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Contract of sale of land: Lock, stock and barrel

Contract of sale of land: Lock, stock and barrel

By David P Lloyd, Murray McCutcheon and Robert Bradley

Real Property 

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The 2019 LIV/REIV contract of sale of land varies in many important respects from the contract of sale of real estate previously in use.

The October LIJ (p21) described the main changes to the structure of the new August 2019 LIV/REIV contract of sale and to the particulars of sale. This article explains the important changes made to the contract general conditions and why some conditions were not changed.

General conditions

The general conditions (GCs) have been thoroughly reviewed. Changes in the requirements and procedures of government agencies in recent years have presented conveyancers with an ever-changing landscape. The new edition of the contract benefits from many updates, some to facilitate compliance with changed legislation or regulatory practice, and others to perform an educative function. 

The order in which the general conditions appear has been altered, partly to accommodate the new general conditions that were special conditions in the previous version, and partly to accommodate new conditions and provide a more logical structure.

GC 1 is a new provision intended to facilitate electronic signing and exchange of the contract. GC 1.6 might at first sight be thought to be at odds with the rest of the condition, however under the provisions of the Electronic Transactions (Victoria) Act 2000 an electronic record will only be adequate if the method used is both reliable and allows ready access. Until those requirements are met, some parties will prefer the security of a paper copy and should be entitled to require it.

GC 2 (liability of signatory) and GC 3 (guarantee by directors of a Pty Ltd company) (formerly 19 and 20). Consideration was given to including a form of guarantee within the new contract but it was decided that the LIV’s standard guarantee (or the practitioner’s own preferred form) could easily be added if required, and that GC2 is quite effective on its own.

GC 4 (formerly 18) permitting nomination of an additional or substitute transferee, now has a deadline of 14 days before settlement. The 14 day limitation is designed to allow proper time for the assessment of stamp duty prior to settlement and for the parties to attend to all the other matters required before settlement. The stamp duty arrangements which now accompany electronic lodgement and financial settlement are much more time-consuming and complex than with paper. After nomination, the Duties Online (DOL) form will need to be re-signed by the vendor which might not be practical within a short space of time, and sometimes a nomination will convert a transaction into a “complex assessment”1 resulting in a potential 30 day delay in settlement. While purchasers ought to organise themselves in advance, setting a deadline on an entitlement does not prevent the parties from agreeing otherwise – and if vendors are not inconvenienced, no doubt they will agree.2

GC 5.1 (formerly 1.1) now includes exceptions and conditions in the crown grant as encumbrances3 and, consistent with the particulars, now also refers to tenancies as well as leases.

GC 6.1 (formerly 2.1) no longer mentions the sunsetted regulations but instead refers to the copyright contract published in the month and year set out at the foot of the page.

GC 6.4(d) now includes the words “directly and currently” so as to be consistent with section 32D of the Sale of Land Act 1962.

GC 9 (formerly 5) has been amended to be limited to consents and licences to the sale required by the vendor and not the purchaser.

GC 10.1 (formerly 6) is retained to deal with the now unusual, but occasionally very important, circumstances where a paper transfer is still required. 

Importantly, GC 10.2 imposes a general obligation to promptly initiate and progress the DOL form required by the State Revenue Office. Consideration was given to the possibility of a prescriptive clause imposing deadlines for the various steps required to complete the form but the number of variables that would need to be addressed made such a drafting style unsatisfactorily cumbersome and potentially problematic. 

GC 12 (formerly 8) regarding details of builders warranty insurance has been retained despite its supposed unpopularity. It should be noted that the only obligation imposed on vendors is to produce what is in their possession, which is hardly an imposition.

GC 13.1 (formerly 9) now provides protection for purchasers who find that they have unknowingly bought general law land for which a provisional folio has been created in accordance with s23 of the Transfer of Land Act 1958 (Vic) and who may likely have found that financiers would not lend against such security. Vendors are now obliged to apply for a s14 conversion. The balance of this condition must remain until all general law land can be conveyed electronically.

GC 14 relates to deposits and largely replicates the former GC 11 in combination with parts of the former GC 12. The decision in Aurumstone Pty Ltd v Yarra Bank Developments Pty Ltd (Aurumstone)4 makes the early release of deposits in accordance with s27 of the Sale of Land Act 1962 problematic, but in the absence of legislative amendment in response to Aurumstone no amendment has been made to the early deposit release provisions other than to allow the 80 per cent calculation to take into account any foreign resident capital gains withholding and GST withholding. In this new version of the contract, the various methods of payment under GC 14.7 (unlike former 11.4) relate only to the deposit. The amount payable in cash now takes into account the non-refundable amount of 0.2 per cent of the price where the purchaser exercises the cooling-off rights given by s31 of the Sale of Land Act 1962.

GCs 15 and 16 (formerly special conditions 9 and 10) provide for payment of the deposit by bank guarantee or deposit bond. Provision for deposit bonds was added to the previous version of the contract and has been retained in the new edition. GCs 15 and 16 will only apply if the relevant box in the particulars is checked. The definitions of a deposit bond and an issuer of deposit bonds has been replaced by a general requirement that both the form and the issuer must be satisfactory to the vendor. The authors understand that the way most deposit bonds are set up means that they do not need to be, and are not, government regulated. We have therefore deleted reference to the issuer needing to be regulated. This is consistent with the Law Society of New South Wales form of contract. However, practitioners need to take care not to provide financial advice to their client on the efficacy, suitability or enforceability of deposit bonds unless they are specifically qualified to do so, especially as the underlying documentation may be very complex. 

GC 17 (formerly 10) and GC 18 (formerly special condition 8) relate to settlement. The non-merger provision regarding settlement has now become a general non-merger provision in the new GC 26.4.

GC 18 has absolute priority in the case of electronic settlement. There are minor changes to the wording of GC 18.4 and the definition of “settlement” in GC 18.6.

GC 18.5 attempts to deal with a difficulty which might arise if there is more than one electronic lodgement network operator (ELNO) providing services to the various parties to a transaction, and especially if one of those operators does not offer what might be described as “full service”. The authors believe that the GC provides sufficient protection given the current state of knowledge regarding the operation of ELNOs in general. GC18.5 presumes that the so-called “interoperability” between multiple ELNOs is the model that will be adopted by the regulators and GC18.5 will be subject to any interoperability rules to the contrary. 

In summary, the vendor’s subscriber must still open the workspace (GC18.4). The ELNO which conducts the lodgement and financial aspects of the settlement, in the absence of any contrary rules, is the one willing and able to do so. If there is more than one, the incoming mortgagee of the purchaser is to make the choice, and the vendor if there is no incoming mortgagee. GC18.5 may need to be revisited in the future as more becomes known about ELNO interoperability. 

GC18.6 makes a small change to the wording of the definition of an electronic financial settlement to make it more accurate but without otherwise changing the meaning.

GC 19 (formerly 13) relating to GST has been the subject of slight wording changes in the interests of both clarity and brevity. For example, GC 19.3 relates to all GST whether it is included in the price or in addition to the price. By comparison, the former GC 13.3 specified both categories.

GCs 20 (Loan – formerly 14), 21 (Building Report – formerly special condition 11) and 22 (Pest Report – formerly special condition 12) will only apply if the applicable box in the particulars is checked. A purchaser who wishes to terminate because a loan is not obtained must now provide evidence of non-approval or rejection of the loan application. A pest infestation will be relevant only if it affects the structure of a building on the land.

GC 24 (formerly 15A) has been amended to clarify that the obligation to provide a foreign resident capital gains withholding clearance certificate applies irrespective of whether or not there will be a withholding obligation.

GC 25 (formerly 15B) has been amended in a variety of ways. Consideration was given to listing in GC 25.3 all the circumstances where the Act requires a notice to be given and all the exceptions to it, but the length and complexity of such a list made it impractical. Consideration was also given again to including a GST withholding notice as an annexure to the contract. However, where GST does need to be withheld, the information required to complete the notice will often not be known at the time the contract is drafted and it might be unsafe to entrust correct completion to the vendor or selling agent. There is nothing to prevent the vendor’s legal practitioner including the notice in the contract or supplying it with the contract if the practitioner is satisfied that the vendor has given or can provide accurate instructions regarding completing the notice at the time of preparing the contract.

GC 25.2 requires a purchaser to provide the vendor with the name of any nominee5 at least 21 days before settlement, even though the nomination can be made up to 14 days before settlement under GC 4. A purchaser who does not supply the name on a timely basis can hardly object if the vendor does not issue a GST withholding notice to the nominee more than 14 days before the due date for settlement. 

GC 25.4 now makes it clear that the remainder of GC 25 applies where the purchaser is or may be required to withhold GST. 

GC 26.3 (GC 26 formerly 16) is a significant change. It imposes a duty on both of the parties to do all things reasonably necessary to enable the contract to proceed to settlement and to act in a prompt and efficient manner. The condition effectively adds an overlay to the duty to cooperate which is implied by common law into all contracts. The duty to cooperate is sometimes described as an obligation not to act in such a way as to deprive the other party of the benefit of the contract.6 The use of the word “prompt” ties in with “promptly” in GC 10.2. The expression “promptly” has been judicially interpreted as conveying a sense of urgency and so requiring more than reasonable speed7 or more expedition than a reasonable time.8

GC 27.2 (formerly 17.2) now allows loan approval, building report and pest report notices ending the contract, and not just a cooling-off notice, to be served on the vendor’s estate agent. The wording avoids the problem of the estate agent’s authority ending with their engagement ending when a contract is signed.

GCs 31.4 to 31.6 (formerly 24.4 to 24.6) providing for a stakeholding sum up to $5000 for the disputed condition of improvements, fixtures or goods has been retained. Patmore v Hamilton9 provides an example of those conditions being used effectively.

GC 33 (formerly 26) provides that default interest is to be paid at settlement, thereby avoiding any argument that the vendor must settle first and subsequently sue to recover interest owing.

The authors undertook a complete review of every aspect of the contract text and layout and consulted widely before settling the final wording of the contract. The authors were reluctant to make changes to text that was widely accepted by practitioners and the public, and for which there had been remarkably little need for judicial review. Nevertheless, the rate of change in the land conveyancing environment has been and continues to be substantial. The authors have sought to make the contract as up to date at the time of publication as possible, as well as looking forward to the future as much as can reasonably be predicted. ♦

The three authors of this article drafted the August 2019 contract of sale of land co-published by the LIV and the REIV.

David P Lloyd is a barrister of over 20 years standing practising exclusively in the field of property law. He is the lead author of Sale of Land Act Victoria (Thompson Reuters, October 2015) and the soon to be released Victorian Land Contracts, the primary focus of which is the copyright contract of sale of land. He has been a member of the LIV Property Committee for close to 30 years and is a regular seminar speaker and contributor to the LIJ

Murray McCutcheon AM is the longest serving member of the LIV Property Committee and a member of the Law Council of Australia (LCA) National Electronic Conveyancing Committee.10 He is past chair of the Electronic Conveyancing Group, 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. 

Robert Bradley is a principal lawyer with Aitken Partners, a member of the LIV Property Committee and has had 40 years’ experience practising in property and general commercial law. 

1. For instance, if coupled with development work.
2. See also the discussion below in relation to GC 25.
3. Reflecting the wording in s42 of the Transfer of Land Act 1958.
4. [2017] VSC 503.
5. The relevant GST legislation requires a GST withholding notice to be given to the “recipient of the supply”, which would be the nominee rather than the purchaser named in the contract in the event of nomination of an additional or substitute transferee under GC 4.
6. See, for instance, Secured Income Real Estate (Aust) Ltd v St Martins Investments Pty Ltd (1979) 144 CLR 596 at 607-608; Peters (WA) Ltd v Petersville Ltd (2001) 205 CLR 126 at [36].
7. Burton v Police (2004) 88 SASR 152.
8. Nichols Global Enterprises Pty Ltd v Biviano (2000) 10 BPR 18,303.
9. [2014] VSC 275.
10. Represents the legal profession, licensed conveyancers and financiers through its members being the Law Council of Australia, Australian Institute of Conveyancers and the Australian Banking Association.

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