ByLawyers News and Updates

Land transfer duty benefits

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By Russell Cocks, Solicitor

First published in the Law Institute Journal

State Revenue Office has announced changes to the benefits available to purchasers of real estate to take effect from 1 July 2017.

Imposition of duty on transfer of land in Victoria is a significant source of revenue for the State government. It is also a significant source of angst for taxpayers and people involved in the real estate industry. Changes to the duty regime are often seen as levers for economic development and as such those changes are usually designed to achieve a politically beneficial outcome for the government.

The issue of housing affordability, particularly for first home buyers, is a hot button political issue and the duty changes are targeted at that demographic. The changes apply to contracts of sale after 1 July 2017, which may mean that the months of May and June will be ‘slow’ in this marketplace, followed by substantial uplift from July onwards.

Traditionally a first home buyer needs a minimum of the 10% deposit. Given that duty on a purchase of $500,000 is in the range of 5% the government impost is half of that hard fought for deposit. Granting an exemption or concession in relation to duty should therefore provide a substantial impetus for sales. The contrary argument is that it will simply bring more people into the market and effectively increase the price of housing by the amount of the benefit. This dispute between supply/demand will no doubt continue to occupy the attention of economists but we lawyers will move on to the practical consequences of the changes.

FIRST HOME BUYERS – both new and established homes

Full exemption for purchase price up to $600,000.

Reducing concession between $600,000 and $750,000 (no concession at $750,000).

Requirements:
  1. Purchaser and partner must qualify as ‘first home buyers’; and
  2. Purchaser must be an Australian citizen or permanent resident; and
  3. Purchaser must use property as Principal Place of Residence for a continuous period of 12 months commencing within 12 months of possession.

Importantly in the new home market, the ‘dutiable amount’ is calculated after taking into account deductions relating to the cost of construction post-contract.

One segment of the new home market is based on the first home buyer purchasing the land and then entering into a separate building contract for construction. In this case the dutiable value is based on the land contract and will normally come within the full exemption available up to $600,000. However another method has the first home buyer enter into a land and building contract for the total value of the land and construction. This may have a contract price above the $600,000 threshold but the exemption is available if the value of the land as at the date of the contract is below $600,000. Adopting the Fixed Percentage Method of allocating value in such cases will mean that the full exemption will be available so long as an amount equal to 55% of the contract price is below $600.000, allowing for total contract prices of well over $1m.

This takes us into the realms of:

OFF THE PLAN SALES

Substantial duty concessions have always been available in Victoria in relation to off the plan sales. The availability of this concession is to be limited after 1 July 2017 to properties to be used by the purchaser as their principal place of residence.

The concession is available where the dutiable value of the property is less than $550,000. Importantly, the calculation of dutiable value allows for deduction from the contract price of an amount that represents the value of construction to be undertaken after the date of the contract and prior to settlement. The Fixed Percentage Method of calculation of post-contract construction cost allocates cost as follows:

Single dwelling
  • Construction cost 45%
  • Land component 55%
Multi-lot
  • Construction cost 60%
  • Land component 40%
High rise
  • Construction cost 75%
  • Land component 25%

If a purchaser signs a contract before any construction commences the dutiable value will be below the $550,000 threshold provided that the contact price is less than:

  • Single dwelling $1,000,000
  • Multi lot $1,375,000
  • High rise $2,200,000

and duty will be calculated at the concession rate available to purchasers who intend to occupy the property as their principal place of residence.

The concession that was previously available for investment properties and commercial developments will cease as at 30 June 2017 and the concession will only apply to owner-occupied properties.

Disclosure of death

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By Russell Cocks, Solicitor

First published in the Law Institute Journal

Does a vendor of real estate have an obligation to disclose that a death occurred on the property in the past?

The underlying principle governing the relationship at common law between a vendor and a purchaser is caveat emptor – let the purchaser beware. The application of that principle would mean that a purchaser should conduct its own inquiries in relation to the antecedents of the property and that the vendor has no obligation to voluntarily disclose the circumstances of any deaths and, indeed, whether such deaths occurred.

The vendor could not actively mislead the purchaser, as misrepresentation is an exception to caveat emptor, but only in the limited circumstances of a positive misrepresentation. Misrepresentation by silence is not known to the common law in this regard and a vendor who avoided making any positive misrepresentations was safe.

However the vendor’s common law disclosure obligations have been substantially supplemented by the statutory obligations set out in s 32 Sale of Land Act 1962. These include the obligation to disclose title restrictions, planning obligations and the service of any notices affecting the land, but none of the many obligations imposed by s 32 appear to extend to an obligation to disclose that a death occurred on the property.

There is much to be said for the argument that a vendor should not have any obligation in this regard. There are many practical difficulties of deciding which deaths attract the obligation. A sensational murder immediately prior to sale might attract the obligation, but what of the natural death of a long term owner? There are infinite possibilities between these two situations and striking a fair balance would be difficult. And would the obligation be limited to death? What about other crimes like drug production or paedophilia? The law must not shy away from difficult tasks, but these practical considerations highlight the potential difficulties.

Some American States, which also apply caveat emptor, have created specific disclosure obligations for what are known as ‘stigmatised properties’, which cover not only death but also other criminal activity and, perhaps only in America, paranormal activity. An arbitrary period of 3 years prior to sale (or leasing) provides some recognition that death is a natural event.

Estate Agents

Agents are subject to regulation designed to protect both vendor and purchaser. Thus, whilst the vendor might not owe a duty to the purchaser, the agent does.

A NSW case involving the sale of a home in which two sons had murdered their parents led to an outcry and the vendors voluntarily terminated the contract, preventing a Court determination of the issue. However the agent was found guilty of disciplinary charges for failing to inform the prospective purchaser and NSW agents are now subject to a specific rule requiring them to bring such matters to the attention of the purchaser. New Zealand has similar requirements in relation to suicide.

No such specific ethical obligation exists for Victorian agents but there is a general duty of honesty and best practice that might be used as a basis for a claim by a purchaser. Agents are also subject to the general duties not to mislead or deceive, positively or by silence, created by the Australian Consumer Law and this is likely to be the direction of attack from a disaffected purchaser.

Charles Lloyd Property Group Pty Ltd v Buchanan [2013] VSC 148

This case provides some hope that the Walls of Jericho will not crumble in the face of the trumpets playing the ACL tune. The purchaser sought to avoid a contract based on post-contract discovery that a suicide had occurred on the land. There were many factors against the purchaser, not least of which was a confirmation of the contract by the purchaser AFTER the knowledge of the suicide had been acquired, that resulted in the failure of the complaint but it was somewhat re-assuring that the Court found that the complaint should be dismissed as it ‘had no reasonable prospect of success’.

Tip Box

  • Whilst written for Victoria this article has interest and relevance for practitioners in all states.
  • Properties may be stigmatised by criminal activity.
  • Vendors presently probably have no disclosure obligations.
  • Estate agents may be obliged to disclose as a result of their duty to purchaser.

Caveats

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By Russell Cocks, Solicitor

First published in the Law Institute Journal

Lodging a caveat in Victoria is intended to be, and in fact is, reasonably simple. As with all Land Use Victoria forms the preparation of the form of caveat has been changed to accommodate electronic conveyancing and the universal obligation to verify the identity of participants in the conveyancing process applies to the caveator. Whether the purpose of the caveat is to operate as a notice to all of the world of the caveator’s claim or as an entreaty to the Registrar not to register a competing dealing without notice to the caveator is a question that has occupied the attention of the courts on a number of occasions but the fact is, irrespective of the law, the caveat does achieve both of those outcomes.

Until electronic lodging of dealings becomes compulsory (presently planned for August 2018) it is still possible to lodge a paper caveat, but the preparation of the document is largely an on-line process conducted on the Land Use Victoria website and the form has been standardised and options provided for each of the categories to be filled in on the form. From there the caveat is either lodged electronically through PEXA or is printed and lodged as a paper dealing.

The fundamental requirement for the lodging of a caveat is that the caveator must establish, for the purposes of recording of the caveat on the Register, grounds of claim. These are divided into three categories:

  • statement of claim;
  • estate or interest; and
  • prohibition.

Each caveat must address each of these three categories but only ONE of the various options available in respect of each category may be adopted for each category.

Statement of claim

A common caveat is a caveat lodged to protect the interest of a purchaser under a contract of sale. The drop-down menu includes an option to complete details of the parties to the contract and the date of the contract.

Other options include caveats based on mortgages, charges, leases, trusts and some more obtuse relationships, including an option for the registered proprietor ‘to prevent improper dealings’.

Estate or interest

Like the statement of claim category, the estate or interest claimed may be selected from a wide variety of options including a freehold estate, a leasehold estate, an interest as mortgagee, an interest as charge, even an interest arising pursuant to a restrictive covenant or easement.

Prohibition

Unlike the other two categories, prohibition is limited to 5 options. Traditionally the ‘absolutely’ option is commonly used but there are other, more limited, options such as ‘an interest that affects my interest’ or ‘unless I consent’.

Whilst a caveat is a reasonably simple form to complete and lodge, that does not mean that care should not be exercised in its preparation. A poorly worded caveat may fall foul of judicial analysis and be removed pursuant to s 90(3) Transfer of Land Act 1958, notwithstanding a discretionary power to amend a defective caveat. In Percy & Michele Pty Ltd v Gangemi & Anor [2010] VSC 530 a caveat that claimed ‘an estate in fee simple’ was removed because the appropriate claim was ‘an equitable interest as chargee’ and the Court was not prepared to allow an amendment. Equally, a caveat claiming ‘an interest as chargee’ based on an alleged trust (which claim, if proven, would justify a claim of an ‘an estate in fee simple’) was removed in Wells v Rouse & Ors [2015] VSC 533.

Care must also be exercised in relation to the prohibition. It is common for an ‘absolute’ prohibition to be claimed, indeed this situation was described as the default position in Sim Development Pty Ltd v Greenvale Property Group Pty Ltd [2017] VSC 335, but given the clear choices that are now presented by the on-line form a Court may refuse to allow amendment of an obviously inappropriate ‘absolute’ prohibition.

Joint registered proprietors also present a challenge to a caveator. In Lawrence & Hanson Group Pty Ltd v Young [2017] VSCA 172 an ‘absolute’ prohibition based on a charge given by one of the joint proprietors resulted in the caveat being defeated at first instance as it was held to unjustifiably encumber the interest of the other joint proprietor. However, the Court of Appeal upheld the caveat as the Court concluded that the wording of the interest claimed was sufficiently clear to be limited to encumbering the interest of the joint proprietor who gave the charge.

Tip Box

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

Septic situation

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By Russell Cocks, Solicitor

First published in the Law Institute Journal

Not many s 32 cases make it to the Supreme Court. McHutchison v Asli [2017] VSC 258 is an exception and it provides an authoritative answer to a reasonably common scenario.

The vendor was selling a property that was sewered by means of a septic tank system. That sentence sounds somewhat contradictory as the word ‘sewered’ implies that the property is connected to a system that removes waste from the property entirely, rather than collecting the effluent in an on-site tank for treatment and dispersal within the property. The property was a large property in an outlying suburb of Melbourne and, for people familiar with the local conditions, a septic system was perhaps the norm. However, the purchaser had no experience of local conditions and sought to avoid the contract on the basis of a breach of the vendor’s disclosure obligations pursuant to s 32 Sale of Land Act 1962.

The purchaser’s primary argument was that the vendor had breached s 32H in relation to disclosure of services. That section requires a vendor to disclose if particular services, including sewerage, are NOT connected to the property. In error, the vendor’s conveyancer deleted reference to sewerage in this part of the Vendors Statement which was conceded by the vendor to be incorrect and accepted by the Court as constituting a false statement that sewerage WAS connected. The vendor sought to excuse this false disclosure as a clerical error and relied upon the fact that a certificate from Yarra Valley Water indicated that sewerage was not connected. However provision of this certificate, which was described by the Judge as ‘opaque in the extreme’ in relation to sewerage service, could not overcome the false representation in the Statement itself that sewerage was connected. In this regard it was assumed throughout the judgment that reference to ‘connected’ meant that the property must be connected to an external sewerage system and a septic system could never satisfy the need to have sewerage ‘connected’.

The purchaser argued a second basis for avoiding the contract based on s 32D, the sub-section requiring disclosure of ‘notices’ affecting the land. Approximately 10 years before the subject sale and prior to the vendor becoming the owner of the property the Council had issued a permit for the installation of a septic system. The permit contained a number of conditions in relation to the ongoing inspection, maintenance and cleansing of the septic tank and was therefore claimed by the purchaser to be a ‘notice affecting the land’ that required disclosure pursuant to s 32D. Whilst there is no specific finding that these circumstances constituted a breach of s 32H at that point in the judgment where s 32H is discussed, the conclusion of the judgment refers to ‘contravention of the requirements of s 32(1), s 32D and s 32H’and so it may be concluded that failure to include the Planning Permit did in fact constitute failure to include a relevant ‘notice’.

The vendor argued that despite the conceded breach of s 32H and the contended breach of s 32D, the vendor ought to be allowed to rely on the ‘escape clause’ of s 32K and much of the judgment considers the applicability of this sub-section. The vendor bore the burden of establishing that the vendor had acted:

  • honestly; and
  • reasonably; and
  • ought fairly be excused; and
  • that the purchaser is substantially in as good a position notwithstanding the breaches.

The Court did not accept that the breach of s 32H had been caused by a ‘clerical error’ and was concerned that the vendor had not adduced evidence relating to the s 32 disclosure at the time the vendor had purchased the property some years before. Thus the ‘honestly’ burden was not satisfied.

Similar considerations militated against a conclusion that the vendor had satisfied the burden in relation to reasonableness and in the absence of honest and reasonable findings the Court was unable to conclude that the vendor ought fairly be excused.

It seemed fairly clear on the facts that a purchaser expecting a sewered property would not be in as good a position with a septic sewerage system, particularly one that carried obligations imposed by the Planning Permit.

For these reasons, the vendor’s defence failed.

The purchaser was entitled to end the contract, reclaim the deposit and claim legal costs.

Tip Box

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

Failure to correctly disclose services entitles avoidance.

A Planning Permit may constitute a notice under s 32D.

Proving all the elements of s 32K is difficult.

Retail premises

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By Russell Cocks, Solicitor

First published in the Law Institute Journal

The meaning of ‘retail premises’ continues to occupy the attention of the Courts.

The ‘length & breadth’ of the phrase ‘retail premises’ has occupied the Courts on a number of occasions since the introduction of the original retail tenancies legislation in 1986. Indeed, this column considered some of those cases in July 2012, specifically in relation to whether the retail use of the premises was the ‘predominant use’ of the premises as required by the Act.

CB Cold Storage Pty Ltd v IMCC Group (Australia) Pty Ltd [2017] VSC 23 decided on 7 February 2017 by Croft J is the latest of these considerations and, in some eyes, continues the widening of the application of the Retail Leases Act 2003 beyond what has been regarded by some as the traditional application of the Act.

Retail sales and services have a colloquial connection with transactions between business as a supplier and members of the public as consumers. The traditional distinction was between a retailer who sold or supplied to the public and a wholesaler who chose to service a more limited clientele and transacted with retailers who then transacted with the public. But the retail leases legislation was never this simplistic and whilst references to ‘dictionary’ meanings were occasionally made, the true meaning of the legislation was more nuanced than this.

As early as Wellington v Norwich Union Life Insurance Society Ltd [1991] VicRp 27 the Courts were considering ‘the ultimate consumer’ as the appropriate test for the application of the Act, rather than any requirement that the consumer be a member of the public. Thus that case held that the office of a patent attorney was retail premises as the business conducted therein was the provision of retail services. That the public could access those services conducted from those premises was a fact, but not a necessary component of the definition of ‘retail premises’. Reviewed in the light of the cases discussed below, the premises would have been retail premises even if the patent attorney excluded the public from the premises and only serviced qualified lawyers or, as appears to have been the case, multinational companies. To regard a multinational company as a ‘consumer’ is perhaps a challenging concept but in the context of the retail tenancy legislation it is the ‘consumption’ of the goods or services that is important, not the identity of the consumer.

Croft J referred to his decision in Fitzroy Dental Pty Ltd v Metropole Management Pty Ltd & Anor [2013] VSC 344, a case involving not the retail supply of dental services as the name might suggest but rather the supply of conference space. The tenant provided conference services, generally to business operators who might use those services for internal consumption or provide services to the public. The landlord appeared to believe that the imposition of a business between the landlord and the public meant that the premises were not ‘retail premises’ but Croft J found to the contrary and that there were, potentially, two transactions involving the retail provision of services – the provision of the premises by the landlord to the tenant and then the provision of conference facilities by the tenant to other businesses or the public. Only the first transaction was subject to the retail tenancies legislation as the second transaction did not involve the provision of retail premises, but rather the provision of retail services. It is the use of the premises as part of the supply by the tenant to the consumer that is the key to determining whether the premises are ‘retail premises’.

In the light of Fitzroy Dental it is perhaps not surprising that Croft J found that the supply by IMCC Pty Ltd of cold storage facilities to CB Cold Storage for the specific purpose of ‘cold and cool storage warehouse and transport facilities’” was the provision of retail premises within the meaning of the Retail Leases Act 2003. The tenant did not, nor was it required to, limit its use of the premises to its own business. Its business was to offer the use of the facilities to third parties, generally other businesses, ranging from large companies to small owner-operators. Whether the premises were available to or accessed by members of the public was not relevant as ‘consumers’ can be ‘persons who use a service for business or a purpose other than personal needs’.

Croft J was cognisant of the intention that the retail tenancy legislation be ‘ameliorating and remedial’ and that the intent was to provide protection to tenants who provide goods and services to ‘consumers’. The fallacy is to equate ‘consumers’ with the general public. Goods and services can be provided for consumption within the meaning of the Act irrespective of the involvement of the general public and if the tenant’s premises form part of that supply then the premises will be ‘retail premises’.

Tip Box

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

‘Ultimate consumer’ includes both the general public and other businesses.

Any supply that involves the use of the premises by a third party is likely to be ‘retail premises’.

Deposit release – 2017

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By Russell Cocks, Solicitor

First published in the Law Institute Journal

There has only been one reported decision on deposit release (McEwan v. Theologedis [2004] VSC 244) and that case did not consider the “condition enuring” argument. Aurumstone P/L v Yarra Bank Developments P/L [2017] VSC 503 has now considered that argument.

Section 24 Sale of Land Act provides that the deposit is to be held in stakeholding. This was designed to protect a purchaser from the possibility of the deposit being released to the vendor prior to settlement and the vendor not being able to settle, with the consequent loss to the purchaser of the deposit. However, the Act recognised that the common law had always taken the view that the vendor was entitled to the deposit upon payment and so s.27 provided a mechanism for release of the deposit prior to settlement if certain requirements are satisfied.

One such requirement is that there are “no conditions enuring” for the benefit of the purchaser. But all contacts have “conditions” that continue from the time that the contract is signed until final settlement and if the word “conditions” refers to any condition then deposit release can never occur. Such an outcome cannot have been intended by Parliament when it specifically introduced a release mechanism and so the question to be determined is what sort of condition does the prohibition refer to?

Clearly a condition allowing the purchaser to avoid the contract if a loan is not approved would be the sort of condition that would justify objection to release until satisfied, but a condition that the vendor replace a doorbell prior to settlement would not be such a condition.

The Court approached the problem of defining which conditions in the contract would be “conditions enuring” for the benefit of the purchaser by first drawing a distinction between:

  • contingent conditions; and
  • promissory conditions.

A contingent condition is a condition that does not contain a promise that the condition will be satisfied but rather defines an event or an occurrence the happening of which will mean that the contract is no longer contingent. This includes a loan approval condition that does not promise that a loan will be approved but which means that if the loan is approve then the contract is no longer contingent on loan approval.

The existence of an unsatisfied contingent condition justifies refusal to release the deposit.

Promissory conditions are in turn divided into three categories:

  • essential terms;
  • intermediate terms; and
  • warranties.

An essential term is a term that the parties intend the breach of which will lead to the right to terminate the contract.

An intermediate term gives rise to a non-essential obligation the breach of which may be sufficient to entitle termination if it goes to the root of the contract such as to deprive the injured party of such a substantial part of the benefit of the contract but will otherwise only justify a claim for damages.

A warranty, which is not an essential term, gives rise to a right to damages for breach but no right to terminate.

The relevant condition in Aurumstone was a Special Condition added to the contract by the parties to address the purchaser’s requirement that vacant possession of the property, which was subject to a lease at the time of signing the contract, would be available to the purchaser at settlement or shortly thereafter. The purchaser intended, and the vendor knew of that intention at the time of agreeing to the Special Condition, to demolish the buildings on the property and redevelop the land. The parties therefore agreed that the Special Condition was an essential term and the Court had no hesitation in rejecting the argument that s27 is limited to situations where there is no contingent condition. The existence of a promissory condition that is an essential term will justify a purchaser in refusing to consent to release of the deposit.

However, it follows that the existence of an intermediate term or a warranty may not justify refusal. An intermediate term that goes to the root of the contract may justify refusal but a lesser intermediate term or a warranty, the breach of which merely justifies damages and not avoidance, will not justify refusal to release the deposit.

The General Condition most often relied upon to justify refusal to release is GC 24, which relates to delivery of the property at settlement in the condition it was on the day of sale, fair wear and tear excepted. This is likely to be classified as an intermediate term the breach of which gives a right to damages, but not termination. The condition itself has a mechanism for calculating damages for breach and the purchaser has termination rights for substantial breach of this obligation in s.34 Sale of Land Act. It is therefore a promissory condition that is not essential and does not go to the root of the contract so it does not justify refusal to release the deposit.

It is unlikely that any other of the General Conditions that are promissory in nature justify refusal to release the deposit and so it may be concluded that it is only the contingent loan condition in GC 14, or an essential Special Condition, that justify refusal to consent to deposit release.

Tip Box

  • s.27 Sale of Land Act permits release of deposits
  • a contingent condition or essential term may justify refusal to release
  • other than GC.14, the General Conditions do not justify refusal to release.

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

 

Adjustment of rates

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By Russell Cocks, Solicitor

First published in the Law Institute Journal

Adjustment of rates can be particularly difficult for rented properties.

An essential task in a conveyancing transaction is the adjustment, between vendor and purchaser, of liability to pay rates. Whilst this task is never simple, it is even more complicated in a rental situation where the lease may transfer responsibility to pay rates and outgoings to the tenant. Additionally, the entitlement to rent needs to be apportioned.

The first inquiry is to establish who is responsible for payment of the rates pursuant to the lease.

If the landlord/vendor is responsible for payment, then adjustments are made in the normal way:

  • if the rates are paid, the purchaser will allow the prepayment to the landlord;
  • if the rates are unpaid, the purchaser will draw a cheque from the settlement proceeds in payment of the rates and adjust on a ‘rates paid’ basis. By this method the vendor pays the rates up to settlement the purchaser pays from settlement.

If the tenant is responsible for payment:

  • if the rates are paid, no adjustment is required;
  • if the rates are unpaid, the purchaser is entitled to be satisfied that any arrears of rates are paid at settlement.

This conventional way of adjusting on a ‘rates paid’ basis means that the vendor pays pre-settlement rates and the purchaser pays post-settlement rates, but both parties may take the view that they would prefer that the tenant pays.

In respect of arrears of rates, the purchaser is entitled to insist upon deduction and payment of arrears at settlement and it is no answer by the vendor to this contractual entitlement that the tenant is responsible for payment. That is a matter between landlord (the vendor) and tenant and does not reduce the purchaser’s right to adjustment.

In respect of current rates, the purchaser is entitled to adjustment up to settlement day even if the current rates are not due and payable. If adjustment is on a ‘rates paid’ basis the purchaser will effectively pre-pay the rates until the end of the current assessment. Whilst the purchaser will be entitled to recover those rates from the tenant pursuant to the lease, the purchaser might prefer to adjust on an ‘unpaid basis’ where the rates are adjusted to the day of settlement only. This requires the vendor to pay (by deduction) rates until settlement but leaves responsibility for payment of future rates to be determined in accordance with the lease.

The vendor in this situation is exposed to a loss. Pursuant to the sale contract the vendor has had to pay any arrears, including part of any unpaid current assessment by way of adjustment of the purchase price. Whilst the vendor, as landlord, had rights under the lease to recover rates from the tenant, that right passes to the purchaser at settlement – s 141 Property Law Act 1958.

The vendor therefore needs to issue recovery proceedings against the tenant before settlement, or include in the contract of sale a Special Condition addressing this situation. This might be an undertaking by the purchaser to repay to the vendor the amount of current rates deducted by the purchaser when and if, the tenant pays those rates or it might authorise the vendor to issue proceedings against the tenant in the name of the purchaser to recover unpaid rates. That the parties are entitled to contract out of the consequences of s 141 Property Law Act was established by Ashmore Developments Pty Ltd v Eaton [1992] 2 Qd R 1.

Great care needs to be exercised in drafting such a Special Condition, as is evidenced by Brinca Property Management Pty Ltd v Yeo & Rambaldi [2015] VMC 35.

Tips

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

Rates are usually adjusted on a ‘rates paid’ basis.

Adjustment on a ‘paid basis’ may suit rented properties.

Vendors are exposed to loss and need consider a Special Condition.

Article – Retail Premises on adjustment of rent and dealing with Security Bonds.

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.

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