By Russell Cocks, Solicitor
First published in the Law Institute Journal
Section 32 Sale of Land Act 1962 requires a vendor of land to provide a proposed purchaser with certain information about the land prior to the signing of a contract as a means of consumer protection and an equalization of the bargaining position between the parties.
However s 32 does not specifically refer to an obligation to provide a copy, or particulars of, any lease affecting the land and it has been common practice for vendors not to provide a copy of a lease in the Vendor Statement. Whilst it was relatively common for particulars of the lease to be included in the contract, there was no strict obligation to do so and the vendor’s alternate rights of providing vacant possession or receipt of rents and profits could sometimes create difficulties.
Indeed there was authority for the proposition that s 32 did not require disclosure of a lease. Thai, Hoa v Cinta P/L [1997] VicSC 526 specifically considered the question and decided that s 32 did not require disclosure of a lease in the Vendor Statement. This case referred to two previous Supreme Court decisions that had reached the same conclusion: George G. Collings (Aust) P/L v Stevenson [1990] VicSC 620 and Krakowski v Eurolynx Properties Ltd [1992] VicSC 62.
That decision was made in the context of a contract that did include particulars of the lease within the contract but the tenant was in substantial breach of the lease as at the date of the contract, which was not disclosed, and the purchaser sought to rely on the s 32 obligation to disclose the lease and, more importantly, to disclose the tenant’s failure to comply with the terms of lease. Byrne J. decided that s 32 did not require disclosure of the lease and therefore failure to disclose the tenant’s failure to comply with the lease could not constitute grounds for avoidance pursuant to s 32(5).
In passing it may be noted that the purchaser really was ‘barking up the wrong tree’ when it sought to avoid the contract for breach of s 32. The better course of action, and one most likely to be pursued today, would have been to rely on the vendor’s misleading and deceptive conduct in representing in the advertising that the tenant had been in occupation for 6 years and was a ‘good’ tenant. In fact, it appears that a new tenant had recently taken over the lease and was nearly 6 months in arrears at the time of sale!
Whilst the collective authority of those cases was against any obligation to disclose lease particulars in the Vendor Statement, the previously generally accepted practice of disclosing a lease, or particulars thereof, in the contract was confirmed in the 2008 form of contract that, for the first time, required the vendor to specifically nominate whether the sale was subject to a lease and include particulars thereof, by adopting the default position that vacant possession was required unless the words ‘subject to lease’ were included ‘in the box’. In this manner a prospective purchaser does have access to the terms of the lease, although the contractual disclosure obligation does not specifically extend to an obligation to disclose tenant’s breaches. Such a situation might call into play issues of misrepresentation by silence and similar principles.
It therefore came as something of a surprise when Macauley J. in Vouzas v Bleake House P/L [2013] VSC 534 concluded, without deciding, that s 32 does require disclosure of a lease. This decision was in the context of a claim by the purchaser that the vendor should have disclosed a proposed assignment of the lease and, by failing to do so, had not fulfilled the obligation to disclose ‘restrictions’ pursuant to s 32(2)(b). Krakowski was noted as contrary authority to this proposition but Macauley J. took solace in a comment by Nettle J. in IGA Distribution P/L v King & Taylor P/L [2002] VSC 440 doubting Krakowski. Thai and Collings were not cited.
The issue will fall to be resolved the next time the issue comes before the Supreme Court, although given that the current situation is merely a conflict of opinion, a binding decision will not come until the Court of Appeal makes a pronouncement. Given that leases are now disclosed by virtue of the contractual mechanism, the issue really is not whether leases are to be disclosed pursuant to s 32 but rather whether changes or non-compliance are to be disclosed. With respect, such issues are better dealt with in the context of principles developed over time to deal with misleading and deceptive conduct, as indeed was the case in both IGA and Vouzas.
Section 32 has been the subject of a statutory overhaul with changes due to take effect in the near future. A later column will consider these changes in detail, suffice to say that the changes do not introduce further obligations that are likely to burden a vendor and in fact some changes will ease the load without undermining the consumer protection aspirations of the section.
Tip Box
Whilst written for Victoria this article has interest and relevance for practitioners in all states.