The Sale of Land Amendment Bill 2018 (the Bill) was introduced into the Legislative Assembly on 21 August 2018 and, if passed, will result in a number of significant changes to the Sale of Land Act 1962 (Vic) (the Act).
The key change follows the lead of the NSW changes in 2015 by introducing restrictions on the ability of developers to exercise termination rights under a sunset clause (even if the delay is through no fault of the developer).
We discuss this issue further below, along with the changes relating to disclosure obligations, terms contracts, rent-to-buy arrangements and land banking schemes.
Sunset clauses – A vendor will not be able to rescind a residential off-the-plan contract under a sunset clause without first obtaining written consent from affected purchasers or an order from the Supreme Court.
The proposed changes have been introduced to prevent developers from exploiting sunset clauses by deliberately delaying completion of a project in order to rescind a contract and re-sell the property at a profit. However, as the changes apply regardless of the reason for the delay, even reputable developers hampered by red tape, planning delays and availability of contractors will be caught by the legislation.
In its current form, the Bill applies these new changes to all residential off-the-plan contracts regardless of when they were entered into. Accordingly, any 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:
- there has been a delay in registering the plan of subdivision or issuing an occupancy permit; and
- the vendor proposes to rescind the contract; and
- advise the purchaser that it is not obliged to provide consent.
Further provisions will come into effect that allow the vendor to seek an order from the Supreme Court. The Supreme Court must take the following factors into account in determining whether to it would be ‘just and equitable in all the circumstances’ to grant an order permitting the vendor to rescind the contract:
- the terms of the residential off-the-plan contract;
- the reasons for the delay;
- 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 the rescission on the purchaser; and
- any other prescribed matter or matter the Court considers relevant.
Seeking an order from the Court is not without risk. For example, the vendor may be liable to pay the purchaser’s costs relating to the proceeding and 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 a specific statement about a vendor’s right to terminate under a sunset date.
So what rights do vendors' have to terminate? Importantly, the new provisions only relate to ‘sunset dates’ which are defined by reference to a date by which the plan of subdivision must be registered or the occupancy permit issued. The new provisions don’t appear to restrict termination for other events such as failure to obtain a planning permit, pre-sales or finance. Accordingly, there may be an opportunity to explore other termination events later in the development cycle to provide vendors some protection.
Further, whilst a purchaser must be provided with at least 28 days’ notice of a proposed rescission, this period has not been capped leaving open the possibility for vendors to pre-emptively obtain a purchaser’s consent. The anti-avoidance provisions in the Bill will need to be carefully navigated when drafting any provisions of this nature.
Disclosure obligations – It will now be an offence to knowingly conceal material facts about a property with the intention of inducing a potential buyer to purchase land. Under the new legislation, the Director of Consumer Affairs Victoria may make guidelines to assist vendors and agents to understand what a material fact is likely to be. Recent case law suggests a death or murder at the property would need to be disclosed.
It remains to be seen to what extent this new section extends the disclosure obligation under section 32. Do vendors now need to disclose contamination, known planning impediments or areas of cultural heritage significance?
Developers should note that the proposed amendments will strengthen the current legislation (which currently refers to ‘fraudulently’) and increase the penalties for non-compliance. There is also a risk of liability being passed on to third-party intermediaries involved in the sale.
Terms contracts – Certain residential terms contracts will be prohibited under the new legislation, resulting in significant fines and the potential for the imprisonment of any person who knowingly advertises, induces a person to buy, sells, or arranges or brokers the sale of, property under such arrangements.
Developers should note that failure to comply with the changes may result in a purchaser being entitled to avoid the contract and have all money paid under the contract returned. This provisions will largely be limited to contracts where the sale price is less than the prescribed amount (which is not yet known).
Importantly, the Bill also provides a mechanism for purchasers who entered into terms contracts of this nature prior to the commencement date of the new sections to apply to the Court or VCAT to terminate their contact.
Rent-to-buy arrangements – It will now be an offence to knowingly sell, arrange, broker or advertise residential land under a rent-to-buy arrangement unless the arrangements comply with new prescribed requirements.
These requirements are yet to be published, but are expected to strengthen the purchaser’s position by imposing obligations on the seller:
- to hold money on trust on behalf of purchasers; and
- in relation to how the money is applied when the purchaser’s right is not exercised.
The requirements may also prescribe the inclusion of certain conditions for these type of arrangements.
Options in land banking schemes – The Bill introduces new protections for investors in ‘land banking schemes’ which often involve people contributing money towards an option to purchase land where the members don’t have day-to-day oversight or control or a proprietary interest in the land. Importantly, these new measures do not apply where the land banking scheme is either a registered managed investment scheme or a financial product issued by the holder of an Australian financial services licence.
The changes will provide greater financial protection to a purchaser by, among other things, ensuring that any money payable by the purchaser is held on trust by the vendor’s legal practitioner.
 Hinton & Ors v Commissioner for Fair Trading  NSWADT 257, .
This publication is introductory in nature. Its content is current at the date of publication. It does not constitute legal advice and should not be relied upon as such. You should always obtain legal advice based on your specific circumstances before taking any action relating to matters covered by this publication. Some information may have been obtained from external sources, and we cannot guarantee the accuracy or currency of any such information.