ByLawyers News and Updates

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.

Consent Orders in Property Settlement

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adelaide-hills-divorce-lawyers-1024x413As family practitioners we are regularly advising clients that property settlement reached between separated husbands and wives or de facto spouses as the case may be must be documented in the appropriate legal manner. This is usually done via an Application for Consent Orders or, depending on the particular circumstances, via Financial Agreement pursuant to ss 90UC, 90UD, 90C or 90D of the Family Law Act.

It is safe to assume and is certainly the writer’s experience that the majority of property settlements formalised with the assistance of solicitors are effected via an Application for Consent Orders and Minute of Consent Orders filed in the Family Court.

There are the fundamental requirements associated with such an application with which we are all familiar, including:

  • filing the original and two copies of the documents with the court;
  • ensuring the consent orders and application are signed by both parties including completion of the statements of truth, including ticking the relevant boxes, which if not attended to can be the subject of an embarrassing requisition;
  • provision of the relevant sections of the legislation as set out in the statement of truth to the client;
  • according procedural fairness to the superannuation fund and providing a copy of the letter to and from the superannuation fund to the court, as well as the superannuation information form if it is a defined benefit interest; and
  • provision of the correct filing fee, unless the parties are eligible for the exemption or fee reduction.

The regularity with which we prepare and file such documents can result in practitioners taking a somewhat laissez faire attitude to the completion of the application form and the drafting of orders. However, it is vital that practitioners remember that the filing of consent orders is not a ‘rubber stamping’ exercise and the orders will not simply be made by the court because the parties have signed the documents and agreed that the orders ought to be made.

Serious consideration needs to be given to the question of justice and equity of the adjustment of property provided for in the proposed orders. This is important in every case but perhaps even more important in those matters where the other party is self–represented. Sometimes in those cases the party who is receiving the greatest benefit from the settlement is eager to have documents drafted, signed and filed as quickly as possible and the other party does not wish to engage a lawyer for cost related or other reasons.

The recent case of Hale & Harrison [2014] FamCA 165 where consent orders were ostensibly consented to by the parties but were not made by the court is one such example. The facts of the case were:

  • Ms Hale and Mr Harrison cohabited from 1998 to April 2009 and were in a de facto relationship. A separate issue was the date of separation and the jurisdiction of the court, however that is not relevant for the purposes of this article.
  • There were four children of the relationship, aged 10, 10, 13 and 15. The children were living with Ms Hale and spending time with Mr Harrison pursuant to a parenting plan.
  • Ms Hale was 36 years of age and Mr Harrison was in his fifties. Both were in receipt of government pensions and neither of them were engaged in paid employment.
  • Ms Hale received a small sum of child support per month.
  • There was a small asset pool:
    • Property in New South Wales which was expected to sell for $80,000. However its municipal value was $60,000 and it appeared that Justice Cronin took the view the property would sell for between $60,000 and $70,000.
    • Ms Hale’s mother loaned the parties $10,000 towards the purchase of the property, which remained outstanding.
    • There was also a mortgage of $17,000.00 secured against the real property.
  • Mr Harrison received an inheritance at some stage after 2009 which he asserted was in the vicinity of $150,000. However Ms Hale had not seen any evidence of this inheritance. Mr Hale said he had $12,000 remaining from that inheritance.
  • Ms Hale and Mr Harrison filed an Application for Consent Orders on 8 October 2013 which provided:
    • The real property would be sold.
    • After repayment of the mortgage of $17,000, the proceeds of sale would be divided equally between the parties.
    • From the wife’s share of the proceeds of sale, she would repay her mother the $10,000.
    • Mr Harrison would also retain the $12,000 which remained from his alleged inheritance.
  • Based on His Honour’s comments in relation to the possible sale price of the property and depending on the sale price of the property, Ms Hale would be left with somewhere between $11,500 and $24,000, and Mr Harrison with between $33,500– and $46,000.
  • His Honour found that the loan repayment to Ms Hale’s mother in circumstances where Mr Hale had more property and more money was not just and equitable. It is apparent from the judgment that Mr Harrison’s solicitor argued before His Honour that the settlement was just and equitable because the parties had reached agreement. However when asked by His Honour, Ms Hale, who was unrepresented said she did not think the outcome was fair.

His Honour concluded that the parties having reached agreement was not a basis upon which the court should ‘waive away what is in reality its subjective judgement about what is fair’ and ultimately dismissed the Application for Consent Orders.

Justice Cronin’s decision in Hale & Harrison serves as a reminder of the essential and indeed overriding need for practitioners to consider what is just and equitable. Preparing consent orders must be a considered process and practitioners must focus on the justice and equity of the orders before filing them with the court to ensure there are not difficulties with the making of the orders which serve only to increase client costs and can be a professional embarrassment for practitioners.

Off the Plan Sales – Best Endeavours – Part 2

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Summer2012_BuyingOffThePlan_landingThe April 2011 column considered the case of Joseph Street Pty Ltd v Tan, a decision at first instance reported at [2010] VSC 586. The case has now been reversed on appeal, reported at [2012] VSCA 113.

The effect of the Court of Appeal decision would appear to make the entering into of a s 173 Planning and Environment Act 1987 Agreement compulsory for developers in all circumstances where the municipal council is prepared to enter into such an Agreement.

The case involved a ‘villa unit’ style development of 6 single storey units in Box Hill.  Units were sold off the plan with settlement to be after registration of the plan in accordance with common practice.  The builder that the developer had contracted to undertake construction failed to do so and the developer was forced to find another builder.  As a result, construction was not completed within the time allowed by the contract for registration of the plan (the sunset period) and the developer rescinded the contract.

The purchaser refused to accept rescission and sued for specific performance of the contract on the basis that the vendor had failed to use ‘best endeavours’ to have the plan registered.  It had been established at first instance that this obligation consisted of both an express contractual obligation and also as an implied obligation.

The Full Court identified that registration of the plan could only be achieved when the council had issued a Certificate of Compliance, but that there were two methods by which the developer could obtain that Certificate and thus fulfill the contractual obligation to secure registration of the plan:

  1. the developer could complete all the building works to the satisfaction of all relevant service authorities; or
  2. the developer could enter into a s 173 Agreement with Council after entering into agreements with service providers.

Evidence given on behalf of the developer suggested that the s 173 Agreement option was limited to ‘greenfield’ developments and had not been contemplated by the developer as an option.  However evidence from the council suggested that s 173 Agreements were common in ‘smaller’ developments and indeed the planning permit issued in respect of the development had referred to the possibility of just such an Agreement.

The effect of the s 173 Agreement is to give the council the ability to register on the ‘parent’ title (the title to the unsubdivided land) the requirement that the development be constructed in accordance with the planning permit issued in respect of the development.  If council has the benefit of such an Agreement then, subject to the satisfaction of other relevant authorities, council is able to be satisfied that the development will be built in accordance with the permit and council’s planning responsibility in relation to supervision of construction is thereby satisfied.  If construction is not in accordance with the permit, council is entitled to enforce thes 173 Agreement against the developer and all subsequent registered owners.

The s 173 Agreement process appears to be a shortcut to registration of the plan, as a certificate of compliance may be issued by council well in advance of completion of all construction and infrastructure works.  The requirement that the developer enter into satisfactory agreements with infrastructure providers is a pre-condition to a s 173 Agreement and such arrangements may be tedious to negotiate, but once achieved registration of the plan can quickly follow.

This might cause concern for a purchaser if the only requirement on the vendor is registration of the plan.  As can be seen from the above, this could be achieved well before construction is complete, but no purchaser is going to want to pay for a half finished property.  Thus a purchaser needs to be satisfied that settlement will only be due after both registration of the plan and issue of a certificate of occupancy.  Whilst there is much to be said against a certificate of occupancy being a true reflection that all works have been completed, it is at least an objective confirmation that most works have been completed.  A better test is a satisfactory report from the purchaser’s building consultant, but few developers are prepared to countenance such a hurdle.

Whilst the Court of Appeal in Joseph Street may have identified a shortcut that was open to the developer, it is interesting to note that the developer was not aware of that possibility and there is no suggestion that the purchaser ever suggested to the developer that such a process was available, let alone that the developer refused to follow that course.  Apparently, the mere fact that the option was available and not taken was enough to satisfy the Court that the developer had failed to use his best endeavours.  A true case of ignorance is no excuse.

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

See also: Off the Plan Sales – Best Endeavours – Part 1

Agreement to lease

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By Russell Cocks, Solicitor

First published in the Law Institute Journal

‘An agreement to lease is as enforceable as a lease’

Property lawyers deal with leases all of the time; sometimes in the context of a relationship between landlord and tenant, sometimes where a property that is to be sold is leased and sometimes in more obtuse ways, such as in relation to the assessment of duty or tax.

Generally speaking, such leases will be in a written form and the terms of the lease will be readily identifiable. However, unlike contracts for the sale of land which the law requires to be in writing and signed by the parties, the law has long recognised that a lease relationship can be created in a less formal way than a written and signed lease. Hence, courts will enforce a lease if the court can be satisfied that the parties reached an agreement to lease and this has given rise to the mantra of ‘an agreement to lease is as enforceable as a lease’.

Walsh v. Lonsdale (1882) 21 Ch D 9 is the historical authority for this proposition and Waltons Stores (Interstate) Ltd v. Maher [1988] HCA 7 restated the proposition in the modern language of estoppel and unconscionability, concluding that a court will enforce a written agreement to lease where it would be unconscionable for a party to the agreement to resile from that agreement.

2016 has seen something of a flurry of cases, at all levels, concerning agreements to lease:

North East Solutions P/L v. Masters Improvements Aust. P/L [2016] VSC 1 analysed the obligations of parties who entered into a written agreement to lease which included a term that the parties would negotiate in good faith to resolve any disputes that arose during the term of the agreement. The enforceability of the agreement to lease was never in doubt; the issue was the meaning and extent of the ‘good faith’ obligation and whether one party had breached that obligation.

Risi P/L v. Pin Oak Holdings [2016] VCAT 1112 also related to a written agreement to lease but found that the lease prepared pursuant to that written agreement should be varied to comply with an oral agreement that the parties made prior to entering into the written agreement to lease. The landlord had sought to include a demolition clause in the written lease and the Tribunal ordered that the demolition clause be removed as it had not been a term of the agreement that the parties had concluded.

Crown Melbourne Ltd v. Cosmopolitan Hotel (Vic) P/L [2016] HCA 26 saw the issue return to the High Court in a slightly different form. The tenant entered into a 5 year lease with an expectation that the tenant would be offered a further term. No promise to do so was included in the written lease nor specifically offered to the tenant – all the tenant could rely on were words to the effect that the tenant would be ‘looked after’ when the lease came up for renewal. The Court was not satisfied that these words meant to there was an agreement for a new lease or even an obligation on the landlord to submit terms for a new lease to the tenant for negotiation.

The concept of ‘business efficacy’ has also crept into the language of these cases with courts apparently prepared to analyse the conduct of the parties through the ‘business efficacy’ prism.

Tips

  • Whilst written for Victoria this article has interest and relevance for practitioners in all states.
  • Courts will enforce informal agreements to lease.
  • Adequate proof as to the terms of any such agreement remains essential.

Conveyancing QLD

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Conveyancing

OCTOBER
  • Costs Agreements
    • Disputes section improved, fields for client and firm details added, trust account details added, solicitor’s lien added, execution clauses for individuals and corporations added and general formatting and grammatical improvements.
    • Clause on recovery of fees added when purchaser not proceeding.
AUGUST
  • Purchase and Sale of Real Property commentaries – further content on Foreign Resident Capital Gains Withholding Payments added.
  • Sale of Real Property – commentary updated to include discussion of how co-ownership may be brought to an end via partitioning.
JUNE
  • Update First Home Owners’ Grants for 1 July 2016 changes.
MAY
  • Foreign resident capital gains withholding payments amendments made to Commentaries and Retainer instructions.
  • Include foreign resident capital gains withholding payments when over $2 million to all necessary precedents and to do lists.
APRIL
  • File Cover Sheets for all publications have been completely re-formatted for a better look.
MARCH
  • New section included in the commentary on powers of attorney for land transactions to accompany power of attorney precedents.
FEBRUARY 
  • Making life a little easier for practitioners – look out for Blank Deed, Agreement and Execution Clauses folder in the matter plan at the end of each Getting the Matter Underway.

Conveyancing SA

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Conveyancing

OCTOBER
  • Sale and Purchase of Real Property – added in commentary discussing foreign resident clearance certificates.
  • Purchase of Real Property Commentary – clause added on payment of fees when purchaser not proceeding.
  • New Precedents
    • To do list – Sale of real property
    • To do list – Purchase of real property
  • Costs Agreements
    • Disputes section improved, fields for client and firm details added, trust account details added, solicitor’s lien added, execution clauses for individuals and corporations added and general formatting and grammatical improvements.
    • Clause on recovery of fees added when purchaser not proceeding.
AUGUST
  • Sale of Real Property – commentary updated to include discussion on bringing co-ownership arrangements to an end via partitioning.
  • Sale and Purchase of Real Property commentaries – added further content on Foreign Resident Capital Gains Withholding Payments.
MAY
  • Foreign resident capital gains withholding payments amendments made to Commentaries and Retainer instructions.
  • Include foreign resident capital gains withholding payments when over $2 million to all necessary precedents and to do lists.
APRIL
  • File Cover Sheets for all publications have been completely re-formatted for a better look.
MARCH 
  • New section included in the commentary on powers of attorney for land transactions to accompany power of attorney precedents.
FEBRUARY
  • Making life a little easier for practitioners – look out for Blank Deed, Agreement and Execution Clauses folder in the matter plan at the end of each Getting the Matter Underway.

Conveyancing TAS

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Conveyancing

OCTOBER
  • Added commentary discussing valid clearance certificates for foreign residents.
  • Costs Agreements
    • Clause added on payment of fees when purchaser not proceeding
    • Added client and firm fields company execution clause trust account details solicitor’s lien.
    • Disputes section improved, fields for client and firm details added, trust account details added, solicitor’s lien added, execution clauses for individuals and corporations added and general formatting and grammatical improvements.
AUGUST
  • Sale of Real Property – commentary updated to include discussion on bringing co -ownership arrangements to an end via partitioning.
  • Sale and Purchase of Real Property commentaries – further content on Foreign Resident Capital Gains Withholding Payments added.
MAY
  • Foreign resident capital gains withholding payments amendments made to Commentaries and Retainer instructions.
  • Include foreign resident capital gains withholding payments when over $2 million to all necessary precedents and to do lists.
APRIL
  • File Cover Sheets for all publications have been completely re-formatted for a better look.
MARCH
  • New section included in the commentary on powers of attorney for land transactions to accompany power of attorney precedents.
FEBRUARY
  • Making life a little easier for practitioners – look out for Blank Deed, Agreement and Execution Clauses folder in the matter plan at the end of each Getting the Matter Underway.

Mortgage Stress

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Whilst there is considerable consistency between the property laws of Victoria and New South Wales, there are also significant differences.

Some differences in practice are:

  • nomination in New South Wales is virtually unheard of as it creates a second duty, but is common in Victoria as it does not; and
  • deposit release is prohibited in New South Wales but common in Victoria.

Some differences in the law are:

  • acquiring an easement by prescription is banned in New South Wales but still available in Victoria; and
  • there is no equivalent in New South Wales to Victoria’s statutory right to clawback fraudulent transactions s 172 Property Law Act 1958.

Perhaps the best known example of the difference was the view previously held in New South Wales that the existence of an illegal structure on land constituted a defect in title and allowed a purchaser to avoid the contract. This was in contrast with the Victorian view that such a defect was merely a quality defect and that the vendor was protected by the principle of caveat emptor. The New South Wales view was ‘corrected’ (that is; brought in line with Victoria) by the Court of Appeal in Carpenter v McGrath 40 NSWLR 39 and consistency has reigned since.

In recent years a significant difference has again occurred with New South Wales taking a ‘radical’ view of the impact of fraud in certain mortgage transactions. In both jurisdictions it is accepted that whilst fraud is an exception to indefeasibility, nevertheless registration of a fraudulent instrument by a party who was not party to the fraud will be indefeasible. Mortgagees have therefore been able to rely on mortgages that have been fraudulently signed provided that the mortgage was registered and the mortgagee was not itself a party to the fraud. However in New South Wales an argument was accepted that it was possible to look ‘behind’ the mortgage at the document that constituted the agreement to repay as it was that document that created the obligation that justified the mortgagee’s security interest and the extent of the mortgagor’s covenant to repay was to be determined by a consideration of the contractual agreement between the parties.

If that contract (loan agreement) created an obligation to repay a specific amount then the covenant to pay protected by the indefeasible mortgage was enforceable. However if the loan agreement referred to an ‘all monies’ mortgage relating to past and future advances then it was said that the mortgagor’s covenant to pay arose contractually from the ancillary documents that related to the actual advances and that if those documents were fraudulent then the covenant to repay arose outside of the protection of the indefeasible mortgage. Essentially, it was said, no money was advanced pursuant to an ‘all monies’ mortgage as the money was advanced pursuant to forged documents.

Victorian mortgagees quaked in trepidation as an army of decisions mounted on the north bank of the Murray River set to wreck havoc on Victorian all money mortgages but Pagone J. in Solak v Bank of Western Australia [2009] VSC 82 manned the ramparts and beat off the hordes by upholding an all monies mortgage and the lenders breathed a sigh of relief. However a Trojan Horse has appeared in the form of Perpetual Trustees Victoria Limited v Xiao [2015] VSC 21. Hargrave J. has adopted the New South Wales analysis of an all monies mortgage and has described the decision in Solak as ‘plainly wrong’.

The scene is now set for a definitive decision by the Victorian Court of Appeal on what is an important point of law. According to Xiao a mortgagee of a forged all monies mortgage is not able to enforce the mortgage or undertake a mortgagee’s sale. Whether confirmation of Xiao will have retrospective repercussions is a matter for the future.

The mortgagor’s victory in Xiao was somewhat pyrrhic as Hargrave J. went on to find that Xiao in fact held the property on trust for the forger (her husband) and that the lender was entitled to judgment against the husband, who had also been joined as a defendant. Hargrave J. was obliged to overcome the presumption of advancement applying to a transfer from husband to wife but did so by finding adequate evidence that it had been the intention of the husband at the time of transfer to retain the beneficial interest in the land.

The mortgagee would therefore be faced with the need to enforce this judgment by way of a Warrant of Execution rather than a mortgagee’s sale. The mortgagee’s possession of the certificate of title would aid that exercise.

Owner-builder insurance

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By Russell Cocks, Solicitor

First published in the Law Institute Journal

The current domestic building warranty insurance regime came into force 20 years ago and it remains largely a mystery to most property lawyers.

Donald Rumsfeld was referring to weapons of mass destruction when he made his infamous comment about ‘knowns, known unknowns and unknown unknowns’ but he may just as well have been referring to the owner builder warranty insurance scheme that has plagued Victorian conveyancing lawyers for 20 years. Whilst insurance is generally a matter relating to the quality of a property and not a matter going to title, it is the draconian consequences of getting the insurance situation wrong that makes this issue one of the great disasters of conveyancing. Quality issues do not generally create a right of avoidance but failure by the vendor to comply with the owner builder insurance obligations does allow the purchaser to avoid, an outcome that can have disastrous consequences for the vendor’s adviser.

KNOWN

What is known about the scheme is that an owner builder who performed building works in the 6.5 years prior to the sale is required to include a Condition Report in relation to those works in the contract and (if the works exceeded $16,000) obtain warranty insurance. It is important to note that the obligation to provide the Condition Report is absolute and does not depend upon the cost of the works.

KNOWN UNKNOWN – what works?

But knowing that the scheme applies to building works creates the first unknown – what building works trigger the obligation?

Section 137B(2) Building Act creates the requirement if a vendor ‘constructs’ a building and the definition of ‘construct’ (s 137B(7)) includes repair or alteration of the building. Clearly adding a room, for instance, would be construction and the requirement arises. But what about essentially cosmetic works that might involve work that could be described as ‘home handyman work’, such as retiling a bathroom or moving a doorway? Where do we draw the line?

A convenient threshold might be to differentiate between works that require a building permit and works that do not, although that arbitrary line is itself somewhat problematic. Essentially, substantial works require a permit and cosmetic works do not. But the Act, by contemplating an obligation even when a building permit has NOT issued, makes it clear that the requirement does relate to non-permit works and so we must presume that this unknown is in fact any and all works undertaken on the home – any repairs or alterations no matter how minor.

UNKNOWN UNKNOWNS – when?

Harder still is the problem of determining when the works were performed.

By s 137B(7) the Act provides a series of alternatives for determining when the 6.5 year period, known as the ‘prescribed period’, commenced. Starting from the contract date, the vendor must look back either:

  1. 6.5 years and see whether an occupancy permit or certificate of final inspection was issued; or
  2. if not, then look back 7 years to see whether a building permit was issued; or
  3. if neither of the above, then look back 6.5 years to see whether the owner has certified that construction had commenced.

Works performed during any of those periods trigger the requirements. The first two alternatives are based on an objectively determined event but the third is a very subjective basis for determining the prescribed period and adds to the prevailing sense of unreality that surrounds the vendor’s obligations in relation to owner builder insurance.

Tip Box

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

Owner Builder works may require a Condition Report and warranty insurance

Even cosmetic works may trigger requirement

For works in preceding 6.5 years

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