By Russell Cocks, Solicitor

First published in the Law Institute Journal

One of the innovations adopted by property law principles during the Twentieth Century was the ability to divide real estate into stratas. Previously, ownership of land had traditionally given to the owner of that land the right to that land ‘from heaven to hell’. All the way up and all the way down. An owner was entitled to prevent anyone from burrowing under or building above their land. There were some exceptions, generally in aid of government endorsed enterprises such as mining companies, but the gender specific saying “every man’s home is his castle” was endorsed to the fullest extent by the law.

However, the pressures of living in large metropolises demanded that the law recognise a way that land could be divided not only on a horizontal plane, but also vertically into stratas, so that the teeming masses could be accommodated in as small an area as possible. In Victoria, this led to the Strata Titles Act in 1967 formalising ad hoc ‘company share’ ownership schemes that has festered in preceding decades. The process culminated in the Owners Corporation Act in the early years of the new millennium that sought to bring a structure not only to ownership, but also to the difficulties of cohabitation, in a broad sense.

Indeed, the Owners Corporation Act is primarily concerned with the rights and obligations of the various owners of the land, collectively the Owners Corporation, leaving it to the Subdivision Act to regulate where the lines are drawn, both on the ground and between the various stratas. Regulating Body Corporates under the Strata Title Act proved to be a training ground for the sort of issues that can arise when large cohorts of people occupy a small area of land and VCAT is now the forum for those issues to be aired.

It would be fair to say that the traditional demographic of strata ownership in the second half of the twentieth century were elderly people looking to downsize, a relatively stable and non-litigious group. But the advent of large-scale developments in inner city locations designed to appeal to a younger and more mobile demographic caused a seismic shift in the profile of residents in buildings subject to the Owners Corporation Act.

Nowhere is this more apparent than in the short-stay environment. Inner city apartments, often with in-house facilities such a gyms and swimming pools, are attractive to people who are looking to visit a city for a short time, but the lifestyle of such people is often likely to clash with long term residents more interested in a quiet, stable lifestyle. Complaints by and to Owners Corporation Managers have, by and large, been unsuccessful as the Courts have tended to put the proprietary right of the owner (including the right to lease) above the concerns of other residents. Thus, attempts to pass Rules preventing Short Stays have been held to be beyond the power of Owners Corporations and various other attempts to rely on building regulations have been equally unsuccessful.

This has resulted in legislative intervention, but the solution recognises that not all short-stays are toxic. From 1 February 2019 the Owners Corporation Act will proscribe certain behaviour in the short-stay environment and establish a process whereby complaints relating to breaches of those behaviour standards will be dealt with, initially at least, by the Owners Corporation. After receiving a written complaint, or at its own instigation, the Owners Corporation must give the owner notice of the complaint and require the breach to be rectified and may also refer the breach to VCAT.

VCAT has power to hear and determine short-stay disputes and may issue prohibition orders, award compensation and impose a civil penalty. Prohibition orders may be made when a notice has been served on 3 separate occasions in 24 months but ceases if the property is sold. Compensation may be awarded to an occupier who has suffered loss of amenity, to a maximum of $2,000, and the short-stay occupier AND short-stay provider are jointly and severally liable to satisfy a compensation order and to pay any civil penalty.

This measured approach to a growing problem may be sufficient to ensure that short-stay providers make a greater effort to control the potentially anti-social behaviour of some short-stay users.

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.

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

Can this be right?

By Russell Cocks, Solicitor

First published in the Law Institute Journal

Can lawyers rely on certificates provided by authorities?

Property lawyers rely on certificates from authorities, such as local councils, all the time. Acting for a vendor, our clients have an obligation to disclose, prior to contract, certain information to prospective purchasers about the property to be sold and often rely upon certificates to reveal that information. Indeed, s.32J Sale of Land Act envisages that such certificates may be attached to the Vendor Statement. When acting for a purchaser, it is common practice to rely on certificates attached to the Vendor Statement as proof of the information contained therein.

This is particularly relevant to the town planning status of the property, a consideration that can have a huge impact on the value of the property. It is fair to say that the average lawyer would unconditionally accept that if a planning certificate was annexed to a Vendor Statement, the zoning of the property would comply with that certificate and that the purchaser can rely on that information. It is therefore likely to come as somewhat of a shock that the Court of Appeal in Queensland appears to have thrown doubt on this expectation and, if that decision were to be followed in Victoria, lawyers would become liable to their purchaser clients if the information in the certificate proved to be incorrect.

Central Highlands Regional Council v Geju P/L [2018] QCA 38 was an appeal by the Council against the decision in Geju P/L v Central Highlands Regional Council [2016] QSC 279. At first instance McMeekin J held the Council responsible for an incorrect town planning certificate that described land as zoned ‘industrial’ when it was in fact zoned ‘rural’ and found in favour of a purchaser who, relying on the certificate, had paid too much for the land. The purchaser’s claim had been based on the negligence of Council in providing the incorrect certificate to the vendor, who in turn provided it to the purchaser, and the Court was satisfied that the Council owed a duty of care to the purchaser, had breached that duty and the purchaser had suffered loss as a result. Most lawyers would agree with that decision and take comfort in the knowledge that an authority is responsible not only to the party who obtains the certificate, but third parties who might be expected to rely on the certificate.

But that decision was overturned on appeal. The Court of Appeal followed a similar line of analysis to McMeekin J but diverted, dramatically, at the question of duty of care. McMeekin J was satisfied that the Council owed a general duty of care in respect of the provision of certificates and described the purchaser as being a member of a class of people who might reasonably be expected to rely on the certificate – a potential purchaser of the property. However, the Court of Appeal rejected this view and concluded that “there was no rational way to define a class of which (the purchaser) was a member other than in very broad terms” and went on to suggest that tenants, lenders or investors might also be interested in the information contained in the certificate and that the Council’s liability should not extend to such a wide class of people. Thus, the Council owed no duty of care to the prospective purchaser.

Can this be right?

Since Mid Density Developments P/L v Rockdale Municipal Council [1993] FCA 408 there has been a widely held belief that municipal Councils are responsible for the accuracy of certificates provided to applicants for certificates AND third parties who deal with the applicant and might be reasonably expected to rely on such certificates. Prospective purchasers certainly fall within such a class, particularly when the certificate is relied upon by the applicant vendor to satisfy the vendor’s statutory disclosure obligation to prospective purchasers. That other classes of people might also interact with the applicant for the certificate hardly seems a valid reason to exclude that smaller class of people who interact as prospective purchasers.

The law relating to negligence causing pure economic loss is arcane. The High Court has had cause to consider the issue on a number of occasions and Central Highlands might provide the opportunity for it to do so again. In the meantime it is hoped that the previously understood liability imposed on council charged with the responsibility of administering planning schemes to provide correct certificates in respect of those schemes will continue, in Victoria at least.

Tip Box

•authorities provide certificates relating to properties

•the applicant for the certificate can rely on it

•there is now some doubt as to whether a third party can rely

By Russell Cocks, Solicitor

First published in the Law Institute Journal

Section 32 Sale of Land Act requires a vendor to provide a purchaser with a Vendors Statement disclosing certain specified information in relation to the property. The purchaser may avoid the contract if there is a breach of s 32,
but the vendor has an ‘escape hatch’ in s 32K.

Last year McHutchison v Asli [2017] VSC 258 considered whether a vendor could rely on s 32K in circumstances where a planning permit for a septic sewerage system was not disclosed. Downing v Lau [2018] VCC 33 is a County Court decision considering s 32K in the context of non-disclosure of a planning permit relating to future development of the property.

Unlike in McHutchison, where the obligation to disclose the notices was contested by the vendor, Downing proceeded on the concession by the vendor that the planning permit was a ‘notice’ affecting the land within the meaning of s 32D(a). This is consistent with the decision in McHutchinson and must now be beyond doubt. The question in Downing therefore became – could the vendor rely on s 32K?

The two elements to s 32K are:

• that the vendor acted honestly and reasonably and ought to be excused; and
• that the purchaser is substantially in as good a position.

The vendor’s failure to disclose related to a current planning permit that had been obtained some time before the sale and which permitted the construction of four units on the land. Unlike the permit in McHutchinson, which imposed conditions on the use of the property and was therefore restrictive, the permit in Downing did not require construction of the units, it was simply a permissive notice. Nevertheless, it should have been disclosed. That it was not disclosed was a decision of the vendor’s conveyancer, who (mistakenly) was of the view that it did not need to be disclosed.

A vendor who has been personally negligent is not likely to qualify as ‘honest and reasonable’, so the question was whether the vendor would be vicariously liable for the vendor’s representative’s negligence. This had previously been considered by the Supreme Court in Paterson v Batrouney & Anor [2000] VSC 313 where elderly vendors were found not to be responsible for their representative’s negligence. Downing considered the question in the context of the law of agency and decided that the representative was retained by the vendor as an expert and was not the vendor’s agent, at least not for the purpose of preparing the Vendor Statement. Whilst the representative might be the vendor’s agent for other parts of the transaction, that agency did not extend to preparation of the Vendor’s Statement and the vendor was therefore not vicariously liable for the expert’s negligence.

Downing, in adopting Paterson v Batrouney, chose not to follow other authority and it may be that the matter will be reconsidered by the Supreme Court in the future.

Having found that the vendor satisfied the first leg of s 32K, the inquiry then turned to whether the ‘purchaser is in substantially as good a position’. The purchaser felt aggrieved because the purchaser had intended to seek a permit to construct eight (or perhaps seven) units and took the view that the existence of the permit for four units substantially affected the purchaser’s ability to get a permit for 7-8 units, notwithstanding that expiry of the four unit permit was imminent. Alternatively, the purchaser argued that a property with a disclosed four unit permit was worth less than a property without such a permit, as this property had been represented.

No valuation evidence was tendered to prove the second point and the court was not satisfied that the existence of the almost expired four unit permit meant that the purchaser could not achieve its desired outcome of a permit for 7-8 units. The court appeared to take the view that the purchaser regarded the property as ‘tainted’ by the four unit permit without being able to prove in any meaningful way that the purchaser was not substantially in as good a position.

The vendor was therefore held to have been entitled to accept the purchaser’s purported termination of the contract for breach of s 32 as a repudiation of the contract and thereby entitled to judgment for the amount of the unpaid deposit and interest at penalty rates.

Tip Box

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

• s.32K allows a vendor to avoid termination for breach of s.32.
• a vendor will not be responsible for the negligence of an expert.
• purchaser cannot avoid if in as good a position.