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Property: Avoiding off the plan contracts

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Cite as: May 2015 89 (5) LIJ, p.72

Purchaser's advisers need to be cautious when checking registered plans against contractual plans.

Contracts that relate to the sale of land before approval of a plan of subdivision are the subject of ss9 and 10 of the Sale of Land Act. While not specifically defined as such, off the plan contracts are referred to as “prescribed contracts” (s9AA(7)).

s9AA

This section essentially relates to the deposit that is payable under a prescribed contract.

A prescribed contract must provide that the deposit be held on trust for the purchaser pending registration of the plan (s9AA(1)(a)) and limits the deposit to a maximum of 10 per cent of the purchase price (s9AA(1)(b)). For an abundance of caution s9AA(2) provides that the deposit must in fact be paid into a trust account.

Failure by the vendor to comply with s9AA(1) or (2) entitles the purchaser to rescind the contract at any time before the registration of the plan – s9AE.

The LIV copyright contract includes the required conditions.

s9AB

This section creates an obligation on the vendor of a prescribed contract to disclose in the contract (s9AB(1)) and as an ongoing obligation during the contract (s9AB(2)) works affecting the natural surface level of the lot or adjoining land.

Breach of this obligation also justifies rescission under s9AE. It is common in large scale land subdivision to see these “fill plans” as land subdividers effectively push and pull land around to create relatively flat building allotments. Purchasers are entitled to know where large amounts of fill may be deposited as this can have a substantial effect on building costs. But it is rare to see “fill plans” in sales of residential units. Everest Projects P/L v Mendoza [2008] VSC 366 accepted the argument that lots on the upper floor did not have a “natural surface level” for the purposes of this requirement, reserving for another day any argument about lots that may be constructed or adjoining ground level.

s9AC

The amendment of a plan of subdivision in a prescribed contract between the date of the contract and the time of registration of the plan of subdivision may justify rescission.

The sub-section envisages the possibility of an amendment arising from the actions of one of two sources:

(a) the Registrar of Titles may “require” an amendment; or

(b) the vendor may “request” an amendment.

The vendor is obliged to “advise the purchaser in writing of the proposed amendment” and that advice must be provided within 14 days of the Registrar’s requirement or the vendor’s request.

The purchaser’s right to end the contract pursuant to s9AC does not end on registration of the plan. It ends 14 days after sufficiently specific advice of the proposed amendment is provided to the purchaser. If the vendor has amended the plan after contract and has not provided the purchaser with any, or any sufficient, advice about the amendment then the purchaser remains entitled to end the contract within 14 days of receiving such advice. If the vendor advises the purchaser that the plan is registered the contract will generally require the purchaser to settle within a period of seven to 14 days from advice of registration. The purchaser must at that stage satisfy itself in relation to amendments as the purchaser is contractually bound to settle unless the purchaser can rely on this statutory right to avoid, which right has survived registration of the plan.

The mere provision of an amended plan by the vendor without more might not satisfy the vendor’s advice obligation.

Once advice is given by the vendor to the purchaser, the purchaser has 14 days in which to rescind the contract, but may only do so if the amendment “materially effects” the lot.

Besser v Alma Homes P/L [2012] VSC 460 held that an amendment to the entitlement and liability Schedule materially affected the purchaser’s lot and the purchaser was entitled to rescind.

Lockwood v PSP Investments P/L [2013] VSC 10 held that a change in car parking arrangements was material. The Court held that the purchaser satisfied the sub-section by proving “material effect” and did not have to additionally prove detriment. Other changes to the plan were held to be not “material” and reference in this regard was made to Gold Coast Carlton P/L v Wilson [1985] Qd R 182 where minor changes to anticipated Owners Corporation charges were not material.

These provisions put a heavy burden on purchaser’s advisers in respect of checking registered plans against contractual plans.

s10

That we have both s9AC and s10 is probably a legislative quirk and there would be benefit achieved if they could be merged as they both address amendments to the proposed plan of subdivision. Importantly, s10 is limited in its application to PRIOR to registration of the plan and if the purchaser has not exercised the s10 rights before registration, those rights expire.

Section 10 has a “restriction” focus and in fact excludes restrictions imposed by a public authority as part of the subdivisional process from justifying avoidance. However, such a restriction would generally “materially effect” the lot and s9AC would apply.

9AE

9AE(1) is the penalty provision for breach of other provisions and allows for rescission for breach of s9AA(1) or (2) or 9AB.

9AE(2) is a stand alone provision creating an obligation and a right to rescind for breach. The obligation is to have the plan registered within what is known as a sunset period, being 18 months from the date of the relevant contract, or such other date as is specified in the contract.

Solid Investments P/L v Clifford [2010] VSCA 59 established that while the vendor is free to nominate in the contract a period other than the default period of 18 months established by the sub-section, that nominated period is fixed and cannot be unilaterally extended by the vendor.


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

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