ByLawyers News and Updates

Retail lease outgoings

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By Russell Cocks, Solicitor

First published in the Law Institute Journal

Phillips v Abel is significant as it continues the march of the Retail Leases Act in terms of the application of the Act to premises that might not, in the past, have been thought to have been retail premises. The April 2017 column considered CB Cold Storage Pty Ltd v IMCC Group (Australia) Pty Ltd [2017] VSC 23, which was subsequently confirmed on appeal, and since that case there has been a general understanding that the Act applies to many more premises than retail shops servicing the public. Phillips v Abel concluded that the Act applies to a quarry that supplied sand and other soil products in bulk. VCAT concluded that, as the buyers of the sand products basically used that sand “for their own purposes” as opposed to being “passed on by the purchaser in an unaltered state”, the buyers were the “ultimate consumer” of the goods and the Act applied.

Having satisfied the jurisdictional question, VCAT then moved on to consider the ability of the landlord to recover outgoings. This question is going to be of considerable significance in the current situation of many leases that may previously been thought not to be retail, now being held to be retail.

A landlord of a non-retail lease that has a right to recover outgoings may seek to exercise that right in a number of ways:

  1. by giving rate notices and other outgoings documents to the tenant for payment during the rating year;
  2. by paying the outgoings as they fall due and seeking reimbursement from the tenant;
  3. by calculating the anticipated outgoings and adding a fixed amount to the recurring rental figure; or
  4. by estimating the annual outgoings and seeking payment in advance from the tenant.

The method is not particularly significant, the important point is that the landlord has the freedom to adopt any of these, or other, methods of recovery of outgoings. However, the unexpected application of the Act means that recovery of outgoings is subject to a far more prescriptive statutory regime.

Section 46 requires a retail landlord to give particulars of outgoings to the tenant prior to entry into the lease, which will be by way of the Disclosure Statement, and again in respect of each of the landlord’s accounting periods during the lease, at least one month BEFORE the start of that period. Assuming that the landlord adopts the financial year as the relevant accounting period, the landlord must give an estimate of outgoings at least one month BEFORE the commencement of each financial year. Failure to provide the estimate means that the tenant is not obliged to contribute to outgoings.

An unexpected retail landlord will now find that a tenant may refuse to contribute to outgoings if, as will be the case, a Disclosure Statement has not been given. This refusal will be extended to each subsequent year unless the landlord has given the prescribed estimates prior to the commencement of the accounting year, which will not have been given as the landlord was of the view that the Act did not apply. Exacerbating the problem for the landlord is the decision in Phillips v Abel that subsequently giving details of prior outgoings does not satisfy the requirement to give estimates in advance. The tenant had not paid land tax or outgoings and the landlord could not recover either, because recovery of land tax is prohibited and the landlord had not complied with s 46 in relation to outgoings.

Australian Asset Consulting P/L v Staples Super P/L [2016] VCAT 1726 held that subsequent provision of a s 46 estimate DID enliven the tenant’s obligation to pay previous outgoings but this case was distinguished, perhaps tenuously, on the basis that the tenant had in fact mistakenly paid the outgoings and was seeking recovery.

Richmond Football Club Ltd v Verraty [2011] VCAT 2104 held that a retail tenant who mistakenly pays land tax is entitled to a refund as recovery of land tax is prohibited, but that a landlord who fails to comply with s.46 is not obliged to refund the outgoings, as the landlord had given good consideration for those payments.

Disputes relating to land tax and outgoings are likely to be a feature of the ever-widening retail leasing landscape.

Tip Box

•retail landlords must provide estimates of outgoings in advance

•if a timely estimate is not given the tenant is not obliged to pay

•a tenant who has paid is not entitled to a refund

Land tax – VIC

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Land tax Victoria – Absentee owner surcharge

The land tax surcharge where applicable to Victorian property increases from 1.5% to 2% with effect from 1 January 2020.

The By Lawyers  Victorian Conveyancing publications, as well as the Trusts publication, have been updated accordingly.

By Lawyers wish everyone a happy holiday season.

Land tax – NSW

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Land tax NSW – Increases to threshold values

Land tax thresholds are indexed to rise on 1 January each year.

The 2020 threshold combined land value will increase to $734,000 for all liable land. Special trusts and non-concessional companies are excepted.

A marginal tax rate of 1.6% of the aggregate taxable value above the tax-free threshold plus $100 applies.

If the aggregate taxable value exceeds the premium rate threshold of $4,488,000 then $60,164 is payable plus a marginal tax rate of 2% over that amount.

All relevant commentary and precedents in By Lawyers Conveyancing & Property Guides have been updated accordingly.

By Lawyers wish everyone a happy holiday season.

 

Measurements

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By Russell Cocks, Solicitor

First published in the Law Institute Journal

Contracts for the sale of land often present a discrepancy between the title dimensions and the physical dimension on the ground. This problem has traditionally been dealt with by an IDENTITY condition in the contract.

Wollert Epping Developments P/L v Batten [2019] VSC 618 (Wollert) is the first case on the topic for some years and the first to consider the current standard identity clause, being General Condition 3 of the LIV/REIV contract in use between 2008 and 2019 and General Condition 7 of the LIV/REIV contract that was adopted in August 2019. As was said in Wollert, quoting from a previous judgment by Brooking J, identity clauses:

“had long been common in Victoria in contracts of sale of land under the TLA… since at least the middle of the century”.

The function of the identity clause is to chart a course between the rights of the vendor who is able to deliver title to the land and the rights of a purchaser who complains that the title does not comply with the dimensions of the land as represented by the physical boundaries, typically the fences.

The common law took a strict view in relation to dimensions and any small discrepancy entitled the purchaser to avoid the contract. Equity sought to ameliorate this harsh outcome and introduced the alternative remedy of compensation for deficiency. The standard identity clause prior to 2008 adopted this compromise by denying the right to avoid but allowing the possibility of compensation. Since 2008 the standard identity clause has denied the right to avoid and also denied a right to compensation. As explained in Wollert, by reference to an article by myself, this was justified by the fact that modern conveyancing is conducted under the auspices of s.32 Sale of Land Act and a purchaser has full details of the vendor’s title before entering into the contract and consequently has the ability to undertake a comparison of the occupational boundaries as against the title dimensions before committing to the purchase.

Wollert concerned the sale of valuable development land on the outskirts of Melbourne. The vendors were long-time farmers and the purchaser was a subdivisional developer. After signing the contract, the purchaser discovered an encroachment on one boundary. The title dimensions showed the land to be 58.1 ha. and the encroachment was approximately 500sm. or 0.92% of the area. The purchaser argued that this constituted a breach of the warranties in General Condition 2.3(c)&(e) concerning possession of the land and passing unencumbered title at settlement, and General Condition 10(1)(b) requiring delivery of vacant possession. The vendor argued that GC.3 prevailed over those warranties and that the discrepancy did not give rise to a right to avoid or claim damages.

The first point to be considered was whether the property was sold by title or sold by description. The contract referred to both the title description and the land description and if the sale was by description (rather than title) there was no misdescription as the property at the address in the contract was capable of being delivered. Wollert settled this argument by deciding that the sale was by title, not description. The second question therefore was how did the warranty conditions interact with the identity condition.

After a consideration of the law relating to identity clauses generally, Derham AsJ. concluded that the identity clause (GC.3) prevailed over the warranty conditions in circumstances where the “difference in the measurements of the land as shown in the Certificate of Title compared with the land as occupied by the Vendors is not of such consequence that it may be reasonably supposed that but for the error or misdescription the purchaser would not have entered into the Contract.” His Honour had previously referred to “the common law principle – the so-called rule in Flight v Booth, to the effect that a significant discrepancy will justify avoidance of the contract by the purchaser, and the associated ‘rule of thumb’ that a 5% or greater diminution in area is likely to be considered significant.”

It is fair to say that this judgment has settled a long-standing uncertainty in relation to measurement disputes in Victoria and has come down on the side of the identity condition adopted by the standard contract of sale. Notwithstanding the rise of consumer protection and the demand for vendor disclosure, the purchaser still bears a due diligence obligation in relation to the basic compliance between title dimensions and occupational boundaries. Only a ‘significant’ discrepancy will entitle a purchaser to avoid the contract.

Tip Box

  • Identity conditions are common in contracts for the sale of land
  • A discrepancy between title and occupation will not invalidate the sale unless significant
  • As a rule of thumb a 5% discrepancy will be significant

Avoiding off the plan contracts – A sequel

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By Russell Cocks, Solicitor

First published in the Law Institute Journal

Avoiding off the plan contracts is a common topic for this column. March 2019 and July 2018 considered sunset clauses, October 2015 looked at avoiding for quality defects and May 2015 considered the various statutory avoidance rights.

Harris v K7&@Surry Hills P/L [2019] VSC 551 is a decision of the Supreme Court that considers the purchaser’s right to terminate an off the plan contract for the sale of a residential unit and two car parking spaces. The contract was preceded by lengthy negotiations between the purchaser, the agent and the vendor as the purchaser wished to combine two of the proposed lots into one occupancy, although the contract related to 2 lots (lots 306 & 307). These lots each had a car space and a full length (as opposed to an ‘over the bonnet’) storage cage as part of each lot on the proposed plan. The contract, having identified the property sold as lots 306 & 307, included a provision that the proposed plan would be revised so as to incorporate the combined lots as one lot on the final plan.

As is often the case when purchasers seek to ‘fiddle’ with off the plan contracts, the contract ended up containing conflicting terms, some that were standard terms for the sale of lots on the plan generally and which give the vendor wide powers to amend the plan, and some that were specific to this contract that were designed to protect the changes that the purchaser had negotiated. One such specific term added to the contract as Special Condition 38 required the vendor to provide “two (2) car parks that are adjacent”.

The vendor undertook the task of revising the plan to accommodate the purchaser’s wishes, but disputes arose. In particular the revised plan only included one ‘over the bonnet’ storage cage (instead of the two full length storage cages the purchaser believed it was entitled to) and one car space on title and the right to share a car stacker for a second space. The purchaser sought assurances that the plan would be amended to provide the purchaser with 2 full length storage cages and 2 adjacent car spaces and the vendor declined to do so stating that “allocation of car spaces and storage spaces are only finalised at the time of construction completion”. It is fair to say that this is a common approach amongst developers who seek to rely on Special Conditions giving them wide ranging powers to adjust the plan of subdivision to accommodate construction needs. This case is important as it indicates that developers need to take account of specific needs of purchasers and that purchasers need to be specific in specifying those needs in the contract.

The purchaser terminated the contract on three bases:

  1. that the vendor had repudiated the contract;
  2. that there was a ‘material change’ to the plan invoking s.9AC(2) Sale of Land Act; and
  3. that the vendor had engaged in misleading and deceptive conduct contrary to s.18 Australian Consumer Law.

Repudiation – the Court accepted the purchaser’s argument that by submitting an amended plan that did not include “two carparks that are adjacent” in accordance with Special Condition 38 the vendor repudiated an essential term of the contract and that the purchaser was entitled to end the contract. The vendor argued that the amended plan might not necessarily be the final plan, but the Court held that a purchaser in such circumstances is entitled to assume that an amended plan is intended to constitute a final plan.

Material change – the Court also accepted that by submitting the amended plan that did not included a full length storage cage the vendor gave the purchaser the right to terminate the contract pursuant to s.9AC(2) as that plan contained a ‘material change’.

ACL – the Purchaser’s argument based on the ACL alleged that the vendor’s agent had, immediately before contracts were exchanged and as an incentive for the purchaser to sign, represented that the purchaser would receive 2 full length storage cages and that in breach of that representation the amended plan did not include those storage cages. The plan in the contract in fact did not include 2 full length storage cages but the Court accepted that the representations had been made and rejected the argument that Special Conditions allowing the vendor wide discretion to amend the plan could be used to overcome those representations.

Developers tend to ride rough-shod over complaints made by purchasers of off the plan apartments but this case confirms that if a purchaser is prepared to see it through, the law will often provide a remedy, or three.

Tip Box

  • Specific amendments to off the plan contracts will prevail over standard conditions
  • The application of s.9AC will be judged on plans submitted from time to time
  • The ACL will provide a remedy for misrepresentation

Nomination

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By Russell Cocks, Solicitor

First published in the Law Institute Journal
It is common for a named purchaser under a contract of sale of land to nominate an additional or substitute purchaser. What if disputes arise between the parties to the nomination?

Such a nomination, in its simplest form, is a two-party agreement between the named purchaser and the nominated purchaser. It is a contract that exists primarily in a written form, but it may be that there are also implied conditions arising from verbal agreements between the parties or the surrounding circumstances. It is possible to make a nomination a tripartite agreement, involving the vendor as the third party, but this is unusual and a conventional nomination binds the named purchaser and the nominated purchaser but does not bind the vendor, who stands aloof from such agreements.

There is no specified form of nomination. A form in common use simply recites the parties and records that the named purchaser nominates the nominated purchaser to take a transfer of the property in the place of the named purchaser. It is important to realise that the effect of such a nomination is NOT to replace the named purchaser with the nominated purchaser in the contract. Such a substitution of the named purchaser with the nominated purchaser can only be achieved with the consent of the other party to the contract, the vendor, and would result in the named purchaser exiting the contract and the nominated purchaser becoming a party to the contract and assuming all the rights and obligation of the purchaser pursuant to the contract. In a conventional nomination environment, the named purchaser remains as a party to the contract and the nominated purchaser assumes no rights or obligations under the contract, other than being nominated to take a transfer in the place of the named purchaser.

The nominated purchaser is therefore entirely dependent upon the named purchaser for enforcement of the contract and it is unwise for the nominated purchaser to allow any reimbursement of the named purchaser’s deposit to be released to the named purchaser prior to completion of the contract. If the named purchaser receives the reimbursement of deposit prior to completion, the named purchaser may be reluctant to enforce the contract at a later stage, leaving the nominated purchaser without any ability to require the vendor to complete the contract. This is a matter that should be, but rarely is, dealt with in the written nomination agreement.

The abbreviated form of standard nomination agreements means that if a dispute arises between the parties to the nomination, a Court may be required to look behind the written agreement to determine the full extent of the rights and obligations of the parties to the nomination. Ran Bi and Sortop P/L v Yingde Investments P/L [2019] VSC 324 is a case involving just such a dispute.

The named purchaser nominated the nominated purchaser to take transfers in relation to a number of properties that the named purchaser had entered into terms contracts to acquire for land development purposes. Substantial amounts by way of deposits were due under the contracts and the named purchaser was unable to fund those deposits, thus the nominated purchaser was introduced to the project to provide funding and proceed with a development via a land holding company owned by the named purchaser and the nominated purchaser. Disputes arose between the named purchaser and the nominated purchaser after the nominations had been signed, but before final settlement. The named purchaser argued that the nomination had been terminated by the parties and was no longer effective, leaving the named purchaser as the party entitled to take the transfers.

The Court was not satisfied that the nomination had in fact been terminated and held that the nominated purchaser was entitled to be the transferee when those contracts came to settlement. The Court had no problem with the concept of the nomination being retracted, it simply found that such an outcome could only be achieved by the agreement of the two parties to the nomination and that there was no such agreement in this case.

If the parties can agree to retract a nomination, could the named purchaser make another nomination? There appears to be no reason in principle why a second nomination cannot occur. Subject to the vendor being informed of the retraction and second nomination, the vendor has no role in the process other than to comply with the purchaser’s written direction in relation to the transferee.

Some vendors insert complex nomination conditions into contracts that impose specific notification requirements and/or require payment of a fee to the vendor. Section 42(3) Property Law Act prohibits the imposition of such a fee on the purchaser, but a requirement that the nominee pays a fee is enforceable.

Tip Box

•The right to nominate is regulated by the contract

•The nominee does not become a party to the contract

•A nomination may be withdrawn and a fresh nomination made.

Nomination and the Australian Consumer Law

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By Russell Cocks, Solicitor

First published in the Law Institute Journal
Is the Australian Consumer Law (ACL) relevant to the contractual right to nominate?

This column has considered the purchaser’s right to nominate an additional or substitute transferee on a number of occasions in the past and has also considered the impact of the ACL on residential conveyancing, which is essentially a consumer transaction. This month’s column specifically considers the application of the ACL to the purchaser’s right to nominate.

Nomination

Conventionally, contracts for the sale of land in Victoria include a condition giving the purchaser the right to nominate. General Condition 18 of the Law Institute contract expresses that right in very general terms, without limitation in relation to the form of nomination or time for nomination. Parties are free to negotiate the terms of their agreement and so the parties may, by Special Condition, ‘agree’ to a more limited right to nominate, including limitations as to the nominee, time for nomination and form of nomination.

A nomination by the purchaser creates a second contract, between the purchaser and nominee, but this is NOT a contract for the sale of land, rather it is an assignment of the purchaser’s rights under the contract of sale of land to the nominee. Traditionally, this is a doc-lite contract in that the rights and obligations of the parties are succinctly recorded with no written agreement as to what is to happen if either party does not wish to proceed with the nomination. It is essentially an assignment of the purchaser’s rights to the nominee, a legal relationship recognised by s.134 Property Law Act. Consideration for this contract may be found in the release of the purchaser from obligations under the contract of sale of land and the assumption by the nominee of rights under that contract. Importantly, the vendor is NOT a party to such a nomination or assignment and the vendor remains entitled to enforce the contract against the named purchaser. The nomination acts as the purchaser’s authority to the vendor to transfer the property to the nominee in fulfillment of the vendor’s duties under the contract.

The contractual right to nominate is an important ‘escape hatch’ for a purchaser who finds that, due to changed circumstances, the purchaser is not able to complete the contract. This is particularly so in an off-the-plan environment where the contract contemplates an extended contract period during which time the purchaser is exposed to changing circumstances.

Australian Consumer Law

The ACL is designed to protect consumers. A purchaser in a residential contract of sale of land is a consumer for this purpose.

Section 20 proscribes “unconscionable conduct” which is an equitable concept developed by the Courts in cases commencing with Amadio in 1983 and which continues to develop to changing circumstances. Conduct will be unconscionable if one party to a contract is at a “special disadvantage” and the other party “takes advantage” of that situation. Some purchaser in residential contracts may satisfy this test but inequality of bargaining power alone may not be sufficient to establish unconscionable conduct.

Section 23 proscribes “unfair contract terms” in standard form consumer contracts. Factors to be considered in determining whether terms are unfair are:

  • inequality of bargaining power;
  • whether the contract is prepared in anticipation of the transaction, rather than in response to the transaction; and
  • whether the other party had a real ability to negotiate the terms.

Contracts for the sale of land are created as “standard form contracts”. Certainly, the parties are free to negotiate amendment to the terms of such contracts but, in practice, this does not happen. The vendor or vendor’s agent presents the standard form contract to the consumer and it is signed, without negotiation. Various factors: such as trust, lack of knowledge and unequal bargaining power contribute to this outcome but the result is a standard form contract in the vast majority of cases. The removal of the right to nominate, or the imposition of onerous conditions in relation to nomination, are likely to be unfair terms in these circumstances and liable to be unenforceable against the purchaser.

Compensation for loss

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By Russell Cocks, Solicitor

First published in the Law Institute Journal

What are the consequences of a breach of a contract of sale of land? Is it compensation or damages? Is there a difference?

This is a significant question in the context of the standard contract of sale of land when dealing with the consequences of a breach of that contract by one of the parties to the contract. General Condition 25(a) provides that a party in breach must pay to the other party “compensation for any reasonably foreseeable loss”. This article is not concerned with calculating the quantum of any such claim, but rather determining when such a payment must be made. Specifically, can the innocent party seek to adjust the balance payable at settlement on the basis of an entitlement to “compensation”?

It is common for a vendor to claim that the purchaser’s breach has caused the vendor to suffer significant “loss”. Putting aside for the moment whether the loss is reasonably foreseeable and, indeed, was reasonably foreseeable as at the date of the contract, can the vendor demand that the purchaser pay those losses at settlement? Likewise, can a purchaser who establishes loss flowing from the vendor’s breach, difficult though that may be, demand that the vendor compensates the purchaser by way of a reduction in the amount payable at settlement?

It is fair to say that many vendors, and some purchasers, do seek to adjust the amount payable at settlement by a party in breach, however the suggestion that one party may unilaterally adjust the amount payable pursuant to the contract at settlement to recover alleged loss is not supported by the contract. The contract allows the innocent party to claim “compensation”; it does not support a claim for “damages” which is a common law remedy for breach of contract that may be pursued AFTER completion of the contract.

A right to compensation has traditionally been distinguished from a right to damages – King v Poggioli [1923] HCA 11. Compensation is a remedy that entitles a purchaser to abate the purchase price where the vendor breaches the contract by failing to deliver the whole of the property contracted to be sold, either as a result of a defect in the physical attributes of the property or the vendor’s interest in, or title to, the property. (Voumard: The Sale of Land [7320])

General Condition 25(a) therefore creates a very limited contractual remedy for breach of contract. It is a remedy limited to a claim by the purchaser seeking to abate the purchase price consequent upon a significant physical or legal defect in the property. It does not justify a claim for consequential loss, although the purchaser might pursue such a claim for damages for consequential loss after settlement. General Condition 25(a) does not support a contractual claim for “compensation” by the vendor at all, although the vendor, like the purchaser, might pursue a claim for damages for consequential loss flowing from the purchaser’s breach of contract after settlement.

General Condition 25(b) gives the vendor a contractual right to claim interest as a result of a breach of the contract and General Condition 26 sets out how that interest is to be calculated. As interest is payable “on any money owing under this contract” this contractual right to claim interest is limited to the vendor, as only the vendor is owed money under the contract.

In summary, the purchaser’s contractual right following a breach by the vendor is to compensation pursuant to GC.25(a) and the vendor contractual right following a breach by the purchaser is to interest pursuant to GC. 25(b). Both parties have additional common law rights for consequential losses flowing from a breach of contract, but those common law rights must be pursued after settlement and do not justify an adjustment of the amount payable at settlement.

The contractual right of the parties to a contract for the sale of land that adopts the standard General Conditions to claim an adjustment of the amount due at settlement consequent on a breach of the contract by the other party is limited as set out above. However, a party in default faces the possibility of proceedings after settlement to recover damages for breach of contract and therefore it is sensible for the parties to seek to compromise any such claim at settlement. Whether the breach is by the vendor or the purchaser, the innocent party should provide details of losses suffered by the innocent party as a result of the breach and which were reasonably foreseeable to the parties as at the date of the contract. The party in default might then agree to compromise the claim on the basis that a claim for consequential loss after settlement will involve both parties in significant additional expenditure and ought to be avoided. However, the innocent party cannot seek an adjustment of the amount payable at settlement or seek to delay settlement until the dispute is resolved. The show must go on.

Sunset clause – Vendor ending a contract – Purchaser’s consent or court order required

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By Russell Cocks, Solicitor

First published in the Law Institute Journal

Retrospective amendments to the Sale of Land Act will substantially limit a vendor’s ability to end a residential off-the-plan contract.

The Sale of Land Amendment Bill 2018 was expected to pass Parliament in late 2018 but was delayed by the Victorian State election. It is expected to be passed early in 2019 and will require vendors who wish to end residential off-the-plan contracts pursuant to sunset clauses to either obtain the purchasers consent, or an order from the Supreme Court.

The changes do not affect the purchaser’s current statutory right to end the contract if the plan of subdivision is not approved by the sunset date. This purchaser right is created by s.9AF (2) Sale of Land Act and allows the purchaser to end what is currently known as a “prescribed contract” (but which will be known as a residential off-the-plan contract when the amending Act is passed) if the plan of subdivision is not approved within 18 months of the contract date. The contract may specify another period, but if no other period is specified, the default period is 18 months.

It is common for vendors to also include a contractual right for the vendor to terminate the contract if approval is not obtained by the sunset date. There has been a perception that vendors were seeking to use this contractual right to unfairly end contracts in a rising market and these changes are designed to prevent such outcomes.

Rescission in accordance with the Act

By s.12(1) of the Amendment Act, new s.10A Sale of Land Act provides that if a sunset clause in a contract allows the vendor to rescind the contract, then rescission must be in accordance with the Act and s.10C overcomes any inconsistent contractual provision. Section 2(1) of the Amendment Act provides that s.12(1) is taken to have come into effect on 23 August 2018.

Purchaser’s consent

Section 12(1) also introduces s.10B Sale of Land Act which prohibits a vendor from relying on a sunset clause unless the vendor obtains the purchaser’s written consent to any such rescission. By virtue of new s.54(1), s.10B applies to all residential off-the-plan contracts entered into and in force before commencement of s.12(1) (23 August 2018) unless proceedings concerning the sunset clause had been commenced before that date.

A vendor seeking to obtain the purchaser’s consent must give the purchaser 28 days notice setting out the reason that the vendor proposes to rescind, the reason for the delay in registration of the plan and advice that the purchaser is not obliged to consent to the proposed rescission.

Court order

By s.12(2) of the Amending Act, new s.10D Sale of Land Act provides that the vendor may apply to the Supreme Court for an order permitting the vendor to rescind a contract pursuant to a sunset clause. By s.2(2) of the Amending Act, s.12(2) comes into operation on the day after the day on which the Amending Act receives Royal Assent. By virtue of new s.54(3), s.10D applies to all residential off-the-plan contracts entered into and in force on the day after the day that the Act receives Royal Assent, unless proceedings concerning the sunset clause had been commenced before that date.

The Court must consider a wide variety of matters relating to the contract and the property, including increase in value and, if an Order is made, may include compensation to the purchaser. The vendor is liable for the purchaser’s costs.

Notice

New s.10E requires residential off-the-plan contracts that include a sunset clause to include a Notice setting out that the:

    • vendor may give a notice proposing to rescind the contract;
    • purchaser may consent to rescission, but is not obliged to consent;
    • vendor may apply to the Court for an order permitting rescission;
    • Court may make such an order.

This requirement applies to all contracts entered into after the day that the Act receives Royal Assent.

Tip Box

•Sunset clauses must be exercised in accordance with the Act.

•Purchaser’s consent or a court order is required.

•Residential off-the-plan contracts need additional disclosure.

Sale of land amendments

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By Russell Cocks, Solicitor

 First published in the Law Institute Journal

The Bill, soon to be an Act, that amended SUNSET CLAUSES also introduces other amendments to

Terms Contracts

Terms contracts were an important method of funding property acquisition in the mid-twentieth century when mortgage funding was not as available as it is in the current de-regulated finance market. Many working people were unable to obtain traditional finance and many a family home can be traced to a terms contract paid off over a number of years. The Sale of Land Act was in fact introduced in 1962 to regulate this method of sale, as it always had the potential to facilitate sharp practices.

Essentially, a terms contract allows a purchaser to take possession of the property and pay the purchase price over an extended period of time, such that the property provides both a home and an investment. However, in recent years various sharp operators have been using terms contracts to lure unsuspecting, and generally under-funded, purchasers in outer metropolitan and regional areas into entering into terms contracts that were doomed to fail and cause those purchasers extensive losses. A report by the Consumer Law Action Centre highlighted these dangers and has resulted in s.29EA and subsequent sections prohibiting terms contracts of residential land at a sale price of less than a prescribed amount (expected to be $400,000). Section 55 gives VCAT jurisdiction to review existing terms contracts on fairness grounds.

Rent-to-Buy

A variation on the unfair terms contract is a rent-to-buy arrangement whereby the purchaser takes possession of the property on a rental basis with an option to purchase the property at a future time. Again, these schemes invariably fail as a result of the inability of the purchaser to manage the financial obligations imposed by these arrangements, with the result being substantial loss for the purchaser. Section 29WA prohibits rent-to-buy arrangements, with limited exceptions, and s.56 gives VCAT jurisdiction to review existing arrangements on fairness grounds.

Land Banking

A third scheme that has involved substantial losses for unsuspecting consumers have been land banking schemes, which involve consumers buying a small interest in a large parcel of land purchased by developers with the hope that the land will become suitable for development at some time in the, often distant, future. When sold to the purchaser via an option arrangement the purchaser’s deposit is not protected and there have been many examples of the arrangements collapsing and purchasers losing their investment.

Section 29WH prohibits the sale of options in land banking schemes unless the scheme is a registered scheme or the deposit is held in a trust account and provides that the deposit must be returned to the purchaser if the event triggering the option does not occur within 5 years.

There is no provision for review of current schemes.

Past Use

From time to time a purchaser will complain that the property that has been purchased has “prior history”, such as a sensational death or inappropriate use, such as a drug lab. Such history is in the nature of a quality defect and subject to the principle of caveat emptor, meaning that in the absence of fraud or common law misrepresentation, the purchaser is obliged to proceed with the contract.

Section 12 Sale of Land Act presently creates an offence (but not a purchaser’s right) in relation to false, misleading or deceptive representations and prohibits fraudulent concealment of “material facts”. Section 14 of the amending Act substitutes “knowingly” for “fraudulently” in s.12(d), thereby reducing the onus of proof and making it an offence to knowingly conceal material facts. New section 12A allows the Director of Consumer Affairs Victoria to publish guidelines designed to assist vendors and agents to understand what is meant by “material facts” and presumably such matters as sensational deaths and drug lab use will be included in such guidelines.

However, making non-disclosure by an owner or agent of such matters an offence will not, of itself, give a purchaser a right to rescission or damages. The basic principle of caveat emptor will still apply.

Tip Box

Whilst written for Victoria this article has interest and relevance for practitioners in all states the Sale of Land Act, notably in relation to terms contracts.

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