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Property: Off the plan can bring certainty

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Cite as: April 2011 85(4) LIJ, p.84

Selling homes or land off the plan has benefits for both buyers and sellers.

The sale of land “off the plan” is a common occurrence in the property market. Its principle virtue is that it provides certainty to both vendor (as to the sale) and purchaser (as to the eventual purchase) of the subject property.

While there may be some delay in relation to the eventual settlement, which cannot occur until the proposed plan of subdivision is registered at the Land Titles Office, both parties can be confident that, upon registration, the contract will proceed to settlement on the agreed terms.

Off the plan sales are common in a variety of circumstances, but the two principle scenarios are:

  • sales of vacant land; and
  • sales of homes.

Land sales

These sales generally are either:

  • small-scale subdivisions, perhaps only creating as few as two lots; or
  • large-scale subdivisions, including ‘greenfield’ sites, creating multiple lots.

Projects in these two categories can have enormous differences in scale (from two lots to 1000 or more) but the same legislative framework guides the subdivisional process1 and the same legislative framework regulates the vendor’s obligations, and purchaser’s rights, on sale.2

Pursuant to the Subdivision Act 1988 (Vic), the vendor is required to satisfy the local council, acting in a supervisory capacity, that the proposed plan satisfies all of the subdivisional requirements of the council and service authorities and, when satisfied, the council will seal the plan and provide a statement of compliance. These documents are then lodged with the Land Titles Office and, in the normal course of events, the plan is registered and settlement may take place.

The Sale of Land Act 1962 (Vic) prohibits completion of the sale until registration of the plan, imposes pre-contract requirements and creates during-contract rights essentially designed to protect purchasers.

The 2008 contract of sale, widely used for sales generally, adopts these broad guidelines. It is possible to create a contract for an off the plan sale relying on the particulars of sale and general conditions alone without the need for any special conditions or annexures.

This is particularly so for small scale developments, although larger scale subdivisions involving substantial earthworks may require the inclusion of a plan showing “works affecting the natural surface level”.3

Home sales

Again, these sales generally are either:

  • small-scale subdivisions, creating just a few lots for sale; or
  • multi-unit subdivisions, including high-rise developments.

The same subdivisional and registration processes apply to these developments, with the added complication that councils generally will not issue a statement of compliance until construction of the development is complete.

Such contracts envisage the construction of improvements on the land during the contract. A special condition will usually be added to the effect that the contract is not a major domestic building contract and that the vendor will enter into a major domestic building contract with a registered builder.

The detail provided to the purchaser in respect of the improvements to be erected is not regulated and may vary from reliance by the purchaser on a glossy brochure provided by the vendor (which is not included in the contract) to a full copy of the major domestic building contract (including specification) that the vendor has entered or will enter into.

Once the contract has been signed and the project is underway, the purchaser enters a state of perpetual waiting. Even if the project is a mere land subdivision, ages can pass before the plan is registered. If a home is being constructed, long periods of inactivity cause concern.

The default period between contract and settlement (14 days after notification of registration of the plan) is 18 months, but contracts can adopt another period and contracts spanning 60 months are common.

A recent case considered the vendor’s obligations in terms of completion of the project within the required period.4

The project was a relatively small development by the vendor of six units. The contract completion, or sunset period, was 15 months and the vendor had entered into a contract with a registered builder for construction of the units.

Regrettably, the builder went broke and the project was substantially delayed while the vendor put other construction arrangements in place.

The sunset period expired and the vendor rescinded the contract and the purchaser sought specific performance. No doubt, given the rising housing market, the property had appreciated and both parties sought to take advantage of that situation.

To succeed, the purchaser had to establish that the vendor was in breach and thus not entitled to rescind. It sought to do so on the basis of a breach by the vendor of an express contractual obligation to use “best endeavours” to complete the contract within the sunset period. It was also agreed that such an obligation was an implied term of the contract.

The court concluded that the true cause of the delay was the collapse of the builder, an occurrence that was beyond the control of the vendor. The vendor had therefore fulfilled its contractual obligations to use best endeavours and was entitled to rescind, thereby retaining the (more valuable) property.

RUSSELL COCKS is the author of 1001 Conveyancing Answers. For more information go to www.russellcocks.com.au.

1. Subdivision Act 1988 (Vic)

2. Sale of Land Act 1962 (Vic)

3. s9AB Sale of Land Act

4. Joseph Street Pty Ltd v Tan [2010] VSC 586

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