400,000 or less. The discount is available for purchases of established homes that settle within the period 7 February 2018 and 6 February 2019. The eligibility requirements are set out in full in our commentary. A link to the SRO form Section 46E Concession from duty -Transfer to first home buyers of an established home has been added to the matter plan.

Transfer duty concessions for pensioners downsizing

This concession provides a 50% discount on transfer duty for eligible pensioners who sell their existing home and downsize to another home (not vacant land) with a dutiable value of $400 000 or less (and also less than that of the former home). Both homes must be in Tasmania and the new home must be an established property.

The concession is available where:

  • the sale of the former home settles within the period 10 February 2018 and 9 February 2019; and
  • the purchase of the new home settles within six months before or after the transfer of the former home.

The eligibility requirements are set out in full in our commentary.

A link to the SRO form Sections 46N & 46O Concession from duty -Transfer to pensioner/s downsizing home has been added to the matter plan.

Purchase – VIC – Additional foreign purchaser land transfer duty exemption

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Information on this new exemption has been added to the Purchase commentary and 1001 Conveyancing Answers (VIC).

From 1 July 2018 additional duty will only apply to a contract or transaction for residential property for a foreign transferee where the following exemption criteria is not met:

  • The purchase of the residential property is completed jointly with a spouse or domestic partner who is an Australian citizen, permanent resident, or New Zealand citizen who holds a special category visa; and
  • The property will be used as their principal place of residence for a continuous period of 12 months, starting within 12 months of them becoming entitled to possession of the property.

This exemption is available for transfers from 14 June 2018.

 

Conveyancing – GST withholding – Supplier notification

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Where a purchaser is required to make a GST withholding payment, the vendor (supplier) is required to provide the purchaser with a written notice, called a Supplier notification, containing information to help the purchaser comply with their GST withholding obligations.

The notice must be provided to the purchaser on or before the supply. This notice can be incorporated into the contract for sale, or provided separately.

To make compliance easy, we have added a Supplier notification precedent in all of the By Lawyers Conveyancing Sale Guides, under the heading ‘The contract’.

Further information on the new GST withholding requirements for residential properties – and related precedents – can be found in all By Lawyers Sale and Purchase Guides.

Don’t worry, By Lawyers always keep you up to date!

Conveyancing NSW – Option to purchase

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The ‘Option to purchase’ precedent in the By Lawyers Conveyancing – Sale Guide for NSW has been updated so that the s 66ZH Notice in relation to cooling off rights is now incorporated in the document rather than needing to be separately provided.

The wording adopted complies with Form 2, Schedule 5 of the Conveyancing (Sale of Land) Regulations 2017.

We are grateful to one of our user firms who suggested this practical amendment. At By Lawyers we love getting feedback from our users! You can always email us at askus@bylawyers.com.au.

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