The Sale of Land Amendment Bill has recently been re-introduced into the Victorian parliament after a delay due to the Victorian Election, and the Bill contains several important amendments. Below we have opted to explore three of the amendments, the first concerning the sunset clause is often of most importance given the often perceived and/or actual underhand behaviour of some developers in recent years.
- Brightening the Sunset Clause for Purchasers
The attention around sunset clauses in property contracts in recent years has been due to some property developers and vendors exploiting the clause by deliberately delaying completion of a project in order to rescind a contract and re-sell the property at an increased price; causing much frustration and despair to the purchaser.
The amendments to the Bill aim to put in place a new protection for purchasers. The new sunset clause amendment will make it so a vendor will not be able to unilaterally rescind a residential off-the-plan contract under a sunset clause without first obtaining an order from the Supreme Court or written consent from the affected purchasers. This seems like a great outcome for purchasers; however, the changes create a possible situation whereby even reputable developers and vendors hampered by red tape, planning delays and availability of contractors will be caught by the legislation, creating more paperwork and delays.
The Bill applies these new changes to all residential off-the-plan contracts regardless of when they were entered into. Accordingly, any purported termination under a sunset clause after 23 August 2018 will require the purchaser’s consent. In seeking the purchaser’s written consent, the vendor must:
– provide at least 28 days’ notice;
– provide details of the reasons why:
– the vendor proposes to rescind the contract; and
– advise the purchaser that it is not obliged to provide consent.
The provision of seeking permission seems promising for purchasers; the other provision allows the vendor to seek an order from the Supreme Court.
When a vendor opts to seek an order to rescind a contract from the Supreme Court, the Court must take the following factors into account when determining whether it would be ‘just and equitable in all the circumstances’ to grant an order:
– the reasons for delay;
– the terms of the residential off-the-plan contract;
– the likely date on which the plan will be registered, or occupancy permit issued;
– whether the vendor has acted unreasonably or in bad faith;
– whether the lot in question has increased in value;
– the effect of rescission on the purchaser; and
– any other prescribed matter or matter the Court considers relevant.
Given seeking an order from the Supreme Court is not without risk, it’s possible the vendor may be liable to pay the purchaser’s costs relating to the proceeding. The Court may also make an order that the vendor pays the purchaser ‘reasonable compensation’.
By 1 December 2019, all residential off-the-plan contracts must contain specific information about a Vendor’s right to terminate under a sunset date. Although the new provisions do not restrict termination by the vendor for other events such as failure to obtain a planning permit, pre-sales or finance.
2. Protecting investors in land banking schemes
In recent years there’s been a documented lack of oversight and control of consumer monies paid into land banking schemes, where the consumers don’t have day-to-day oversight or control or a proprietary interest in the land after contributing money towards an option to purchase land.
The Bill introduces new protections for investors in ‘land banking schemes’. The changes will provide greater financial protection to a purchaser by, among other things, ensuring that any money payable by the purchaser is held in a trust by the vendor’s legal practitioner until a plan of subdivision has been registered or the date by which the option must be exercised. The option exercise period is for a maximum period of five years and it is not possible to contract out. It’s important to note these new measures do not apply where the land banking scheme is either a financial product issued by the holder of an Australian financial services licence or a registered managed investment scheme.
3. Replacing ‘knowingly’ over ‘fraudulently’: Concealing ‘material facts’
It has always been difficult to accurately determine when vendors were ‘knowingly’ holding back certain ‘material facts’ about a property for sale to the detriment of a consumer purchaser; although it is alleged frequently. The problem can arise in circumstances where the purchaser had known of this ‘material fact’, and could have reconsidered their offer.
When the Bill is passed, it will be an offence by vendors to “knowingly” (as opposed to “fraudulently”) conceal any material fact in relation to a property. The Director of Consumer Affairs will publish guidelines to assist vendors and agents to understand what material facts are likely to be for the purposes of this provision. As an example, it is expected that a material fact will include that the property was the site of a past homicide. This amendment aims to bring more transparency about the property to the purchaser before they enter into a contract of sale.
By and large the many amendments to the Sale of Land Act aim to bring more transparency and accountability to the selling of property and investments. Another common-sense and respectful change to the Bill is the prohibition on public auctions of land before 1:00pm on ANZAC Day, bringing the industry into line with the standard restricted business hours for the day.
Should you have any queries about the Bill, or require assistance in selling or buying a property, contact the expert team at Dangerfield Exley today, for a refreshing approach that gets results.