Lessons in Conveyancing
Tuesday 19 March 2013
From 11.47am to 12.30pm
First Title
Property and Mortgage Law
Continuing Legal Education Seminar Conference
Presentation by Gary Newton, Partner
Colin Biggers & Paisley
at
Royal Automobile Club
89 Macquarie Street, Sydney
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Contents
1.
Legislation update ..........................................................................................4
1.1
Proposed compulsory pool inspections when a property is sold or leased ......................... 4
2.
Recent Conveyancing Cases .........................................................................4
2.1
2.2
2.3
2.4
2.5
2.6
2.11
Carrapetta v Rado [2012] NSWCA 202 ............................................................................... 4
Vitek v Estate Homes Pty Limited [2010] NSWSC 31 March 2010 ..................................... 5
Higgins v Statewide Developments Pty Limited [2010] NSWSC 383 (5 May 2010) ........... 7
Wu v Statewide Development Pty Limited [2010] NSWSC 1,016 (10 September 2010) ... 8
Coyne v Calabro (No 5) [2010] NSWSC 694 (29 June 2010) ............................................. 9
Evolution Living Property Management Pty Limited v CSP Australia Pty Limited [2010]
NSWSC 65 (12 February 2010) ......................................................................................... 11
Vale No. 1 Pty Limited as trustee for the Vale 1 Trust v Delorain Pty Limited as trustee for
the Delorain Trust [2010] QCA 259 (28 September 2010) ................................................ 12
Proctor v Chahl [2008] NSWSC 1252 (26 November 2008) ............................................. 13
Dunning v Callaghan; Dunning v Callaghan [2008] NSWSC 553 (3 June 2008).............. 14
K&K Real Estate Pty Limited v Adellos Pty Limited [2010] NSWCA 302 (11 November
2010) .................................................................................................................................. 15
Notices to Complete - Lessons from the previous cases .................................................. 18
3.
Pre-contractual verbal promise gives rise to equitable relief ................... 18
3.1
3.2
3.3
3.4
3.5
3.6
In brief – Purchasers succeed in avoiding contract ........................................................... 18
Development consent for townhouses on two properties .................................................. 18
Sale of property on assumption that development would proceed.................................... 18
Supreme Court finding of pre-contractual promise ............................................................ 19
Court can order repayment of a deposit with or without interest ....................................... 19
Purchasers benefit from Section 55(2A) of Conveyancing Act ......................................... 19
4.
Law permits granny flats to be a source of rental income ... Error! Bookmark
not defined.
4.1
Changes in law increase availability of affordable rental housing ......Error! Bookmark not
defined.
Homeowners can construct a second dwelling on their land .............Error! Bookmark not
defined.
Outlay to income ratio for granny flats has advantage for investors ..Error! Bookmark not
defined.
Policy expands permissible use of granny flats ...................Error! Bookmark not defined.
Streamlined approval process for granny flats ....................Error! Bookmark not defined.
When is a granny flat a complying development? ...............Error! Bookmark not defined.
2.7
2.8
2.9
2.10
4.2
4.3
4.4
4.5
4.6
5.
Resort hotel owners corporation entitled to benefit from residential
statutory warranties...................................................................................... 19
5.1
In brief - Builder and developer of residential resort do not owe common law duty of care
to owners corporation......................................................................................................... 19
Owners corporation alleges breach of statutory warranties and common law duty of care
............................................................................................................................................ 20
Minimum standards and requirements for residential building works ............................... 20
Construction contract specifies development designed as residential dwellings .............. 20
No sufficient relationship of proximity between owners corporation and developer and
builder ................................................................................................................................. 20
Builders and developers do not owe a common law duty of care to an owners corporation
............................................................................................................................................ 21
5.2
5.3
5.4
5.5
5.6
6.
Best reasonable endeavours with respect to subdivision ........................ 21
6.1
6.2
6.3
In brief - Purchaser validly terminated contract, awarded damages ................................. 21
Purchaser argues that vendor not entitled to rescind contract .......................................... 21
Fire access conditions of the development consent .......................................................... 21
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6.4
6.5
6.6
"Best reasonable endeavours" sets higher standard than "reasonable endeavours" ....... 21
Vendor did not seek to have the development consent waived or modified ..................... 22
Include right to rescind contract if development consent provision unacceptable ............ 22
7.
Notice to complete upheld; vendor entitled to deposit and damages ..... 22
7.1
7.2
7.3
7.4
7.5
In brief - Purchaser fails to complete and vendor terminates contract .............................. 22
Notice to complete held to be valid .................................................................................... 22
Court rejects purchaser's claim that property substantially damaged ............................... 22
Vendor attempts to claim capital gains tax from purchaser ............................................... 23
Party which terminates contract and seeks damages must mitigate its loss .................... 23
8.
Purchaser not able to settle but avoids direct liability for breach of
contract.......................................................................................................... 23
8.1
8.2
8.3
8.4
8.5
8.6
8.7
8.8
In brief – Notice to complete ineffective but interest still payable ...................................... 23
Contract for sale of rural property in 2005 ......................................................................... 23
Vendor issues notice to complete in 2010 ......................................................................... 23
Was the vendor ready, willing and able to settle? ............................................................. 24
First right of refusal not exercised ...................................................................................... 24
Venue changed the day before settlement ........................................................................ 24
Interest obligations held to be valid.................................................................................... 24
Useful lessons for property lawyers and conveyancers .................................................... 24
9.
First home benefits - what is available in NSW post 1 October 2012?..... 25
9.1
9.2
9.3
9.4
9.5
9.6
In brief - Some first home owner schemes in NSW have been replaced by new schemes
............................................................................................................................................ 25
$7,000 First Home Owner Grant no longer available ........................................................ 25
First Home Owner Grant (New Home) Scheme ................................................................ 25
First Home Plus Scheme has been replaced .................................................................... 25
First Home - New Home Scheme ...................................................................................... 25
Stamp duty concessions under the NSW New Home Grant Scheme ............................... 26
10.
Stamp duty exemptions and concessions on property purchases .......... 27
10.1
In brief - Exemptions or concessions on stamp duty can apply in a variety of
circumstances .................................................................................................................... 27
10.2 Transfers to married couples and de facto partners .......................................................... 27
10.3 Transfers as a result of a breakdown of marriage, de facto relationship or domestic
relationship ......................................................................................................................... 27
10.4 Intergenerational rural transfers ......................................................................................... 27
10.5 Exemption from aggregation of dutiable transactions for home builders .......................... 27
10.6 Concessions in relation to the partition of land .................................................................. 27
10.7 Termination of a strata scheme ......................................................................................... 27
10.8 Termination of scheme under Community Land Development Act 1989 .......................... 27
10.9 The Crown .......................................................................................................................... 27
10.10 Extension of date for payment of duty for off-the-plan residential purchases ................... 28
11.
Buying property in Australia under foreign investment laws - What is
likely to be approved? What conditions will apply? .................................. 28
11.1
11.2
11.3
11.4
11.5
11.6
11.7
11.8
In brief - Conditions apply to the purchase of property by foreign persons ....................... 28
Foreign persons buying property need foreign investment approval ................................ 28
Assessing the national interest in property purchases ...................................................... 28
What types of real estate are covered by foreign investment laws? ................................. 28
Residential property purchases by foreign persons .......................................................... 29
Commercial property purchases by foreign persons ......................................................... 29
Rural land purchases by foreign persons .......................................................................... 30
Purchase of mining tenements by foreign persons ........................................................... 30
12.
Checklist: What should your legal and physical due diligence involve? 30
13.
Checklist on before signing a call option agreement ................................ 31
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13.1
13.2
13.3
13.4
Planning and applications .................................................................................................. 31
Payments ........................................................................................................................... 31
Option rights ....................................................................................................................... 31
General ............................................................................................................................... 32
14.
Cooling off periods ....................................................................................... 32
14.1
Are you up to speed with the legal issues and implications associated with cooling off
periods? .............................................................................................................................. 32
When does a cooling off period apply? .............................................................................. 32
Meaning of ‘residential property’ ........................................................................................ 32
Exceptions .......................................................................................................................... 33
Where the property is sold at public auction ...................................................................... 33
Where the land is more than 2.5 hectares in area ............................................................. 33
Exercising cooling off rights ............................................................................................... 33
Deposits.............................................................................................................................. 34
Duration .............................................................................................................................. 34
Changing the duration ........................................................................................................ 34
Extending the period .......................................................................................................... 35
Reducing the period ........................................................................................................... 35
Cooling off notices .............................................................................................................. 35
14.2
14.3
14.4
14.5
14.6
14.7
14.8
14.9
14.10
14.11
14.12
14.13
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1.
Legislation update
1.1
Proposed compulsory pool inspections when a property is sold or leased
All home owners may have to register their backyard pools and may be subject to random
inspections under a raft of proposed new laws to address the alarming rate of child
deaths and drowning.
Property owners may face fines of up to $5,000 whilst vendors will be stopped from
selling or even leasing their properties unless their swimming pools meet all swimming
pool requirements especially fencing.
In September 2012, the Local Government Minister, Don Page, announced new laws
after a seven month reviews. It appears there will be regulations on pool owners to
actually firstly register their pool and also certify them as actually complying. Pool owners
must join the registry within 12 months or face a fine of up to $2,200 and if they are found
that they say that a pool complies that it does not, they may face a maximum $5,000 fine.
Some of the changes which will affect conveyancing, include compulsory pool inspections
when a property is sold or being leased. It will include mandatory inspections of facilities
such as unit blocks or tourist accommodations where pools are used more often.
The certificates of compliance are proposed to last for three years and will be issued by
private certifiers or by Council inspectors with Council certification cost capped by the
Government at $150 and no more. It is not entirely sure at this stage the announcement
by the Local Government Minister as to whether each Council will have the resources to
be able to check all of the pools. It is expected that these laws will commence shortly and
in the meantime it may be a good idea to advice your clients, especially vendors and
landlords, that it is likely to come into effect and may be to get their pools ready for
fencing to comply.
2.
Recent Conveyancing Cases
2.1
Carrapetta v Rado [2012] NSWCA 202
An incorrect settlement statement may not undermine the validity of a notice to
complete
In brief - Notice to complete still valid even though interest calculation wrong
In a NSW Court of Appeal decision handed down on 3 July 2012 in Carrapetta v Rado
[2012] NSWCA 202, the court held that an erroneous settlement statement issued on
behalf of the vendor did not undermine the validity of the notice to complete.
Although the settlement figures were calculated incorrectly due to an erroneous
interpretation of the interest clause under the contract, the court held that this did not
constitute a breach of any identifiable provision of the contract as it did no more than
make an unenforceable demand.
Handwritten amendment to interest payable under special condition of contract
Rado, the purchasers had entered into a standard form contract with Carrapetta, the
vendor of a property at Mosman in Sydney. The contract included special condition 34(b),
which provided that if the contract is not completed by the completion date, being 1
December 2011, the purchaser will be liable to pay interest on the balance of purchase
monies calculated at the rate of 12% per annum.
The form of specific condition 34(b) referred to the 12% in two places, however both of
the exchanged contracts had handwritten alterations, amending 12% to 8%.
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Vendor serves notice to complete and purchaser challenges its validity
The purchasers wished to delay settlement and the vendors refused. On 1 December, the
purchasers wrote to the vendor's solicitors and confirmed that settlement "will not be
occurring today" and that they "anticipate settlement to occur within the next 14 days as
required". On the same day, the vendor's solicitors served a notice to complete.
By 14 December the matter remained unsettled. The vendor's solicitor issued another
letter confirming settlement on 16 December and enclosed an erroneous settlement
statement which designated interest payable calculated at 12%. In a letter dated 15
December, the purchaser's solicitors wrote the vendor's solicitor to challenge the validity
of the "purported" notice to complete.
When is a notice to complete invalid?
A notice to complete will be rendered invalid if the issuer is "in default" or "in breach" or
not "innocent" or not "ready, willing and able" at the time the notice was given. The
submission by the purchasers was that notice was invalid because the interest, calculated
by the vendor at 12%, was inconsistent with the terms of the contract, namely 8%.
Incorrect settlement statement does not breach any provision of the contract
In assessing the validity of the notice, Barrett JA considered the effect of a settlement
statement and found that the submission by one party entails no more than a mere
request or confirmation of the figures and calculation set out in the statement. This view
affirms that courts should be slow to conclude that a party who delivers a settlement
statement intends to adopt a particular construction of a contract unequivocally to the
exclusion of other possibilities.
Although the settlement statement was in fact incorrect, the court found that it did not
constitute a breach of any identifiable provision of the contract as it did no more than
make an unenforceable demand, which did not undermine the validity of the notice to
complete.
Further, since the purchasers' solicitors had not communicated the incorrect nature of the
interest calculations before the service, they could not rely on the miscalculation to
challenge the validity of the notice.
It is important to note that the court found that at all relevant times the vendor was ready,
willing and able to complete the contract according to its terms and therefore was more
inclined to find the notice to complete valid.
Wrong calculation on settlement statement needs to be addressed before
completion
This decision clarifies that a purpose of a settlement statement issued by one party is to
request confirmation that the receiving party agrees with the calculations set out in the
statement. Therefore, a erroneous calculation on a settlement statement must be
addressed prior to the completion and cannot itself render a notice to complete invalid.
Parties to a contract for sale must ensure that they are ready, willing and able to complete
when they issue the notice to complete and remain so until completion.
2.2
Vitek v Estate Homes Pty Limited [2010] NSWSC 31 March 2010
The matter of Vitek v Estate Homes Pty Limited involved a sale by Mr and Mrs Vitek to a
developer of a site which they used as a car alarm business at Redfern.
The site was formerly used as a petrol station and the owners had a report that stated
that there may have been contamination on the site by virtue of underground storage
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tanks (which had been sealed) and the use of the premises as a service station in the
past. This information was known to the owners by virtue of them putting in a
development application to Council in 2001 to extend their business premises (which they
ultimately did not proceed with).
The contract contained a number of standard special conditions which, among other
things, stated that the purchaser acknowledged having inspected the property, that the
purchaser had not relied upon any representations of the vendor and that the purchaser
took the property as inspected.
The property was sold on the basis that there would be a delayed settlement during which
time the purchaser was to apply for a development application. However, the contract
was not to be in any way subject to the obtaining of a development application by the
purchaser.
The vendor had attached to the contract all of the statutory annexures including a zoning
certificate. The zoning certificate stipulated that no orders had been made in respect of
contamination.
The purchaser was unable to settle and it appears that part of the reason the purchaser
was unable to settle was due to it being unable to obtain finance.
The purchaser alleged that it was entitled to rescind the contract due to the vendor not
having made the purchaser aware of the contamination or potential contamination, and
the fact that the property was previously used as a service station.
The court held that, even though the vendors had superior knowledge to the purchaser,
there is no legal requirement for the party having superior knowledge to pass that
knowledge onto the other party to a contract. When looking at claims of misrepresentation
due to silence, the court must have regard to what was not said in the context of what
was actually said and inequality of information is not of itself sufficient to constitute a
misrepresentation by way of silence.
The purchaser failed in its claim to be entitled to rescind the contract or to be entitled to
orders under section 42 of the Fair Trading Act with regards to misleading and deceptive
conduct because of the following factors:
(a)
Any person having regard to the physical characteristics of the property would
have been put on notice that the premises were former service station premises.
(b)
The special conditions in the contract made it clear that the purchaser had to
satisfy itself as to what it was buying.
(c)
The vendor had complied with the mandatory disclosure requirements under the
Conveyancing (Sale of Land) Regulations and was not statutorily bound to
provide anything other than what was contained in those regulations. The report
from Douglas & Partners that the vendors had obtained did not state that the
property had contamination but only that, having regard to its former use, there
was a possibility of contamination and in fact, at the trial, there was no evidence
that the premises were actually contaminated or the extent of any possible
contamination.
(d)
The purchaser was a developer and its principle director had not only developed
properties himself, he had acted as a consultant and project manager for others
and was experienced in making enquiries of councils and other relevant
authorities.
The court's attitude was that the way the contract had been framed, particularly stating
that the purchaser had relied on its own inspections of the property and purchased the
property with any defects, latent or patent, meant that the purchaser was put on notice
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before it entered into the contract that it had the responsibility to look out for its own
interests.
Therefore, the purchaser's claim failed and the purchaser was ordered to pay significant
damages as well as forfeiting its deposit, which cost the purchaser in excess of $600,000.
This case highlights that general provisions putting the purchaser on its own enquiry as to
relevant matters can be effective. However, if the vendor has specific knowledge, it must
disclose this knowledge. It is always best, if in doubt, to disclose matters on the basis that
the purchaser is aware of the disclosures and has satisfied itself with respect to all
matters relating to the issues disclosed and does not have any claim against the vendor
with respect to those matters.
2.3
Higgins v Statewide Developments Pty Limited [2010] NSWSC 383 (5 May 2010)
The scenario is that you look at a model to buy a unit off the plan at Rhodes. The agent
represents that you will have a 180 degree water view.
The contract has annexed to it a draft strata plan but no other plans, specifications or
diagrammatic representations of what is to be built. By virtue of the requirements of
Council with regards to landscaping issues, a wall has to be built which substantially
reduces the view from the downstairs portion of the unit that you have decided to
purchase. You decide that you want to avoid the contract and get your deposit back. Do
you have the right to do this? These are the factual circumstances in the recent decision
in Higgins v Statewide Developments Pty Limited.
The court held that the purchaser could not complain about the existence of the wall as
what was contained in the contract was that the vendor would convey what was shown in
the draft strata plan.
The draft strata plan is obviously only a two dimensional plan which shows nothing but a
prospective floor area and the lot's position.
The court held that the purchaser could have had more detail incorporated in the contract
by way of detailed plans, reference to the model that was displayed or a representation
from the vendor that the property, as built, would present uninterrupted water views. The
purchaser did not negotiate any such provisions in the contract.
Therefore, the contract said absolutely nothing about the position of walls or other
features, including wall heights.
The contract referred to changes made to the draft strata plan which detrimentally
affected the property giving the purchaser a right to rescind. The court held that the
building of the wall did not detrimentally affect the property as shown on the plan because
the plan showed nothing about the wall whatsoever. The property as built was basically
the same as what was shown in the draft strata plan. The physical aspects of the building
were not particularised in the contract, only the positioning of the boundaries and the area
of the property.
The court held that the vendor was entitled to build the wall which obscured a large part of
the view from the downstairs premises and that what was purported to be sold to the
purchaser was in fact what was constructed, namely an apartment of a particular location
and size, with two car spaces.
Therefore, the purchaser's purported rescission of the contract was in fact unsuccessful.
The court then looked at the issue of the damages to which the vendor was entitled. The
vendor sought holding costs but the court held that the vendor was not entitled to claim
the holding costs. All the vendor was entitled to was any loss on resale, actual expenses
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such as rates and taxes and particular costs that arose by virtue of the purchaser's default
(for example legal costs).
As the vendor had not proved any damages other than expenses of $22,000, it was not
entitled to an award for damages particularly when the developer had received more than
twice that amount in rental during period since the purchaser's default.
The matter did not end there. The purchaser sought a refund of the deposit under
section 55(2A) of the Conveyancing Act. The court held that the fact that a model was
displayed and that the agent had represented that there would be 180 degree water views
were matters that entitled the court to find that it would be unjust or inequitable to allow
the developer to keep the deposit and therefore the deposit was ordered to be refunded
to the purchaser.
This case is instructive for both developers and purchasers.
There must be certainty as to what the purchaser is buying and any specific
representations made must be clearly set out in the contract.
However, if the court feels that the vendor's conduct is unfair in the circumstances and
that its reliance on a very tightly drawn contract to the detriment of a purchaser is
inequitable, the court always has the power to order a return of the deposit.
2.4
Wu v Statewide Development Pty Limited [2010] NSWSC 1,016 (10 September 2010)
Purchasers entered into a contract in 2006 to acquire a unit in a complex at Rhodes in
New South Wales for $880,000.
The 10% deposit was paid and construction of the project commenced on what was
formerly an industrial site which was acknowledged to have suffered significant
contamination.
In January 2007, a modification was approved to the development consent by the Land
and Environment Court whereby the developer had to lodge an amount in a solicitor's
trust account to comply with the Environmental Management Plan.
The relevant plan was registered in February 2007 and contained a restriction as to user
to the effect that no works could be carried out on the site except in accordance with the
Environmental Management Plan and that if any of the structures (in this case the cement
slab) shown on the plan were damaged or destroyed such as the sewer below the
structure was exposed or made accessible, no part of the lot could be occupied.
The reason for this was that the slab had effectively "capped" the pollution and there was
a concern as to what would happen if that capping was breached.
Notification was given of registration of the plan to the plaintiffs and their solicitor wrote
indicating that his client rescinded the contract on the basis that the restrictive covenant
detrimentally affected the property to a substantial extent (in accordance with the special
condition in the contract).
The developer disagreed and said that in any event the emails from the purchaser direct
following that rescission meant that the purchaser had elected to affirm the contract, that
the purchaser had either wrongfully rescinded the contract in the first place or had
affirmed the contract and was bound to complete or liable in damages if it did not
complete.
In the decision in this matter (Wu v Statewide Development Pty Limited) the court held
that, when looking at where the effect of the restrictive covenant was such as to fall within
the terms of the contract, you had to look at what the effect of the covenant was on the
property not on the purchasers. Having said that, the court held that evidence of the
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purchasers' subjective views would be one factor which the court would weigh with all the
other evidence as to the probable market reaction as to the effect of the covenant on the
property.
On the evidence, particularly having regard to the uncontested valuation evidence was
that the value of the property was probably 20%-30% less than the purchase price by
virtue of the existence of the covenant, the court held that a hypothetical reasonable
prospective purchaser (properly advised by a solicitor) would see this as a material
adverse affect on the property. The purchaser could not be expected to undertake a
detailed investigation as to the basis for the existence of the covenant and the real risk to
health that the matter covered by the covenant could give rise to.
Of relevance to the court was that over 20% of the buyers in this complex had entered
into disputes with the vendor based, amongst other things, on the terms of the restrictive
covenant.
The covenant was held to therefore detrimentally affect the property to a substantial
extent entitling the plaintiffs to rescind.
Having been entitled to rescind, the subsequent correspondence of Mr Wu did not
amount to an affirmation as the contract was already at an end and the developer's
contentions in this regard were rejected by the court.
The judge held that, in all of the circumstances, even if he was wrong with regards to the
issue of whether there had been a valid termination of the contract by the purchasers, he
would have exercised his discretion under section 55(2A) of the Conveyancing Act and
ordered a refund of the deposit to the purchasers.
This case highlights the care with which developers must embark upon drafting their
master contracts for sale of developments particular where there are known issues that
are likely to be objectionable to potential purchasers or give rise to either ongoing
liabilities or a diminution in the property's value.
2.5
Coyne v Calabro (No 5) [2010] NSWSC 694 (29 June 2010)
The purchaser in the matter of Coyne v Calabro entered into a contract to acquire a
property at Vaucluse for $6.455M.
Due to the advent of the GFC, and falling values of properties in the Eastern Suburbs of
Sydney, the purchaser could not obtain finance and the bank's valuation was barely $5M.
The purchaser had acquired the property by what was described by the Court as a
"private auction" where there were a number of parties (two in particular, including the
purchaser) who were effectively competing against each other to acquire the property.
When the purchaser was unable to raise finance, the vendor issued a notice to complete
and then purported to terminate the contract due to the purchaser not settling.
The purchaser alleged that, due to a significant number of misrepresentations
(predominantly by the vendor's agent), the vendor's termination was not valid and the
purchaser was entitled to her deposit back.
The purchaser also alleged that the special conditions made the contract subject to
development consent which had not issued by the settlement date, although the
development consent issued after the settlement date by virtue of proceedings the vendor
had taken in the Land & Environment Court.
There were a number of misrepresentations raised by the purchaser (five in all) which
related to the conduct of the agent (Malouf).
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The alleged misrepresentations were along the following lines:
(a)
Malouf represented to the purchaser the subject property was worth at least $6M
in that it compared favourably with recent sales of properties in Vaucluse above
$6M. That allegation was ultimately not pressed.
(b)
The agents represented to the vendors and through the male purchaser to the
female purchaser the settlement date offered by another purchaser was part of
the process engaged in on 6 May 2008 was a conditional settlement date of
31 August 2008, that being the only date acceptable to the vendor. The purchaser
said that this became false and should have been corrected because the vendors
did not include a conditional settlement date of 31 August 2008 in their proposed
contract but a much later date.
(c)
The third misrepresentation by the agent to the male purchaser was that in order
to participate in the contest of 6 May 2008, the vendors and purchasers would
have to submit a contract with the price filled in, a cheque for the full deposit and a
section 66W certificate. The representation became false and should have been
corrected because the other purchasers were permitted by the agent in the
contest of 6 May without submitting a cheque for the deposit.
(d)
The fourth misrepresentation advanced by the barristers, the agent represented to
the male purchaser that as part of the 6 May 2008 process, the only determinative
factor for the vendors would be the purchaser price included in the respective
contracts to be submitted by the respective parties that being the only material
variable factor. But the representation did become false because the vendor had
rejected the other buyer's offer because of the extended settlement date.
(e)
The fifth misrepresentation was that the agent represented to the purchaser that
the other purchaser's offer was "in play" in the course of the process that occurred
in the board room on 6 May 2008 when in fact the other purchaser's offer was not
"in play" but had already been rejected by the vendors.
Unfortunately for the purchasers most of these misrepresentations were not proven, or if
proven, were not material to what eventually happened. The vendors did not engage in
conduct that was misleading or deceptive.
The Court held that, on the evidence, none of the misrepresentations gave rise to a cause
of action in misrepresentation on the part of the purchaser nor did they amount to a
breach of section 42 of the Fair Trading Act (NSW).
Further, the conduct of the purchaser (through her solicitor) amounted to an affirmation of
the contract (by sending requisitions and a transfer) and therefore any right of election to
withdraw from the contract (due to any misrepresentation) had been waived by the
purchaser.
The Court held that the special condition that the purchaser relied upon to make the
contract subject to development consent did not have that effect and merely tied the
settlement date into the timing of the issue of that consent.
Ultimately, the Court found that none of the alleged misrepresentations were made or, if
made, were such as were not relied upon by the purchaser to her detriment.
The Court therefore held that the contract had been validly terminated by the vendor, that
the deposit was validly forfeited and that the vendor was entitled to loss on resale (in
addition to the forfeited deposit), interest, legal costs and other damages totalling almost
a further $1M.
This was a classic case of someone who had entered into a contract somewhat
injudiciously (without having the finance approved prior to exchange) and was then
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looking for any means that she could find to withdraw from her contractual obligations and
get her substantial deposit back. She was ultimately unsuccessful.
This case highlights that if promises or representations are made which are material
inducements or which are relied upon (by either party to a contract), they must be set out
in the contract document, as must the consequences of a breach of those
representations.
Experience shows that it always harder after the event to establish a right to terminate or
rescind a contract when it comes down to questions of verbal exchanges, who is believed
as to what was said and whether it was meant to have any contractual force or effect.
2.6
Evolution Living Property Management Pty Limited v CSP Australia Pty Limited
[2010] NSWSC 65 (12 February 2010)
As many of you would know, options for residential property, to be valid, are required to
contain a provision which states that they are not capable of exercise within the first
42 days after the option is granted. This case concerned call option and put option
created by the same deed made on 1 September 2008 with the payment of a deposit of
$312,500 for a property being a particular lot in a strata subdivision at Narooma.
Any option of a residential property which does not contain this provision (and which is
granted other than by way of an exchange of counterparts, one signed by the purchaser
and one by the vendor) is void under section 66ZG of the Conveyancing Act.
How does this effect put and call options?
This was answered in the recent decision (handed down on 12 February 2010) in
Evolution Living Property Management Pty Limited v CSP Australia Pty Limited in the
Equity Division of the Supreme Court of New South Wales.
This case involved put and call options for 46 residential units sold off the plan for a strata
subdivision at Narooma.
The purchaser sought to have the options declared void by virtue of the provisions of
section 66ZG of the Conveyancing Act. This section was clearly breached because the
call option in favour of the purchaser stated that the call option was granted from the date
the deed was entered into.
Therefore, the call option was void and of no effect pursuant to section 66ZG of the
Conveyancing Act. The Court then considered whether, as a consequence of the
operation of that provision on the call option, the put option was also void.
The Court had regard to the legislative purpose with respect to the introduction of that
statutory provision. The Court held that the purpose was to ensure that purchasers did not
come under pressure to exercise options before they had sufficient time to undertake
appropriate investigations.
The Court held that the statutory provision did not make the put option void as it was not
an option granted for the purchase of a relevant allotment. The statutory provision was
only effective with regards to contractual provisions under which a purchaser could
compel the vendor to settle. Section 66ZG was held not to encroach upon any other rights
that the parties might seek to create such as the grant of a put option to the vendor.
As the put option could not be exercised until after the call option period expired (which
was well after the 42 day period referred to in section 66ZG), the put option was valid and
could be enforced by the vendor notwithstanding that the call option in favour of the
purchaser was itself void under section 66ZG.
JTK5V44LB3
11
The Court held that this case did not involve a case of statutory illegality because section
66ZG did not prohibit the creation of an option of the type referred to in the section or
create penalties for breach of that provision. It merely stated that any such contract was
void (thereby changing the parties' contractual rights and obligations that would otherwise
have applied).
It was also relevant that the option deed contained a provision to the effect that if any
clause was invalid or unenforceable it would be excluded and the rest of the document
would remain in full force and effect.
This is good news for vendors but you should ensure that, to avoid any potential issues in
the future, all options for residential properties should contain a provision that they cannot
be exercised during the first 42 day period from the date of the creation of the option.
2.7
Vale No. 1 Pty Limited as trustee for the Vale 1 Trust v Delorain Pty Limited as
trustee for the Delorain Trust [2010] QCA 259 (28 September 2010)
In this case the Court of Appeal allowed the appeal and the orders of the Court made on
20 October 2009 were set aside and in lieu thereof was ordered as follows:
"It be declared that the call and put option agreement between the applicant and
the respondent dated 29 October 2007 in respect of the proposed lot 14 in a
residential development known as "Delor Vue Apartments" was validly terminated
by the applicant by written notice of termination dated 18 November 2008."
The respondent paid the applicant's costs of and incidental to the originating application
file.
The case of Vale No. 1 Pty Limited as trustee for the Vale 1 Trust v Delorain Pty Limited
as trustee for the Delorain Trust [2010] QCA 259 handed down on 28 September 2010
overturned the previous decision of the Supreme Court of Queensland that a put and call
option did not constitute a "relevant contract" under section 364 of the Property Agents
and Motor Dealers Act 2000 (Qld) (the Act).
The vendor, Delorain, sought to put to the grantee one of the properties which had not
been taken up by a nominee of the grantee under the option and the grantee sought to
avoid liability to acquire this lot on the basis that the consumer protection provisions under
the Act were not complied with. The contention of the purchaser, Vale, was that the
provisions of that Act applied because the put and call option arrangements, together,
constituted a "relevant contract". It should be noted that "relevant contract" is defined by
s 364 of the Act as "a contract for the sale of residential property in Queensland other
than a contract formed on a sale by auction."
The Supreme Court of Queensland held that even though the relevant agreements
included put options which, if exercised, bound both the grantor and the grantee with
respect to the sale and transfer of the relevant properties, the arrangements were not the
same as a contract for sale because the option agreements facilitated the marketing of
residential lots to third party purchasers. The Court held that its decision was reinforced
by the fact that the ultimate buyer was not clearly identified in the option document and
the identity of the buyer would not be known until such time as the buyer's call option
expired and it either was forced to buy the property under the put option or it, prior to that
date, had referred a third party buyer to the vendor who became the purchaser. Until the
purchaser was identified, it was impossible to conclude that the arrangement was a
contract for sale.
On Appeal the Queensland Court of Appeal held that it is not an undue restraint of the
definition of "relevant contract" in s 364 of the Act to conclude that an agreement that
facilitates the marketing of a lot to a third party purchaser is a "relevant contract" (at [83]).
The Court held that because "the Deed imposed obligations upon it [the grantee] that
required it to enter a contract to purchase the unit upon the exercise of options" (at [84])
JTK5V44LB3
12
the Deed was a contract for the sale of residential property, notwithstanding the
contingency of a sale to a referred buyer under clause 6 of the contract. As a result of the
Deed falling within the definition of "relevant contract" the grantee was successful in its
claim that certain requirements for residential property sales were not met and therefore
the grantee was entitled to terminate the contract.
This decision indicates that a put and call option constitutes a valid contract for the sale of
land. Vendors need to be careful when issuing put and call options that they comply with
all provisions necessary pursuant to any legislation or the law, pertaining to the contract
otherwise the consequent contract may be invalidated or terminated or rescinded.
Furthermore, recipients known as Grantees of put and call options must be aware that
they are entering a potentially binding contract.
2.8
Proctor v Chahl [2008] NSWSC 1252 (26 November 2008)
In a decision handed down late in November 2008 by the Supreme Court in Proctor v
Chahl, there was a contract for a sale of property which was unusual, but not unheard of.
Effectively, the contract stated that the purchaser would buy lot 1411 if a plan of
subdivision was registered by completion. If it was not, the purchaser had to buy the
whole of the property (known as lot 141) and pay an additional $200,000 consideration.
There was no positive obligation on the vendor to get the plan of subdivision registered
and in fact the plan was not approved and registered by the time set out for completion.
The completion date was stated to be "12 months after the date of this contract".
The vendor was also required to do certain works specified in a special condition in the
contract "prior to completion". One of these items related to the installation of downpipes
to discharge rainwater to stormwater pipes. The downpipes were installed but were not
connected to any stormwater pipes as there were no stormwater pipes in existence.
The contract was exchanged on 20 June 2006. On 21 June 2007, the vendor issued a
notice to complete and purported to terminate the contract when the purchaser did not
complete.
It seems to have been acknowledged that the purchaser did not have finance in place at
the time the notice to complete was issued.
The first issue that the Court had to determine was what the actual date for completion
was. Looking at other authorities, the Court felt that the choice of wording in the contract
setting out the completion date was unfortunate for the vendor as a whole 12 months had
to expire before the purchaser was required to settle and the completion date was held to
be the first day after the expiry of the 12 month period. In other words, the completion
date was 21 June 2007 and therefore the vendor had issued the notice to complete too
early.
The vendor would not have been entitled to issue a notice to complete until 22 June 2007
and therefore the notice to complete was invalid and the vendor had effectively
repudiated the contract by seeking to terminate the contract relying on that notice to
complete.
Even though, on the basis of this finding, it was not necessary to decide other issues
which arose in that case, the Court went on to make the following findings:
(a)
JTK5V44LB3
Notwithstanding the express provisions of the contract in relation to completion,
the vendor was not able, in equity, to rely upon a notice to complete if, before
issuing the notice, the vendor had not given the purchaser notice in advance as to
what land it was required to acquire (ie as to whether he was required to acquire
13
the whole of Lot 141 or only Lot 1411, assuming that the subdivision would be
registered before completion).
This was notwithstanding the fact that the Court accepted that the conveyancing
steps required to be done to achieve settlement could be attended to fairly quickly.
(b)
The vendor contended that the purchaser had repudiated the contract at common
law and that there was no need to issue or rely upon the notice to complete.
The situation in this regard was that the Court did not accept the vendor's
contention in this particular case due to its facts but clearly stated that it would be
very difficult to establish a repudiation at common law for a contract for sale of
land.
(c)
The vendor was held not to be ready, willing and able to complete because the
vendor had not cleared the land tax liability at the time of the issue of the notice to
complete.
The vendor tried to argue that normal conveyancing practice was that an
undertaking would be accepted in these circumstances for the vendor to pay land
tax when assessed. The Court rejected that this would be sufficient and stipulated
that the vendor could not rely upon the notice to complete as land tax had not
been cleared or arrangements made for land tax to be cleared on settlement.
The Court seemed to indicate (relying on the decision in Wilde v Anstee) that the
vendor could not issue a notice to complete where land tax was outstanding
unless it was true, on the facts at the time the notice was given that the vendor
was able to make arrangements with the Office of State Revenue for the issuance
of a clear certificate. Only in such circumstances could the vendor be said to be
ready, willing and able to settle.
By virtue of the findings of the Court in this matter, the vendor was held to have wrongfully
terminated the contract. This was a repudiation which the purchaser was entitled to (and
in fact did) accept and the vendor's claim was dismissed with costs and the deposit was
refunded (with interest) to the purchaser.
In this uncertain economic climate, it is essential that you make sure that you carefully
consider your position if, as a vendor or purchaser, you issue a notice to complete. The
old adage that you must prove that you are "ready, willing and able to settle" obviously
has been reinforced by this decision which has very strictly interpreted the obligations of
the party issuing the notice to complete at the time of the issue of that notice.
2.9
Dunning v Callaghan; Dunning v Callaghan [2008] NSWSC 553 (3 June 2008)
These two actions were heard together and involved contracts for the sale by which the
defendants bought lot 1/214 Railway Road North, Vineyard and in the other case the
defendants of three lots in the same development were lots 2, 3 and 4.
When a property is sold "off the plan" there must be a sunset date for the plan to be
registered. This means that the purchaser may terminate the contract if the plan is not
registered by that date.
Often there will be a provision stating that the sunset date can be extended due to
matters beyond the control of the vendor (eg inclement weather, delays with public
authorities, strikes, etc).
Such a provision was considered in the recent decision of the New South Wales Court of
Appeal in Callaghan v Dunning.
JTK5V44LB3
14
In that matter, there was a 12 month sunset period for registration of a strata plan. Special
condition 43 in the contract allowed the vendor to extend that date in the event of
specified matters, which included inclement weather, civil commotion, strikes, delays in
approvals. The vendor's architect had the final say as to whether the vendor was entitled
to extensions of time.
The plan was not registered by the due date and was in fact registered 140 days after the
sunset date.
The vendor obtained a letter from the architect pointing to various issues which caused
delays in the project. The delay was said to be 168 days.
However, before registration of the plan and after the sunset date, the purchaser sought
to rescind the contract and have the deposit refunded. The vendor refused to accept the
rescission and refund the deposit.
The Court held that due to the way special condition 43 was drafted, the vendor had to
show that the architect in his letter made a decision based on special condition 43.
The judge at first instance held that the architect's letter was not a decision as such but
merely a statement of facts. The letter mentioned a matter which was clearly not relevant
for the purposes of special condition 43. Also, it did not refer to special condition 43 of the
contract nor state that it was a decision under that clause.
The Court of Appeal agreed that the architect was not making a decision in accordance
with the special condition. It noted that the language of the letter was somewhat
ambiguous in that it sometimes talked about "delays" and at other times referred to "lost
days".
The Court held that the architect's letter did not entitle the vendor to an extension of time.
It also held that the purchaser had properly rescinded the contract and was entitled to a
refund of the deposit.
It would have been better for the vendor if the special condition had merely stated that a
letter from the architect setting out factors giving rise to delays would be sufficient to allow
the vendor to claim those delays as extensions of time.
This case highlights that where a third party's certification or opinion is needed, it is
essential to notify the third party of the terms of the contract which apply to them, and to
ensure that the certification or opinion specifically refers to the terms of the clause.
2.10
K&K Real Estate Pty Limited v Adellos Pty Limited [2010] NSWCA 302
(11 November 2010)
What happens if a party is unable to complete a contract?
Two recent relevant decisions of the Court of Appeal:
JTK5V44LB3

K & K Real Estate Pty Limited v Adellos Pty Limited (In Liquidation) & Anor

Everest Property Holding cases (3) being as follows:
(i)
Amaya v Everest Property Holdings Pty Limited
(ii)
Firmstone v Everest Property Holdings Pty Limited
(iii)
Sarkar & Islam v Everest Property Holdings Pty Ltd [2010] NSWCA 315
(24 November 2010).
15
The K & K Real Estate purchaser did not have the funds to complete and indicated this to
the vendor prior to settlement date.
Vendor issued notice to complete, did not ready itself for settlement but continued
negotiations with the purchaser. Vendor purported to terminate contract relying on notice
to complete 6 months after notice issued.
Issues from K & K decision
(b)
Notwithstanding the decision of the High Court in Foran v Wight, the Court of
Appeal held that conduct of the purchaser before the service of a notice to
complete was evidence of a continuing intention to repudiate the contract by the
purchaser.
(c)
The delay in the vendor doing anything for months after the issue of the notice of
complete did not "rob" the transaction of an essentiality for completion.
(d)
Even though the vendor had caveats on the title which it had not done anything
about having removed, the Court felt that the vendor could have attended to its
obligations in this regard in time for settlement if the purchaser had indicated that
it was ready to complete (but Lapsing Notice needs at least 3 weeks to get caveat
removed).
(e)
The conduct of the vendor's solicitor (described by Young JA as "lackadaisical")
still was not evidence of the vendor not being in a position to settle or waiving the
essentiality of completion.
(f)
As on the facts the purchaser was not ready to settle, the vendor did not have to
"waste its time" in readying itself for settlement.
(g)
The "intimation" that the purchaser was not ready to settle as referred to in Foran
v Wight could be implied (and it was implied, somewhat surprisingly, from conduct
that took place before the issue of the notice to complete). This intimation, in the
opinion of some of the judges in the Court of Appeal, continued over to bind the
purchaser after the issue of the notice to complete.
(h)
Parties need to be careful with the use of the endorsement "without prejudice" on
correspondence. The term only has proper significance in correspondence or
discussions in which offers are made to settle the dispute.
Everest Property Holdings cases (3)
Everest Property case involved three purchasers who were not ready to settle. The
vendor issued notices to complete and ultimately terminated all three contracts.
Issues arising from the Everest Property Holdings cases
(a)
The requirement to serve an occupation certificate related to the certificate itself
and not any associated documentation (for example fire safety certificates).
(b)
The vendor was entitled to terminate two of the contracts by virtue of the
purchasers' intimation that it was useless for the vendor to arrange settlement as
they would not be able to settle. This related to the matters of the sales to Amaya
and Firmstone, where the purchasers were legally represented.
The fact that the purchasers' solicitors did not do anything to ready the matters for
settlement such as preparing settlement adjustments and booking in a settlement
was sufficient to show an intimation that the purchaser would not be settling on
which the vendor could rely.
JTK5V44LB3
16
(c)
In the third matter (involving a sale to Sarkar and Islim) the purchasers were not
legally represented and therefore the normal conveyancing practice would not be
known to them. They did not respond to any correspondence (including the issue
of the notice to complete) and the vendor was held not to be able to rely upon the
purchasers' silence. In that matter, the vendor was held to have wrongly
terminated the contract as it should have readied itself for settlement to show that
it was ready, willing and able to settle at the appropriate time.
Lessons to be learned
(a)
The Courts consider that those aware of normal conveyancing practice know that
a purchaser has to arrange time for settlement, agree on adjustments and make
arrangements for the drawing of settlement cheques to be ready to settle.
(b)
In both K & K Real Estate and the Everest Property Holdings and Amaya matter,
conduct before the service of a notice to complete was taken to be determinative
of a purchaser's inability to settle. This concept applies to the conduct of either
party with respect to its ability to settle.
(c)
If you are acting for a purchaser who cannot settle and negotiations are continuing
with the vendor, you should state that, whilst negotiations are continuing, the
notice to complete is deemed to either be withdrawn or suspended pending
negotiations occurring.
Young JA was of the view that in contradistinction to other assumptions that
solicitors can make in conveyancing transactions due to normal practice, there is
no normal practice to cover this type of situation.
(d)
If you are acting for a vendor where the purchaser cannot settle, you need to heed
the words of Young JA in the Everest Property Holdings cases that it is
"dangerous for the vendor's solicitor not to get ready for settlement". If the vendor
does not do so, then there are circumstances (as happened in the Everest
Property Holdings case against Sarkar and Islim) where the vendor's inability to
settle may count against the vendor (even where the purchaser itself may not be
able to settle).
(e)
Notwithstanding the decision in K & K Real Estate, a party who issues a notice to
complete would be somewhat foolish to rely upon the essentiality of time where
any considerable period has lapsed between the issuing of a notice to complete
and termination action is taken predicated on that notice to complete.
However, where negotiations or discussions are continuing, the solicitor for the
party issuing the notice should always preface all correspondence and
discussions with a reminder to the other side that the party issuing the notice
continues to rely upon the notice and the essentiality of time set out in that notice,
and that the negotiations do not prejudice the position of the party issuing the
notice.
Failure to do this could lead to the conclusion that the negotiations amounted to
an election to affirm the contract in the face of the other party's continuing
repudiation (as referred to in the decision of Handley AJA in the K & K Real Estate
case).
(f)
JTK5V44LB3
In the Everest Property Holdings cases, the New South Wales Court of Appeal
held that subject to special condition 7 of the contract of sale, the vendor had to
serve, at least 14 days before completion, an occupation certificate within the
meaning of the Environmental Planning and Assessment Act 1979 [at 65]. The
New South Wales Court of Appeal interpreted Regulation 155 of the
Environmental Planning and Assessment Act and held that that regulation did not
17
make it clear that a fire safety certificate had to be part of an occupation certificate
[at page 713].
2.11
Notices to Complete - Lessons from the previous cases
(a)
Vendor issuing notice to complete
The purchaser should be required in the covering letter to do the following:
(b)

Submit settlement figures.

Provide transfer.

Appoint a time for settlement.

Provide all other documents required to complete the conveyancing
process required to be signed by the vendor or the vendor's solicitor such
as attornment notices, notice to the owners corporation or community
association, etc.
Purchaser issuing notice to complete
The vendor should be required to attend to the following:

Advise as to the venue for settlement.

Ensure that there is provided on settlement all documents needed to
convey a clear title including CT, transfer, discharge of mortgage and
withdrawals of caveat.

Hand over any ancillary documents or notices such as notices to owners
corporation or community association, attornment notices, assignment
notices with respect to bonds and bank guarantees, etc.

Provide direction to pay.
3.
Pre-contractual verbal promise gives rise to equitable relief (Saleh
decision)
3.1
In brief – Purchasers succeed in avoiding contract
It may be possible to succeed in rescinding a contract on the basis of a pre-contractual
promise, even though it is not included in the contract.
3.2
Development consent for townhouses on two properties
The NSW Court of Appeal case Saleh v Romanous [2010] NSWCA 274 was handed
down on 28 October 2010 and concerned the sale of 163 Kissing Point Road, Dundas.
The appellants, Michael and Rose Saleh, owned 163 Kissing Point Road and Michael's
brother, Edmond, who lives in Adelaide owned the house next door at 165 Kissing Point
Road. The Salehs obtained development consent of eight strata titled two storey
townhouses on the two properties.
3.3
Sale of property on assumption that development would proceed
The Salehs entered into a contract with the respondents, Harris and Philomena
Romanous, to sell 163 Kissing Point Road for an agreed sum which had been negotiated
on the assumption that the property, along with the neighbouring property, would be
developed into eight two storey townhouses.
JTK5V44LB3
18
Prior to the exchange, Harris and Philomena Romanous were given a statutory
declaration dated 10 May 2004 which stated that Edmond had appointed Michael "as his
agent for negotiating" with Harris and that "all communications and correspondence
concerning the development" were to be made to Michael.
After exchange it became apparent that Edmond did not want to proceed with the plans to
develop the properties. so the Romanouses instructed their solicitors to rescind the
contract.
3.4
Supreme Court finding of pre-contractual promise
In the earlier case, the Supreme Court of New South Wales found that the Salehs had
made a pre-contractual promise to the Romanouses, assuring them that if the neighbour,
Edmond, did not want to build, they would not have to purchase the property and would
get their money back (at [47]).
The Supreme Court also noted that the Romanous’ solicitors made no attempt to have
the pre-contractual promise included in the contract. Because they had attempted to have
two other special conditions of lesser importance included in the contract, the Supreme
Court had been asked to infer that their solicitors were not informed about the precontractual promise.
3.5
Court can order repayment of a deposit with or without interest
The Court of Appeal rejected the appeal, as well as the Salehs’ argument that a precontractual statement which cannot be enforced as a collateral contract due to
inconsistency, can also not be enforced as promissory estoppel (at [62]).
Their Honours noted that promissory estoppel is a ground on which equity will protect one
contracting party from inequitable conduct by the other (at [68]). The Court further noted
that "promissory estoppel is a restraint on an enforcement of rights, and thus unlike
proprietary estoppel, it must be negative in substance" (at [74]).
3.6
Purchasers benefit from Section 55(2A) of Conveyancing Act
However, the court concluded that the limitations on the scope of promissory estoppel do
not matter in this situation, as the Romanouses can rely on the statutory remedy
conferred by s 55(2A) of the Conveyancing Act 1919 (NSW).
This means that where the court refuses to grant specific performance of a contract for
the return of a deposit, the court may, if it thinks fit, order the repayment of any deposit to
the purchaser, with or without interest.
The Court of Appeal held that the trial judge erred when he held that the promissory
estoppel entitled the Romanouses to rescind and recover their deposit. Rather, the Court
of Appeal held that promissory estoppel prevented the Salehs from enforcing the contract
and entitled the Romanouses to an order under s 55(2A) to recover their deposit.
This case demonstrates that even though the pre-contractual promise was not included in
the contract, the purchasers were still able to rely on it to avoid the contract.
4.
Resort hotel owners corporation entitled to benefit from residential
statutory warranties (Brookfield decision)
4.1
In brief - Builder and developer of residential resort do not owe common law duty
of care to owners corporation
In a recent decision, the Supreme Court held that a builder and a developer of a residential
resort did not owe the owners corporation a common law duty of care for building defects in
the common property. Although the owners corporation could not rely upon a claim for
JTK5V44LB3
19
negligence, it had the benefit of statutory warranties afforded under Part 2C of the Home
Building Act 1989 (NSW) against both the developer and the builder.
4.2
Owners corporation alleges breach of statutory warranties and common law duty of
care
On 29 June 2012, the New South Wales Supreme Court handed down judgment in Owners
Corporation Strata Plan 72535 v Brookfield [2012] NSWSC 712 which dealt with whether the
developer and builder of the 'Star of the Sea' development resort were liable for building
defects to the common property.
In commencing proceedings against Hiltan, the developer and Brookfield, the builder, the
owners corporation alleged that there was a breach of statutory warranties under section 18B
of the Home Building Act and a breach of a common law duty of care.
4.3
Minimum standards and requirements for residential building works
Under section 18B of the Act, statutory warranties for minimum standards and requirements
are implied in contracts for residential building works. For the owners corporation to rely upon
the warranties, the contract for the development of the resort must be one for ‘residential
building works’.
The 'Star of the Sea' is a strata development which comprises 52 strata lots, three of which
are permanently occupied as residences by their owners. Since practical completion in 2004,
many of the lots have been resold and have been adapted for use as tourist, holiday or
overnight accommodation, being a holiday resort.
4.4
Construction contract specifies development designed as residential dwellings
In assessing whether the development was one for 'residential building works', the Court held
that it is necessary to ascertain the subject matter of the contract at the time it was made. The
contract for the construction of the 'Star of the Sea' was held to be residential building work as
the lots within the development had been designed for use as residential dwellings.
Although after completion the development had been largely adapted for use as a holiday
resort, the contract to design and execute the works was still one to do residential building
works. Therefore the owners corporation had rights under the Act against both Hiltan and
Brookfield.
4.5
No sufficient relationship of proximity between owners corporation and developer
and builder
In considering the liability of Brookfield and Hiltan for breaches of their common law duty of
care against the owners corporation, the court found in favour of the defendants on three main
points in finding that a duty of care relationship did not exist among the parties.
JTK5V44LB3

The owners corporation was already entitled to benefit from statutory warranties
and therefore, it was not appropriate for the trial judge to impose an additional
common law duty of care.

There was no sufficient relationship of proximity between the owners corporation
and the developer and builder to warrant the imposition of a duty of care.

A commercial contract had been negotiated between the developer and builder.
As the parties negotiated on what appeared to be an equal footing, the court held
that it was not appropriate for it to interfere with the contract that was bargained
for. As Brookfield did not owe Hiltan a common law duty of care, it did not owe the
same duty to the owners corporation, as successor in title to Hiltan of the common
property.
20
4.6
Builders and developers do not owe a common law duty of care to an owners
corporation
This decision clarifies that builders and developers do not owe a common law duty of care to
an owners corporation for design and construction defects associated with the property.
Although this provides some comfort to commercial developers and builders, this case also
highlights that developers and builders of residential building works must abide by statutory
warranties implied in the Home Building Act to ensure that they are not subject to claims for
building defects.
This decision also clarifies that if a building is designed and developed for residential purposes
but later adapted for use as a commercial hotel resort, statutory warranties under the Home
Building Act are still available.
5.
Best reasonable endeavours with respect to subdivision (Foster
decision)
5.1
In brief - Purchaser validly terminated contract, awarded damages
Foster v Hall involved the subdivision of land in which the contract had a 12 month sunset
period.
Ultimately the vendor was held not to have used its best reasonable endeavours (as required
by the contract) to have the plan registered prior to expiry of the sunset date and therefore the
purchaser validly terminated the contract and was awarded damages in excess of $1.6 million.
5.2
Purchaser argues that vendor not entitled to rescind contract
The contract for sale required the parties to use their "best reasonable endeavours" to have
the plan of subdivision registered within 12 months from the date of contract.
Registration did not occur within that period and, as a result of this, the vendor purported to
rescind the contract. The purchasers maintained the vendor was not entitled to rescind, as it
had not used its best reasonable endeavours to have the plan registered, treated the
purported rescission by the vendor as a repudiation of the contract and themselves terminated
the contract and sought damages.
5.3
Fire access conditions of the development consent
The vendor's contention was that a condition of the development consent issued by
Wollongong Council with respect to fire access and the gradient of the fire access was such
as to be unreasonable and unachievable, and therefore the vendor had complied with his
contractual obligations.
The vendor put two options to council to comply with this condition and it was acknowledged
by council that due to the excessive gradient, neither option was adequate to meet council's
conditions and there did not appear to be other suitable alternatives.
However, the court held that by virtue of discussions with council, there were certainly
avenues available to the vendor to seek to have the terms of the development consent
modified, but the vendor did not do so.
5.4
"Best reasonable endeavours" sets higher standard than "reasonable endeavours"
The court held that the addition of the word "best" to the expression "reasonable endeavours"
raised the required standard to a higher level.
Whilst the vendor was not required to undertake the obligation beyond the bounds of
reasonableness, he was required to do all that he reasonably could to achieve the contractual
objective of having the plan registered.
JTK5V44LB3
21
5.5
Vendor did not seek to have the development consent waived or modified
The court held that the vendor, by not seeking to have the development consent condition
either waived or modified, had not taken steps which a prudent, determined and reasonable
party (acting in his own interests and with a view to achieving the contractual outcome) would
have taken.
Even though the undertaking of an application to modify the development consent condition
complained of by the vendor was not assured to be a success, the vendor was still required, to
satisfy his obligations with respect to reasonable endeavours, to take that action. The vendor
was required to do so, particularly when council's response to correspondence indicated that
an amendment application may have been successful.
5.6
Include right to rescind contract if development consent provision unacceptable
A party undertaking obligations in a contract has to fully appreciate what level of obligation he
is undertaking and negotiate in the contract only that level of responsibility which he is
prepared to take.
The vendor in this case should have had a provision in the contract indicating that if any
development consent provision proved to be unacceptable, then he had a right to rescind the
contract, and this would have overcome the difficulties which he ultimately faced.
6.
Notice to complete upheld; vendor entitled to deposit and damages
(Pantlin decision)
6.1
In brief - Purchaser fails to complete and vendor terminates contract
Pantlin v King involved a contract which was exchanged for the sale of a property with a 5%
deposit and an extended settlement. The purchaser failed to complete. After a number of
extensions, the vendor terminated the contract.
Ultimately, the vendor's notice to complete was upheld and the vendor was entitled to release
of the deposit and damages.
6.2
Notice to complete held to be valid
The court held that the vendor's solicitor was not bound to answer requisitions out of time but
in any event had done so on a without prejudice basis and that the answers had been sent
(even though the purchaser denied that she had received them).
The notice to complete was held to be valid and to have been delivered in accordance with the
terms of the contract (even though, again, the purchaser denied she received it). It was also
held that by virtue of the provisions of the contract, a 14 day period was a reasonable period
to require completion.
Wisely, the solicitor for the vendor attended the place of settlement on the settlement date in
the notice to complete and waited for about an hour to establish that the purchaser would not
be settling.
The vendor's notice of termination issued was therefore valid.
6.3
Court rejects purchaser's claim that property substantially damaged
The purchaser maintained that there was substantial damage to the property, both at the time
the notice to complete was issued and at the time set down for completion, and that the
purchaser was therefore not required to settle.
On the facts, the court found that, subject to one minor item, the condition of the premises was
in the same state as it was at the time the purchaser had exchanged contracts. The one item
that it was proven had been damaged between exchange and settlement could have been
JTK5V44LB3
22
rectified for a fairly minimal cost (about $300, on the evidence) and this did not entitle the
purchaser to delay completion.
6.4
Vendor attempts to claim capital gains tax from purchaser
One of the major issues for the vendor was that, as the property had not sold within two years
of the death of former registered proprietor, capital gains tax was payable.
The vendor sought to claim this from the purchaser as well as the other damages and
forfeiture of deposit.
However, as the vendor did not seek to resell the property within 12 months of the contract's
termination, as required by the standard form of contract, this head of damages was held not
to be recoverable. The court held that the vendor could have resold the property and still have
brought proceedings against the purchaser for damages and that the vendor had an obligation
to mitigate his loss and therefore this head of damage was not claimable.
6.5
Party which terminates contract and seeks damages must mitigate its loss
Firstly, it is essential that someone seeking to rely on a notice to complete does all that is
necessary to demonstrate to the courts that the person is ready, willing and able to settle on
the completion date.
Secondly, it is essential that a party who terminates the contract and then seeks damages has
done all that it is able to do to mitigate its loss and is cognisant of the provisions of the
standard contract in New South Wales requiring a claim to be made within 12 months, so any
action that needs to be taken to mitigate losses needs to be undertaken within this period.
7.
Purchaser not able to settle but avoids direct liability for breach of
contract (Bone decision)
7.1
In brief – Notice to complete ineffective but interest still payable
The recent case of Bone v Wallalong Investments (No.2) in the Supreme Court of NSW
involved a purchaser who did not have finance and was not able to settle on the due date, but
was able to avoid direct liability for breach of contract.
However, when an extension of time was granted pursuant to a deed of variation of contract,
there was a guarantee given by three directors of certain of the buyer's obligations. Some of
the obligations were still held to be enforceable by the vendor.
7.2
Contract for sale of rural property in 2005
The contract was entered into in January 2005 for the sale of a rural property.
The date for completion was 9 August 2005 but, by agreement, it was extended to 9 February
2006.
The variation of the contract was documented by a deed and, pursuant to that deed, interest
was to be paid for the delay in settlement.
The purchaser failed to complete in February 2006 and there were numerous extensions
granted.
7.3
Vendor issues notice to complete in 2010
The situation was that ultimately, some four years later, in February 2010, the vendor issued a
notice to complete.
The purchaser contended that the vendor was not ready, willing and able to settle, that the
vendor was not entitled to issue a notice to complete and that the vendor's purported
JTK5V44LB3
23
termination of the contract after the expiry of the period under the notice to complete, was in
fact ineffective.
7.4
Was the vendor ready, willing and able to settle?
The Supreme Court’s decision is summarised in the three points below.
7.5
First right of refusal not exercised
The fact that there was a caveat on the title, with regards to a first right of refusal, did not
make the answers to the requisitions given by the vendor inaccurate.
A copy of the caveat was attached to the contract and there has been significant
correspondence establishing that the first right of refusal was not exercised so, therefore, the
answer to the requisition, even if it was technically incorrect, could not be held to have misled
the purchaser in any way. Therefore, this issue did not mean the vendor was not ready to
settle.
7.6
Venue changed the day before settlement
The notice to complete required settlement in Broadmeadow (a suburb of Newcastle).
However, the day before settlement, the vendor's solicitor indicated that settlement had to take
place at Espreon, a legal agent in Sydney, due to matters that had to be attended upon at the
settlement. The vendor attended settlement but the purchaser did not.
The vendor's representative had acted correctly in attending at settlement but, as the notice to
complete had specified a place for settlement, and as the vendor had then changed this only
the day before settlement, it was held that reasonable notice had not been given to the
purchaser to be able to attend settlement at the changed venue.
As the vendor had not attended settlement at the place for settlement appointed by the notice
to complete (but in fact attended at the Sydney office of Espreon), it was held that the vendor
was not ready, willing and able to settle.
Therefore, the notice to complete was ineffective.
7.7
Interest obligations held to be valid
The interest obligations under the deed of variation of the three guarantors was held to be
valid and the vendor could still claim this amount from the guarantors (which totalled several
million dollars).
7.8
Useful lessons for property lawyers and conveyancers
There are many practical lessons from this decision.
These are the major ones:
JTK5V44LB3

Make sure that your notices to complete merely state what they have to state. In
other words, what they should state is that the party issuing the notice to complete
is ready, willing and able to settle, that time for settlement is being made of the
essence and what the consequences are of not complying with the notice to
complete.

Make sure that plenty of notice is given to parties in relation to the venue for
settlement and the giving of settlement figures, so that the courts do not hold that
giving some of this information the day before settlement is unreasonable.

Make sure that your answers to requisitions (seen by many people as a mere
formality) are correct and accurate, so as to not to afford a party seeking to avoid
contractual obligations the ability to do so on a technicality.
24
8.
First home benefits - what is available in NSW post 1 October 2012?
8.1
In brief - Some first home owner schemes in NSW have been replaced by new
schemes
The First Home Owner Grant has been replaced by the First Home Owner Grant (New
Home) Scheme. The First Home Plus Scheme has been replaced by the First Home New Home Scheme. Stamp duty concessions are available under the NSW New Home
Grant Scheme.
8.2
$7,000 First Home Owner Grant no longer available
The $7,000 first home owners grant for established properties ceased to be available
from 1 October 2012. This means that if you are a first home buyer who enters into a
contract for sale on or after 1 October 2012, you are no longer entitled to this grant.
The $7,000 grant is still available to first home buyers who entered into a contract for sale
for an established property prior to 1 October 2012.
8.3
First Home Owner Grant (New Home) Scheme
From 1 October 2012, the First Home Owner Grant (New Home) replaced the First Home
Owners Grant. The new scheme applies to any contracts entered into by a first home
buyer on or after 1 October 2012.
The eligibility requirements for the new scheme are the same as the old $7,000 scheme
with the exception that:
8.4

The purchaser must either purchase a new home or build a new home

The grant amount is $15,000 up to 31 December 2013

The grant amount reduces to $10,000 on 1 January 2014

The cap on value of an eligible transaction has dropped from $835,000 to
$650,000
First Home Plus Scheme has been replaced
First Home Plus was the scheme which provided stamp duty exemptions to first home
buyers.
This scheme ceased on 31 December 2011 and was replaced with the First Home - New
Home Scheme.
8.5
First Home - New Home Scheme
The First Home - New Home Scheme replaces the First Home Plus Scheme. The new
scheme is applicable to contracts entered into on or after 1 January 2012.
From 1 January 2012 to 30 June 2012 the scheme provided stamp duty exemptions to
first home buyers purchasing either a new home valued at up to $500,000 or vacant land
valued at up to $300,000 on which the purchaser intents to build their home.
The scheme also provided stamp duty concessions on transfer duty on new homes
valued between $500,00 and $600,000 and vacant land valued between $300,000 and
$450,000.
JTK5V44LB3
25
From 1 July 2012 the scheme provides stamp duty concessions to first home buyers
purchasing either a new home valued up to $550,000, or vacant land valued at up to
$350,000 on which the purchaser intends to build their home.
The scheme also provides stamp duty concessions on transfer duty on new homes
valued at between $550,00 and $650,000 and vacant land valued at between $350,000
and $450,000.
There are no longer any stamp duty concessions for first home buyers buying an
established property unless the contract for sale was entered into prior to 1 January 2012.
8.6
Stamp duty concessions under the NSW New Home Grant Scheme
The NSW Home Builders Bonus (HBB) was introduced to stimulate the construction of
new homes and was applicable to eligible transactions from 1 July 2010 to 1 July 2012.
This scheme has now ceased.
The HBB scheme has been replaced by the NSW New Home Grant Scheme, which
commenced on 1 July 2012. It is a $5,000 stamp duty concession available to any
purchaser of a new property (both off the plan and newly built).
The only eligibility criteria for the New Home Grant Scheme are that the property being
purchased is new, off the plan or vacant land on which a new home is to be built.
The applicant can be an individual, corporation or trustee of a trust and there are no
residency requirements. The applicant can be an investor, new home buyer (not first
home buyer) or a builder.
Eligible transactions are:

newly built home up to the value of $650,000

vacant land up to a value of $450,000 on which a new home will be built
The $5,000 is a rebate off the stamp duty payable in connection to the purchase. For
example, if you buy a vacant block of land for $180,000 or less then no stamp duty is
payable.
Builders are still able to claim the exemption from aggregation of multiple purchases.
There is no limit to the number of times this concession can be claimed as long as it is an
eligible transaction.
If you are a first home buyer and are eligible for a stamp duty exemption / concession
under the First Home – New Home Scheme, you cannot receive the $5000 New Home
Grant.
Application must be made directly with the Office of State Revenue (no in house stamping
at this time) and the balance of the stamp duty owing must be paid at the time of
application. The application must be made within three months of the date of the eligible
contract for sale.
If you are purchasing an off-the-plan property you are unable to apply for the 12 month
extension of the date that stamp duty is payable.
If the stamp duty payable on the transaction is less than $5,000, the balance of the grant
will be paid to the purchaser upon completion of the contract.
JTK5V44LB3
26
9.
Stamp duty exemptions and concessions on property purchases
9.1
In brief - Exemptions or concessions on stamp duty can apply in a variety of
circumstances
When contemplating the purchase or transfer of real estate, you should consider whether
any of the available exemptions or concessions to stamp duty may apply.
9.2
Transfers to married couples and de facto partners
Under section 104B of the Duties Act 1997 no duty is chargeable in the transfer of
residential land if as a result of the transfer the property will be held as a married couple
as tenants in common in equal shares or joint tenants.
9.3
Transfers as a result of a breakdown of marriage, de facto relationship or domestic
relationship
Under section 68 of the Duties Act, the transfer of matrimonial or relationship property is
exempt from stamp duty, subject to the conditions set out in this section being met.
9.4
Intergenerational rural transfers
Under section 274 of the Duties Act, the transfer of farm land (that is being used for
primary production) from one generation to the next is exempt from stamp duty, subject to
the conditions set out in this section being met.
9.5
Exemption from aggregation of dutiable transactions for home builders
Under section 25(2) of the Duties Act, licensed builders are exempt from the aggregation
of stamp duty on the purchase of multiple blocks of vacant land, subject to the purpose of
the acquisitions being to construct a dwelling for the purpose of being sold to the public.
9.6
Concessions in relation to the partition of land
Section 30 of the Duties Act provides for concessions on the stamp duty payable in
relation to the partition of land.
9.7
Termination of a strata scheme
Under Section 65(18) of the Duties Act, duty is not payable in relation to the transfer of
property which upon termination of the strata scheme is transferred from the owners
corporation to the persons who were the proprietors of the lots the subject of the strata
scheme prior to termination.
9.8
Termination of scheme under Community Land Development Act 1989
Under section 65(20) of the Duties Act, duty is not payable in relation to the transfer of
property which upon termination of the community scheme is transferred from the
community association to the persons who were the proprietors of the lots the subject of
the community scheme prior to termination.
9.9
The Crown
Under section 308 of the Duties Act, the Crown or a statutory body representing the
Crown is exempt from the payment of stamp duty on dutiable transactions.
JTK5V44LB3
27
9.10
Extension of date for payment of duty for off-the-plan residential purchases
Under section 49A of the Duties Act, an extension to the date stamp duty is payable is
granted for off-the-plan residential purchases. The date stamp duty must be paid on
eligible off-the-plan transactions is whichever is the earliest of:

completion of the agreement

the date the purchaser assigns whole or part of its interest under the agreement

the date 12 months from the date of the agreement
10.
Buying property in Australia under foreign investment laws - What is
likely to be approved? What conditions will apply?
10.1
In brief - Conditions apply to the purchase of property by foreign persons
The conditions which apply to the purchase of Australian real estate by foreign persons
vary depending on the type of property and on whether or not the foreign person is a
temporary resident.
10.2
Foreign persons buying property need foreign investment approval
If you are a foreign person intending to buy real estate in Australia, you should make your
purchase contracts conditional on foreign investment approval, unless you already have
approval or you are exempt. Significant penalties may apply to ineligible owners of real
estate.
This article is the second part of our earlier article, Foreign investment laws and
Australian real estate.
10.3
Assessing the national interest in property purchases
The government reviews foreign investment proposals against the national interest case
by case. It can block proposals that are contrary to the national interest or apply
conditions to the way proposals are implemented to ensure they are not contrary to the
national interest.
In assessing the national interest, the government typically considers national security,
competition, other policies (including tax), the character of the investor and the impact on
the economy and the community.
For a foreign government or a related entity, the government will consider whether the
investment is commercial in nature or if the investor may be pursuing broader political or
strategic objectives that may be contrary to Australia’s national interest.
If an investment is contrary to the national interest, the government will intervene. This
occurs infrequently.
10.4
What types of real estate are covered by foreign investment laws?
The types of real estate covered are:
JTK5V44LB3

residential real estate (including property that is zoned other than residential real
estate but including a component of residential)

commercial real estate

rural land
28
10.5

accommodation facilities

urban land corporations/trusts, ie the trust or corporation holds more than 50 per
cent of its assets in urban land (vacant or developed)
Residential property purchases by foreign persons
It is the government's overarching policy that investment in residential real estate should
increase Australia’s housing stock (at least two dwellings built for the one demolished,
unless derelict or uninhabitable). Most proposals that further this policy will be approved.
The table below summarises the types of interest in residential real estate that will
normally be approved with the stated conditions.
A second-hand (established) dwelling is a dwelling previously owned by a party other
then the original developer or occupied for a period of more than 12 months.
A new dwelling is a dwelling not previously sold or occupied, including off the plan.
10.6
Commercial property purchases by foreign persons
Commercial property includes offices, factories, warehouses, hotels, motels,
guesthouses, restaurants, shops and rural property which is not used for primary
production.
JTK5V44LB3
29
10.7
Rural land purchases by foreign persons
Rural land is land used wholly and exclusively for carrying on a business of primary
production. The business must be substantial and have a commercial purpose or
character.
A foreign person needs approval to buy an interest in a primary production business
where the total assets of the business exceed $244 million (or $1062 million for US
investors).
All foreign governments and their related entities should notify the government and get
prior approval before acquiring any interest in rural land.
10.8
Purchase of mining tenements by foreign persons
Established forestry businesses are treated as rural land.
11.
Checklist: What should your legal and physical due diligence involve?
To come to a view on the true value of a project before you sell, buy or advance finance, it is
important to carry out appropriate legal and physical investigations.
We have prepared this simple checklist as a preliminary scope of what you and your
consultant team should be considering as part of any legal or physical due diligence.
JTK5V44LB3
(a)
Prepare a simple summary checklist (like this one) to define the scope clearly
internally and with your consultants.
(b)
Properly engage consultants and ensure that they have appropriate professional
indemnity insurance.
(c)
Review title documents, including easements and covenants.
(d)
Review service agreements with public authorities and private companies.
(e)
What access do you have to and from the property?
(f)
Consider matters related to tenancies, including building occupants, car parking,
overhead walkways or other rights - consideration should be given to payments,
breaches, review rights, securities, arrears, disputes, subtenancies, assignments,
outgoings, floor areas, rent abatement and incentives and other similar matters.
(g)
Financial modelling.
(h)
Tax implications of the proposal need to be understood (GST, CGT, income tax,
stamp duty etc).
30
(i)
Any dispute relating to the property should be identified and any risks eliminated
or mitigated.
(j)
Strata title rights and liabilities need to be understood.
(k)
Intellectual property rights relating to building operations need to be understood
and assigned as appropriate.
(l)
Insurances need to be put in place on suitable terms.
(m)
Key contractual terms (price, deposit, completion date, etc) need to be identified
and understood.
(n)
Appropriate performance guarantees need to be obtained from the counterparty.
These are only some of the matters that you may need to consider.
To perform a thorough due diligence, you will need to work through a much more detailed
checklist, taking into account the nature of the particular project and all the relevant
assets and liabilities, both current and contingent.
12.
Checklist on before signing a call option agreement
12.1
Planning and applications
12.2
12.3
JTK5V44LB3
(a)
Complete proper due diligence - seller is likely to put all development risk on you
(eg planning, environmental, heritage, title, leases etc)
(b)
Seller's written authority to lodge applications with planning authorities - to be
provided on the date that the agreement is entered into
(c)
Licence for access for any necessary investigations, tests or reports
(d)
Authority to conduct legal appeals on planning decisions
(e)
Seller has no right to object to the purchaser's future development applications
Payments
(a)
Option fee payments (when payable; amount; number of instalments)
(b)
Strike price - what is payable when the option is exercised
(c)
Fees paid to be credited to the deposit when option exercised
(d)
Amount of deposit payable under the contract
(e)
Total price payable under the contract
(f)
Confirm GST treatment - option agreement and contract
(g)
No stamp duty payable on option (only contract)
(h)
Who pays consultants' costs?
Option rights
(a)
Confirm option period(s)
(b)
Any right to extend the option period eg on payment of an additional fee?
31
12.4
(c)
Will payment of any extension fee incur additional stamp duty? (it should be
structured so that it will not).
(d)
Detail any conditions precedent to the exercise of the option
(e)
Following option exercise, what is the completion date?
General
(a)
Express right to lodge caveat
(b)
You will own or otherwise may use all relevant intellectual property
(c)
What performance guarantees required from seller?
(d)
Seller will not deal with any interest nor grant any security interest in the property
or increase any borrowing secured by the property
(e)
Assignment rights - express right to assign or nominate another purchaser
(f)
Confidentially
(g)
Statutory prescribed documents are attached to the agreement
(h)
Disputes - is a dispute resolution provision appropriate?
(i)
Defaults - right to require rectification; right to terminate
13.
Cooling off periods
13.1
Are you up to speed with the legal issues and implications associated with cooling
off periods?
A cooling off period is an amount of time after a contract is entered into during which the
contract may be rescinded (treated as if never entered into).
This article concerns cooling off periods in contracts for sale of residential property in
NSW. Agents need to be aware of the provisions which govern the cooling off regime.
This article will not deal with the application of cooling off periods relating to options for
sales of residential property.
13.2
When does a cooling off period apply?
Ordinarily, purchasers under a contract for the sale of residential property in NSW are
protected by cooling off periods, unless an exception applies.
13.3
Meaning of ‘residential property’
‘Residential property’ is defined in the section 66Q of the Conveyancing Act 1919 as
including any of the following:
(a)
land with not more than two places of residence (i.e. a house, two houses, a
duplex but not a triplex or apartment block)
(b)
vacant land where a single place of residence is permitted to be built
(c)
strata lot or lots which constitute one place of residence only (section 66Q(1)).
Where the land is used wholly for non-residential purposes, it will not fall within the
definition and therefore no cooling off period will apply (section 66Q(2)(a)). For example,
JTK5V44LB3
32
commercial strata lots or vacant land used as a market garden would not be considered
to be ‘residential property’ (College of Law Practice Paper P203 (NSW) at [203.35]).
Off-the-plan sales of 1 or 3 above may attract the cooling off period (section 66S and
66ZB).
13.4
Exceptions
Where a 66W certificate is given
There will be no cooling off period where the purchaser (or their solicitor or agent) gives
the vendor (or their solicitor or agent) a 66W certificate before or upon exchange
(section 66T(a)).
In order to be a compliant a 66W certificate must:

be in writing

be signed by a solicitor, barrister or licensed conveyancer (but not one who is
acting for the vendor)

indicate that the purpose of the certificate is to waive the cooling off period

state that the solicitor, barrister or licensed conveyancer explained to the
purchaser the effect of the contract and that in giving the certificate to the vendor,
the cooling off period would be waived (Section 66W).
For residential sales contracts, the certificates are commonly called ‘section 66W
certificates’, named after the section of the Conveyancing Act 1919 (NSW) which
prescribes the content for the certificates.
A section 66W certificate can be given by facsimile.
13.5
Where the property is sold at public auction
A cooling off period does not apply to residential properties sold at public auction (Section
66T(a)).
It may be that the property goes to auction but is passed in (i.e. not sold). In these cases,
if a contract for sale of the property is entered into on the same day as the auction
(Section 66ZC(b)) a cooling off period will also not apply.
13.6
Where the land is more than 2.5 hectares in area
If the land is more than 2.5 hectares in area, it is deemed not to be ‘residential property’
and therefore, there is no cooling off period (Sections 66Q(2)).
13.7
Exercising cooling off rights
A purchaser must exercise their cooling off rights (i.e. if they wish to rescind the contract)
during the cooling off period (Sections 66U(2), 66ZD(2)) by serving a written notice
informing the vendor of the rescission (Sections 66U(1), 66ZD(1)).
The written notice must be signed by the purchaser or their solicitor. Where there is more
than one purchaser, each purchaser (or the solicitor for each purchaser) must sign the
notice (Sections 66U(3), 66ZD(3)).
The notice must be served on the vendor or their agent or solicitor (Sections 66U(4),
66ZD(4)). Where there is more than one vendor, service need only be on one of them (or
on the agent/solicitor for one) (Ibid).
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33
When the purchaser exercises their cooling off rights, the sale contract is rescinded. This
means that, for legal purposes, it is as if the contract never existed.
The purchaser upon exercising their cooling off rights forfeits 0.25 per cent of the
purchase price of the property (Sections 66V(2), 66ZE(2)). This amount can be taken
from the deposit paid to the vendor (Sections 66V(4), 66ZE(3)).
If no deposit has been taken, or if the 0.25 per cent exceeds the amount of the deposit,
the balance is a debt and the vendor may sue to recover it. If the 0.25 per cent is less
than the deposit, the balance of the deposit must be paid back to the purchaser (Sections
66V(5), 66ZE(5)).
13.8
Deposits
With sale contracts, vendors’ agents are permitted to take more than 0.25 per cent of the
purchase price as a deposit. In all cases, and unless specifically instructed to do
otherwise, agents should do so to protect the vendor. It is longstanding conveyancing
practice for a 10 per cent deposit to be taken on exchange. The amount of the deposit is
set out on the front page of the contact. If the purchaser fails to pay the full amount of
that deposit on exchange, the purchaser is immediately in a position of default under the
contract and the vendor is entitled to terminate the contract, sue to recover any amount
of the deposit which is unpaid and can also sue the purchaser for any loss (including legal
costs) the vendor might suffer if the property is sold to another purchaser for a lesser
amount. The Vendor can exercise this right at any time after exchange and until the full
deposit specified on the front page is paid in full. In other words, if a purchaser has not
paid the full deposit specified on the front page of the contract, they only have a binding
contract (and cooling off rights), for so long as the vendor chooses not to terminate.
A great example of when a vendor may elect to terminate because a full deposit has not
been received, is when a higher offer is received from another purchaser after exchange.
When a purchaser cools off (rescinds), the vendor does not get to keep the full deposit –
only 0.25 per cent of the purchase price. The balance of any deposit must be repaid to
the purchaser.
It is important to note that cooling off is different from termination. If a vendor terminates a
contract due to the default of a purchaser (i.e. where, without valid reason, the purchaser
is unwilling or unable to proceed to settlement or they withdraw from the purchase), the
vendor keeps the full deposit, which compensates the vendor for their loss of bargain, the
need to find a new purchaser and their costs and expenses incurred due to the sale
falling through. A vendor sometimes also has the right to sue the purchaser for other
damages.
13.9
Duration
A cooling off period starts at the time the sale contract is made – that is, on exchange. It
finishes at 5.00pm (Sydney time (Section 66P(2))) on the fifth business day after the day
on which the contract was made (Sections 66P(2), 66S, 66Z(2), 66ZB).
For example, if a sale contract was entered into at 10.00am on Wednesday, 9 June 2010,
the cooling off period starts at this time. It ends at 5.00pm on Thursday, 17 June 2010.
Weekend days and public holidays (in this case, the Queen's Birthday on 14 June 2010)
are not counted as business days (Section 66Z).
13.10 Changing the duration
The rule that a cooling off period runs until 5.00pm on the fifth business day after the
contract or agreement is entered into is a default rule. The parties may agree to extend or
reduce the period.
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Agents should not amend the contract to alter the length of a cooling off period. The
Property, Stock and Business Agents Act 2002 does not permit an agent to make such
changes to a contract (Section 64(1) Property, Stock and Business Agents Act 2002). A
change to reduce or lengthen a cooling off period should only be made by the vendor, or
by their solicitor or licensed conveyancer.
13.11 Extending the period
The duration of a cooling off period can be extended by an appropriate special condition
being inserted into the contract or agreement. If the contract or agreement has already
been entered into (i.e. if the cooling off period has already begun) the vendor may agree
to extend the period at any time before its expiration, provided this is done in writing
(Sections 66S(4), 66ZB(4), CA). Agents should bear in mind that if there is a tenant in the
property, and the property is being sold with vacant possession, an increase in the
cooling off period (such as to a 10 or 15-day cooling off period) may require an extension
in the usual 42-day settlement period to allow a periodic tenancy to be properly
terminated.
13.12 Reducing the period
The best way to reduce the cooling off period is to insert a special condition into the
contract. The parties may also agree to a reduction orally or in writing. In both cases, a
66W certificate will also be required (Sections 66S(5), 66ZB(5), CA).
13.13 Cooling off notices
Cooling off notices are required to be attached to contracts for the sale of residential
property (Sections 66X, 66ZH; schedule 6, Conveyancing (Sale of Land) Regulations
2005 (NSW)). If a complying notice is not attached, the purchaser has a right to rescind at
any time up until completion, whether or not the cooling off period has already expired
and they will not forfeit 0.25 per cent if they cool off (Section 66X(3) CA).
The standard form contract for the sale of land sold by the Law Society of NSW and
REINSW has a compliant cooling off notice contained within it.
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Paper prepared by
Gary Newton
Gary Newton is a partner in the Property & Development Group, with expertise in conveyancing,
commercial and retail leasing and real estate subdivisions and developments. He has provided a
wide range of property related advice to business, government and individuals.
Gary is co-author and co-editor of the 2013 edition of the "Conveyancing and Real Property
Legislation in NSW" book and he is also the co-author and co-editor of the LexisNexis
Butterworths NSW Conveyancing Service. He has authored books on land law as well as
numerous articles and he recently re-wrote the retail lease for the Real Estate Institute of NSW.
He has also been a keynote speaker and chairman at various property law master classes.
Gary was admitted as a solicitor in NSW in 1983. He is admitted to practise in the Supreme Court
of NSW, the Federal Court and the High Court of Australia. Gary joined Colin Biggers & Paisley
as a partner in 2002.
Gary is a member of the Law Society Property Law Committee and the Australia Property Law
Group of the Law Council of Australia General Practice Section. Gary has had Specialist
Accreditation in Property Law since 1994.
Gary has been on the organising committee for the high schools public speaking competition
known as the "Voice of Youth". He is also a judge in the annual competition.
Practice focus

commercial leasing

acquisition

property joint ventures

financing and structuring of property transactions

environment and planning law issues
Gary Newton,
Partner
Colin Biggers & Paisley
Telephone: 02 8281 4555
Email: [email protected]
This paper is published by Colin Biggers & Paisley for the assistance and information of its clients. No material
should be accepted as authoritative advice and any reader wishing to act upon the material contained in this
paper should first contact a representative of Colin Biggers & Paisley for detailed advice which will take into
account each client’s particular circumstances.
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