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Property: The right conditions

Every Issue

Cite as: (2008) 82(9) LIJ, p. 80

Apportioning liability for notices during the contract of sale period depends entirely on what Condition they come under.

The December 2007 column1 considered which party to a contract of sale of land (the vendor or the purchaser) was liable for a levy struck before the date of the contract in relation to the property sold.

This column considers the liability of the parties in respect of a levy or notice issued during the contract of sale.

The key provision in this regard is Condition 15 of Table A of the Seventh Schedule of the Transfer of Land Act 1958, which provides that the purchaser is liable for compliance with notices or orders issued after the day of sale.

This provision is generally taken to provide a clear allocation of responsibility for notices or orders made during the contract to the purchaser, but Condition 15 must be considered in the context of all of the provisions of the contract. Condition 15 will only provide the answer if the notice or order is truly a “Condition 15 notice”, but will not be relevant if the particular notice or order is subject to the operation of another contractual provision.

In this regard Condition 9 is also relevant. Condition 9 relates to outgoings and provides for the adjustment between the parties of the apportionable outgoings relating to the property.

By this Condition responsibility for some levies or notices is shared between the parties, with the vendor responsible for payment up until settlement and the purchaser thereafter.

This is a different allocation of responsibility to Condition 15, which imposes sole liability on one party or the other, depending on whether the levy or notice came into existence before or after the contract. A levy or notice relating to an apportionable outgoing, such as a council rate notice, will therefore be governed by Condition 9 and will be adjusted between the parties, notwithstanding that it might also be broadly regarded as a “notice or order” that would otherwise be governed by Condition 15 and be the sole responsibility of the vendor if struck before the contract or the purchaser if after contract.

The effect of Condition 9 therefore is to “remove” some levies or notices from the application of Condition 15 and allocate responsibility for them in a different way to Condition 15. In relation to apportionable outgoings, that responsibility is shared between the parties.

But Condition 15 is not restricted to just apportionable outgoings, it applies to outgoings generally.

The word “outgoings” is meant to cover all those financial expenses that flow from the ownership of property – any amount payable as a consequence of ownership is an outgoing.

Some outgoings are apportionable as they are of a regular recurring nature, such as annual rates, or quarterly owners corporation levies, but some outgoings are non-apportionable as they are one-off impositions, such as a special rate or a special owners corporation levy.

Nevertheless, as outgoings, they are subject to Condition 9 rather than Condition 15, and Condition 9 provides that outgoings “shall be paid by the vendor” and the purchaser’s liability does not arise until “the date on which he becomes entitled to possession” – that is, the settlement date.

The effect of this interaction between Condition 15 and Condition 9 is to restrict the application of Condition 15 to notices that do not relate to outgoings, such as a notice requiring connection of the property to the sewer or a notice to remove an illegal structure.

Such compliance notices become the responsibility of the purchaser from the day of sale and therefore such a notice served during the contract will fall on the purchaser (and the purchaser has a right of access to the property for compliance).

However, a levy or notice that requires the payment of money, as opposed to requiring compliance, is governed by Condition 9. If it relates to an apportionable (recurring) outgoing, responsibility will be shared between the parties, but if it relates to a non-apportionable outgoing (one-off) then it will be solely the responsibility of the vendor.

Disputes relating to these issues typically arise in relation to owners corporation special levies which are imposed to a particular purpose.

On the above analysis, such a levy made during the contract will be the responsibility of the vendor as a non-apportionable outgoing. This outcome can be justified as it is almost inevitable that such a levy would have been the subject of extensive discussion and the vendor should have been aware of its likely imposition. On the other hand, the purchaser will be receiving the property in a “better” condition that it was on the day of sale.

It is suggested that a fair compromise is a 50/50 apportionment of the levy between the parties, although that compromise is not dictated by either the law or logic.

New contract

The new contract that comes into effect at the end of September 2008 seeks to resolve this dispute in favour of the old Condition 15.

The new “adjustment” condition is limited to “periodic outgoings” and the new “notices” condition passes responsibility to the purchaser from the day of sale for compliance with all notices other than “periodic outgoings”.

This change was justified by the new disclosure requirements associated with owners corporations, which should allow a purchaser to become aware of proposed levies before the purchaser commits to the contract.

RUSSELL COCKS is the author of 1001 Conveyancing Answers.

1. Cocks, R, “Levy liabilities”, December 2007 LIJ, p94.


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