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Property: Misleading contracts

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Cite as: December 2015 89 (12) LIJ, p.72

Altering the general conditions of sale may create a misleading contract. 

The conveyancing process in Victoria has the advantage of a standard contract of sale that is, more or less, universally adopted. This contract has the imprimatur of government by being adopted by regulation, although it is not obligatory. It contains 29 general conditions that provide a workable template for a conveyancing transaction and, importantly, are designed to strike a fair balance between the interests of the vendor and the purchaser.

The contract recognises that a particular transaction may require one or more special conditions to address specific requirements of that transaction and provision is made for the general conditions to be supplemented by special conditions. However, it was not intended that those special conditions would fundamentally alter and undermine the balance of power between the parties established by the general conditions.

A practice has arisen since the new contract was introduced in 2008 of vendors adding extensive special conditions to the contract which, rather than seeking to address the particular needs of the transaction, actually result in the underlying general conditions being substantially changed and effectively emasculated. Authors of such contracts need to bear in mind the possibility that such contracts may be found by a court to be misleading and consequently unenforceable, or at least partly so.

Changes that increase the penalty interest rate, shorten the period of time for notice, increase the number of bank cheques, remove rights given to the purchaser in general conditions 8 and 24, tinker with obligations at settlement, alter the way adjustments are calculated and change pre-settlement inspection rights are all designed to alter the relative balance of power between the parties to favour the vendor. There is no doubt that the parties are free to contract on the terms of their choosing but a dissatisfied purchaser may well argue that a contract that is presented in a standard form but includes many changes to that standard form that favour one party only is misleading.

Off the plan contracts

Such changes are particularly prevalent in off the plan contracts. Putting aside whether extensive special conditions that largely repeat relevant statutory provisions are even necessary, the adoption of the standard form contract and then alteration of over half of the general conditions is ludicrous.

Such sales are inevitably in trade and commerce with purchasers regarded as consumers, and courts are all too ready to grant protection in circumstances of unequal bargaining power, let alone circumstances where it is clear that the purchaser was lulled into believing that the transaction was governed by a standard contract.

Speaking as one of the authors of the standard contract, and on behalf of the other two authors, I say to such draftspeople: by all means draft a contract that provides greater advantage to your vendor client but do not seek to mask that unfair contract within the cloak of the standard contract. That particular Trojan Horse may fall foul of the Australian Consumer Law and Fair Trading Act 2012.

Russell Cocks is author of 1001 Conveyancing Answers and the LIV Mentor of the Year 2015. For more information go to www.russellcocks.com.au.

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