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Property: Best endeavours

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Cite as: September 2012 86 (09) LIJ, p.77

The effect of a Court of Appeal decision would appear to make entering into an s173 agreement compulsory for developers.

This column in April 2011 considered the case of Joseph Street Pty Ltd v Tan, a decision at first instance reported at [2010] VSC 586. The case has now been reversed on appeal, reported at [2012] VSCA 113.

The effect of the Court of Appeal decision would appear to make the entering into of a s173 agreement compulsory for developers in all circumstances where the municipal council is prepared to enter into such an agreement.

The case involved a villa unit style development of six single-storey units in Box Hill. Units were sold off the plan with settlement to be after registration of the plan in accordance with common practice. The builder that the developer had contracted to undertake construction failed to do so and the developer was forced to find another builder. As a result, construction was not completed within the time allowed by the contract for registration of the plan (the sunset period) and the developer rescinded the contract.

The purchaser refused to accept rescission and sued for specific performance of the contract on the basis that the vendor had failed to use “best endeavours” to have the plan registered. It had been established at first instance that this obligation consisted of both an express contractual obligation and also as an implied obligation.

The Full Court identified that registration of the plan could only be achieved when the council had issued a Certificate of Compliance, but that there were two methods by which the developer could obtain that certificate and thus fulfil the contractual obligation to secure registration of the plan:

1. the developer could complete all the building works to the satisfaction of all relevant service authorities; or

2. the developer could enter into a s173 agreement with council after entering into agreements with service providers.

Evidence given on behalf of the developer suggested that the s173 agreement option was limited to greenfield developments and had not been contemplated by the developer as an option. However, evidence from the council suggested that s173 agreements were common in smaller developments and indeed the planning permit issued in respect of the development had referred to the possibility of just such an agreement.

The effect of the s173 agreement is to give the council the ability to register on the “parent” title (the title to the unsubdivided land) the requirement that the development be constructed in accordance with the planning permit issued in respect of the development. If council has the benefit of such an agreement then, subject to the satisfaction of other relevant authorities, council is able to be satisfied that the development will be built in accordance with the permit and council’s planning responsibility in relation to supervision of construction is thereby satisfied. If construction is not in accordance with the permit, council is entitled to enforce the s173 agreement against the developer and all subsequent registered owners.

The s173 agreement process appears to be a shortcut to registration of the plan, as a certificate of compliance may be issued by council well in advance of completion of all construction and infrastructure works. The requirement that the developer enter into satisfactory agreements with infrastructure providers is a pre-condition to a s173 agreement and such arrangements may be tedious to negotiate, but once achieved registration of the plan can quickly follow.

This might cause concern for a purchaser if the only requirement on the vendor is registration of the plan. As can be seen from the above, this could be achieved well before construction is complete, but no purchaser is going to want to pay for a half-finished property. Thus a purchaser needs to be satisfied that settlement will only be due after both registration of the plan and issue of a certificate of occupancy. While there is much to be said against a certificate of occupancy being a true reflection that all works have been completed, it is at least an objective confirmation that most works have been completed. A better test is a satisfactory report from the purchaser’s building consultant, but few developers are prepared to countenance such a hurdle.

While the Court of Appeal may have identified a shortcut open to the developer, the developer was not aware of it and there is no suggestion the purchaser ever suggested to the developer such a process was available. The mere fact the option was available and not taken was enough to satisfy the court that the developer had failed to use his best endeavours. A true case of ignorance is no excuse.



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

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