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What's new and improved?

What's new and improved?

By Murray McCutcheon and David P Lloyd

Conveyancing Practice & Procedure Real Property 

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What’s new and improved? The September 2017 revision of the LIV/REIV contract of sale of land is explained in this two-part feature.

 

Snapshot:

  • New special conditions bring the contract up to date.
  • Some are standard in all cases, while others are of optional application.
  • Check boxes are used for the first time.

 

In the mid-2000s, the LIV envisaged the need for a new LIV/REIV co-badged contract of sale of land to meet the needs of conveyancing in the 21st century. Around that time, the LIV Property Committee was already considering drafting a modernised and plain English version of what are now the general conditions, when a predecessor of Consumer Affairs Victoria approached the LIV to use a revised version of the general conditions in the prescribed form of contract of sale under the Estate Agents Act 1980. In the end, it was decided that an entirely new contract should be prepared, from the ground up. The authors and Russell Cocks were invited by the LIV to undertake the task, with the assistance of the late Richard Park who had been involved in drafting the previous version of the contract.

The new contract was published in 2008 to much fanfare. It was somewhat revolutionary in several respects. For a start, the antiquated practice of delivering requisitions on title was abolished and replaced by vendor warranties. In addition, all the applicable terms and conditions of sale were set out in the contract itself with no reference being made to the conditions of sale in Table A of the Seventh Schedule to the Transfer of Land Act 1958.

The 2008 contract has since been the subject of several updates in order to accommodate legislative and other developments, most notably in September 2014 to reflect changes to the Sale of Land Act 1962. It includes various special conditions published subsequently, addressing such matters as assets subject to Personal Property Securities Register charges, electronic conveyancing and the foreign resident capital gains withholding regime.

It is no idle boast that the contract has stood the test of time. It is widely used by estate agents, solicitors and conveyancers and is recognised as the standard contract for the sale of land in Victoria. It has been before the courts on many occasions, and has not been the subject of judicial criticism or adverse comment.

Nearly 10 years on, the time was ripe for some renovation works to be performed. These take the form of additional special conditions, some of which are intended to apply in all cases, and others which are of optional application.

Why special conditions?

A prescribed form of contract of sale of real estate is set out in the Schedule to the Estate Agents (Contract) Regulations 2008 which is made in accordance with s99 of the Estate Agents Act 1980.1 This contract of sale is in two parts: Part 1 contains the opening provisions of the contract and includes the particulars of sale, and Part 2 contains the “general conditions” of sale.

The LIV/REIV contract is based on the prescribed form. It is also in two parts. Part 2 is identical to the prescribed form, but Part 1 differs in several respects, although not to any significant degree2 apart from the inclusion of special conditions which do not appear in the prescribed contract.

Importantly, general condition 2.1 of the prescribed form and the LIV/REIV contract contain a warranty on the part of the vendor that the general conditions are identical to those in the prescribed contract under the Estate Agents (Contract) Regulations 2008. The intention is to avoid surreptitious modification of a general condition by amending its wording, which could only be discovered by a purchaser through a time-consuming and potentially wasteful comparison of all general conditions with their equivalents in the prescribed contract. Any variation to the general conditions must be performed by way of added special condition because of the warranty in general condition 2.1.

Two types of special condition

Each of the new special conditions is designed to be activated when the box next to it is checked. Special conditions 1 to 7 are intended to apply in all cases, and to this end the box next to each one is already checked. Most of them operate by modifying the general conditions, in some cases either by adding further provisions and in others by substituting an entirely new condition. Special conditions 2 and 5 transform the existing special conditions 1A and 1B into general conditions.

Special conditions 1 to 7 add to or replace existing general conditions or create new general conditions as follows:

  • Special condition 1 (General condition 11)
    – Payment
  • Special condition 2 (General condition 12)
    – Acceptance of title – deposit release
  • Special condition 3 (General condition13.3)
    – GST – tax invoice
  • Special condition 4 (General condition 15.3)
    – Adjustments – certificates
  • Special condition 5 (General condition 15A)
    – Foreign resident capital gains withholding
  • Special condition 6 (General condition 17)
    – Service
  • Special condition 7 (General condition 21)
    – Notices

These general conditions can themselves be modified or deleted by another special condition in an appropriate case, like any other general condition.

The remaining special conditions 8 to 12 are of optional application in any given case.

  • Special condition 8
    – Electronic conveyancing

This is the former special condition 2 providing for electronic conveyancing, which first appeared in the contract in 2014.

The remaining special conditions 9 to 12 are included with a view to establishing consistency of practice. They are:

  • Special condition 9
    – Deposit bond
  • Special condition 10
    – Bank guarantee
  • Special condition 11
    – Building report
  • Special condition 12
    – Pest report

 

Special condition 1 – Payment

The box is pre-checked

Special condition 1 replaces general condition 11 with a new condition which provides for both to whom and how payments are to or may be made.

General conditions 11.1 to 11.3 are unchanged. There has been some re-ordering of the remaining provisions, and consequential re-numbering. Apart from that, there are some entirely new provisions.

General condition 11.4 entitles the purchaser to make any payment under the contract by electronic funds transfer, but not by using credit or debit cards unless otherwise agreed. It also largely dispenses with payment by cash except for an amount up to $1000, which might be useful where, for example, a small cash payment can overcome an error in adjustments that might otherwise prevent settlement occurring.

The provision for payment by electronic funds transfer is included primarily because estate agents frequently encounter prospective purchasers who do not have cheque accounts and wish to employ other methods of paying the deposit, but it also applies to other payments under the contract. One important qualification is that the electronic transfer of funds cannot practically be used for payment in most arms-length paper settlements because general condition 11.6 provides that payment by electronic funds transfer is to be treated as made only when cleared funds are received in the recipient’s bank account.

The stipulation regarding “appropriate facilities” in general condition 11.4(c) recognises that the intended recipient may not have Bpay or other facilities for some types of electronic payment. Practitioners who do not have trust accounts may wish to add a special condition providing that payment is not to be made directly to the practitioner on behalf of the practitioner’s client.

General condition 11.4 allows for the potential use of credit and debit cards, but only by agreement. Estate agents and other recipients need to be aware that the amount of a payment made by credit or debit card will normally be reduced to the extent of any charge by the card provider and any fees of the remitter’s financial institution, and that there is the possibility of chargeback or funds reversal where such cards are used.3 Normally, where an amount is paid into a statutory trust account, bank fees are not charged to that account but to the recipient’s office account.

General condition 11.7 requires the intended recipient of the electronic funds transfer to be notified in advance of the transfer and given sufficient particulars to enable the relevant transaction to be identified. General condition 11.8 provides that as soon as the transfer has taken place, the relevant transaction number or reference details are to be provided to the intended recipient.

General condition 11.9 obliges each party to do everything reasonably necessary to assist the other party to trace and identify the recipient of any missing or mistaken payment and to recover the payment. The same obligation is imposed by special condition 8 in the case of electronic conveyancing, where all settlement payments will of course be made electronically.

Special condition 2 – Acceptance of title – deposit release

The box is pre-checked

This is the former special condition 1A which now becomes new general condition 12.4.

No change to the wording has been made.

Special condition 3 – GST – Tax invoice

The box is pre-checked

Special condition 3 inserts a new general condition 13.3 in more detailed terms than the current general condition 13.3.

General condition 13.3 simply provides that the purchaser is not required to make a payment for GST until provided with a tax invoice, unless the margin scheme applies. It may be noted in this regard that the contract of sale itself is not a tax invoice for the purposes of the relevant legislation.4

It is a precondition to the purchaser’s obligation to pay the GST to the vendor in addition to the price under a “plus GST” contract, for the purchaser to be given a GST invoice. Such a precondition did not previously extend to the price of a taxable supply where the price was inclusive of GST.5

The new general condition 13.3 clarifies when the purchaser must be given a tax invoice. The purchaser’s obligation to pay GST, whether as an inbuilt component of the price or as an additional payment over and above the price, is conditional on the purchaser being provided with a tax invoice, where the vendor makes a taxable supply for the purposes of the legislation (other than a margin scheme supply) and either:

a) the price includes GST, meaning that the particulars of sale show the price as being GST inclusive by not specifying that the price is “plus GST”, or

b) the purchaser is obliged to pay GST in addition to the price because the particulars of sale specify that the price is “plus GST” or because of the operation of general condition 13.1.

Special condition 4 – Adjustments

The box is pre-checked

Special condition 4 amends general condition 15.

General condition 15 provides for adjustment of the amount due to be paid by the purchaser at settlement with reference to periodic outgoings and, where the property is sold subject to a lease or other tenancy, rent and other income. According to accepted conveyancing practice, it is the purchaser who prepares a “statement of adjustments” in anticipation of settlement. As part of the exercise, inquiries are often made of rating and other authorities as to the sums to be adjusted and the amount of any outstanding payments.

Special condition 4 adds a new general condition 15.3 which requires the purchaser to provide copies of all property certificates and other information used by the purchaser in calculating the adjustments if the vendor requests. The intent of the provision is that both parties have access to the relevant certificates.

“Other information” includes information referred to in a property certificate or attached to it.

The request should be made a reasonable time after receipt of the adjustment statement and before settlement to enable the vendor to check the adjustments in accordance with usual conveyancing practice.

Special condition 5 – Foreign resident capital gains withholding

The box is pre-checked

This replicates the former special condition 1B, by inserting it as a new general condition 15A.

Minor changes have been made to improve the drafting and to remove reference to the threshold amount. Reference to the threshold was unnecessary except for educative purposes but in any event the $2 million threshold was reduced on 1 July 2017 to $750,000. The general effect of the condition remains unaltered.

Special condition 6 – service

The box is pre-checked

Special condition 6 replaces the existing general condition 17 with a new general condition 17. General conditions 17.2 and 17.4 are new, with their addition resulting in the re-numbering of the original general conditions 17.2 and 17.3.

New general condition 17.2 specifically allows a cooling-off notice under s31 of the Sale of Land Act 1962 or a notice under general condition 146 to be given to the vendor’s legal practitioner, conveyancer or estate agent. The notice given to the estate agent will be valid even if the estate agent’s authority has formally expired because the estate agent has completed their duties under the retainer or for any other reason. This overcomes a potential difficulty not addressed by the recent amendment of s31 (3) of the Sale of land Act 1962 made by the Consumer Acts Amendment Act 2017.

New general condition 17.4 reflects Australia Post’s current “three speed” system for mail delivery. According to Australia Post, a letter sent by “regular post” is expected to be delivered between three and six business days after posting depending on the destination; a letter sent by “priority post” is expected to be delivered between one and four business days after posting depending on the destination; and a letter sent by “express post” is guaranteed to be delivered on the next business day. As before, allowance is made for the recipient of the document to prove actual receipt.

The expression “business day” is not defined in the contract but will take its meaning from s30(1) of the Sale of Land Act 1962 so that Saturdays, Sundays and public holidays observed throughout Victoria are excluded.

The new Supreme Court (Chapter 1 Email Service Amendment) Rules 2017 came into operation on 1 August 2017. The new rules allow for service by email of a document required or permitted to be served in a proceeding, and require both plaintiff and defendant to provide email addresses for service. These new rules are unsuited to service of documents under the contract of sale because it is a requirement for the covering email to state the title and court file number of the relevant court proceeding. However, general condition 17 has for some years specifically allowed for the service of any demand, notice or document by email and the replacement general condition 17 continues to do so.

General condition 17.3(c) allows for service via DX or fax transmission in accordance with order 6.07 of the Supreme Court (General Civil Procedure) Rules 2015.

Special condition 7 - Notices

The box is pre-checked

Special condition 7 replaces the existing general condition 21.

General condition 21 has been redrafted to add what was implicit: that the vendor is liable for any notice, order, demand or levy imposing liability on the property which is issued or made before the day of sale and does not relate to periodic outgoings.

Special condition 8 – Electronic conveyancing

The box must be checked for the special condition to apply

This is the former special condition 2 with some minor drafting changes.

A provision has been added to the effect that the inclusion of a specific date for settlement in a workspace 7 is not of itself a promise to settle on that date. Apart from that, minor changes have been made to improve the wording but the general effect of the condition remains unaltered.

The box next to special condition 8 must be checked or the parties must subsequently agree that this special condition applies if it is to operate.

In terms of deciding whether or not to check the box, it should be borne in mind that many dealings with land will have to be lodged electronically in the not-too-distant future. The Victorian government’s objective is to progressively move to 100 per cent digital lodgement of instruments affecting land by 1 August 2019.

This objective is given effect by the “Registrar’s requirements for paper conveyancing transactions” determined in accordance with s106A of the Transfer of Land Act 1958. Specifically, the Registrar of Titles requires8 the following instruments to be lodged electronically from the following dates:

  • 1 December 2017
    – all stand-alone9 mortgages and discharges of mortgage10
  • 1 December 2017
    – all stand-alone caveats and withdrawals of caveat
  • 1 March 2018
    – all stand-alone transfers of land, and survivorship and transmission applications
  • 1 October 2018
    – all combinations of transactions available through PEXA
  • 1 August 2019
    – all transactions

An exception to these requirements11 is where there is an existing paper instrument which has been signed prior to the date when electronic lodgement of that particular class of instrument or transaction is required.

Practitioners should therefore think very carefully before they decide not to check the box next to special condition 8 in the case of a contract of sale where settlement may occur after a date specified by the Registrar. In that scenario, they must conduct a conveyancing transaction electronically unless they are confident that all paper instruments will be signed before the relevant date.

It was PEXA’s suggestion that the contract provide that the indicative settlement time in the workspace is not an offer to settle at that time. The settlement date field is required to be completed as a specific date when the workspace is opened. This has the potential to cause difficulties when the due date for settlement is not certain, such as with off-the-plan contracts awaiting registration after completion of construction or other approvals. The authors are of the view that completing the data field “Settlement” is not of itself a representation or warranty that the due date of settlement will occur on that date irrespective of circumstances. An additional sentence has been added to special condition 8.4 to put the matter beyond doubt.

*Part 2 of this article will appear in the January/February 2018 LIJ and contains commentary on the remaining special conditions 9 to 12.

 

Murray McCutcheon AM is the longest serving member of the LIV Property Committee, a member of the Law Council National Electronic Conveyancing Committee and chair of the Electronic Conveyancing Group. He is also past chair of the LCA Australian Property Law Group, the LCA Legal Practice Section and the Property Law Reform Alliance. He was invested as a Member of the Order of Australia in 2015 for significant service to property and commercial law.

David P Lloyd is a barrister with more than 35 years experience in property law. He is the lead author of Sale of Land Victoria (Thompson Reuters, October 2015) and the forthcoming work Victorian Land Contracts, the primary focus of which is the standard contract of sale of land in Victoria. He has been a member of the LIV Property Committee for more than 25 years and is a regular seminar speaker and contributor to the LIJ.

The authors take this opportunity to acknowledge the significant and invaluable contribution made by Russell Cocks as a co-author of the 2017 special conditions and the original 2008 contract and all its revisions.

 

1. See in particular s99(1)(ge) of the legislation.

2. For instance, the “Lease” panel in the particulars of sale of the LIV/REIV contract contains three variables, whereas the prescribed contract does not.

3. See, for instance, the Financial Ombudsman Service Australia website www. Fos.org.au.

4. A New Tax System (Goods and Services Tax) Act 1999 (Cth).

5. SeaRoad Logistics Pty Ltd v Patricks Stevedores Operations No 2 Pty Ltd [2014] VSC 170 at [92].

6. Terminating the contract in accordance with general condition 14 in the event of loan approval not being obtained by the loan approval date.

7. A settlement date is required to be entered when a workspace is opened.

8. See, for instance, Land Use Victoria’s Customer Information Bulletins 163 (March 2017) and 164 (April 2017) which explain the Registrar’s requirements for paper conveyancing transactions. The current version of the Registrar’s requirements is version 3 which came into operation on 27 May 2017, available at www.delwp.vic.gov.au/publications.

9. Meaning “lodged on its own”.

10. Noting that some stand-alone mortgages taken by, and discharges of mortgage given by, an authorised deposit-taking institution have had to be lodged electronically since 1 August 2017.

11. Because the requirements themselves focus on the date on which an instrument is signed.

 


Disclaimer: Views expressed by commentators are not necessarily endorsed by the Law Institute of Victoria Ltd (LIV). No responsibility is accepted by the LIV for the accuracy of information contained in the comments and the LIV expressly disclaims any liability for, with respect to or arising from any such views.

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