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LPLC: Pitfalls for vendors

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Cite as: September 2013 87 (9) LIJ, p.78

Practitioners acting for vendors selling off-the-plan should beware some common mistakes.

This article discusses claims against practitioners when acting for vendors selling off-the-plan and the lessons to be learned from those claims. Practitioners are referred to the LPLC column in the August LIJ, “Purchasers’ problems with the lot”, for details of claims and lessons when acting for the purchaser in relation to subdivisions.

The subdivision of land can be very complex and involve multiple consultants. This means you need to make it clear to the client, from the start, what your role is. This should be specified in your retainer agreement.

You should also specify in your retainer agreement matters where you are unable to assist the client. For example, issues in relation to the plan of subdivision should be referred to the land surveyor.

You may also need to refer the client to their accountant for advice in relation to capital gains tax and/or GST.

The things that go wrong are often the simple things.

Wrong sunset date

Claims have arisen where the practitioner mistakenly included the wrong sunset date in the contract of sale. The reason for the error was either because of a failure to obtain instructions or a simple typographical error and no system in place to check the date was entered correctly.

In one claim the practitioner was instructed to include a period of 36 months in which to register the plan of subdivision, but instead included a 12 month sunset date. The practitioner had used a precedent contract which had a 12 month sunset date. One purchaser rescinded based on the 12 month sunset date.

Where the incorrect date is sooner than the client wanted, it is often difficult for the plan of subdivision to be registered within that time and entitles the purchaser to rescind.

Lesson

Attention to detail is crucial when preparing off-the-plan contracts, especially in relation to fundamental terms such as the registration date. It is important, therefore, to have a system for proofreading the documents.

Send the draft contract of sale, vendor’s statement and all the attachments to the client for approval. Most clients will benefit from you explaining the documents to them, especially in relation to the registration date and their obligation to register the plan.

Delay in registration of the plan of subdivision

In one claim, a practitioner was holding the original certified plan of subdivision for the client, while awaiting instructions to lodge the plan. Instructions were not provided in a timely manner and the planning permit for the subdivision expired. More than five years had elapsed since certification of the plan by the local council.

Unless there is a contrary provision, a planning permit for the subdivision of land expires five years after certification of the plan of subdivision. Refer to s68(1)(b) of the Planning and Environment Act 1987.

Once the period has expired, the plan of subdivision will need to be recertified by the council. This can be costly. In some instances it may also be necessary to apply for a new planning permit to subdivide the land.

Lesson

Practitioners need to ensure their clients are aware of the expiry date in relation to all planning permits, including for the subdivision of land and the consequences of failing to meet the deadline.

Cases to note

A number of cases have considered section 9AE of the Sale of Land Act 1962 in relation to the fixing of the date of registration of the plan of subdivision. Section 9AE entitles a vendor to set a date by which a plan of subdivision must be registered, failing which, the statutory period of 18 months applies. This section also specifies the right of the purchaser to rescind where a vendor has not complied with s9AA(1) or (2) or 9AB.

The most significant case is that of Clifford & Anor v Solid Investments Australia Pty Ltd [2009] VSC 223. Practitioners are referred to the LPLC Bulletin from July 2009 in relation to this case www.lplc.com.au/risk_management/bulletins/property/recent_decisions_affecting_off_the_plan_sales.

More recently, the fixing of the registration date was considered in Harofam Pty Ltd v Allen & Ors [2013] VSCA 105 and Harofam Pty Ltd v Scherman [2013] VSCA 104. The vendor was the same in both cases. The relevant contracts of sale provided for a 24 month period for registration of the plan of subdivision and that this date could be extended once, by six months. In reliance on the reasoning in Clifford, it was determined that this sort of clause breached s9AE and the purchaser was entitled to rescind.

Lesson

Practitioners should inform their clients that only one date can be inserted in the contract for the plan of subdivision registration. Practitioners should also inform their vendor clients that the vendor’s financier may wish to specify the registration date.

It may help a client to fully understand their obligations in relation to having a plan registered by referring them to cases such as Parissis v Etna [1998] VSC 124 and more recently Joseph Street Pty Ltd & Ors v Tan & Ors [2012] VSCA 113. In both cases it was decided that a vendor must use their best endeavours to register the plan of subdivision. In the Joseph Street case this included entering into a 173 agreement with the local council.

Conclusion

The subdivision of land is a complex and lengthy process and there are many pitfalls for vendors and practitioners. Most importantly, practitioners need to recommend that the client obtain expert advice, as necessary, including from a surveyor, town planner and engineer to name just a few.



This column is provided by the Legal Practitioners’ Liability Committee. For further information ph 9672 3800 or visit www.lplc.com.au.

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