Developers Vendors and Purchasers of Real Property in Victoria
5 key changes from the Sale of Land Amendment Act (Vic)(Amendment Act) came into effect on 1st March 2020 bringing with them significant consequences if not complied with:
1. Mandatory statement in residential off-the-plan contract sunset clauses – failure to comply leads to fines of up to $200,000
Pursuant to the Amendment Act, a developer’s ability to rescind residential off the plan contracts entered into on or after 23 August 2018 is restricted to circumstances where the purchaser provides consent, or by an order from the Victorian Supreme Court.
Now, from 1 March 2020, a new section 10F provides that a sunset clause in a residential off-the-plan contract must include a statement that informs purchasers of the changes. Moving forward, all sunset clauses for residential off the plan contracts must also state:
- (a) the vendor is required to give notice of a proposed rescission of the contract under the sunset clause; and
- (b) the purchaser has the right to consent to the proposed rescission of the contract but is not obliged to consent; and
- (c) the vendor has the right to apply to the Supreme Court for an order permitting the vendor to rescind the contract; and
- (d) the Supreme Court may make an order permitting the rescission of the contract if satisfied that making the order is just and equitable in all the circumstances.
Any breach of this new section 10F risks a fine of up to 240 penalty units for individuals (approximately $40,000) and 1,200 penalty units for corporations (approximately $200,000) per offence.
Whilst we have ensured contracts prepared by us comply, if you are the vendor of a residential off the plan property and have contracts for unsold lots in the market place, you should take immediate action to recall these contracts and replace them with ones containing the new sunset clause provisions.
2. Material facts – relevant for all vendor’s statements, vendors and estate agents
Failing to disclose a material fact when selling any land including residential, commercial and rural land is now a breach of the law.
A material fact is a fact that would be important to a potential purchaser in deciding whether or not to buy land, or which may influence a purchaser to buy land at a certain price.
A fact can be material if:
- an average purchaser would consider it important to their decision whether or not to buy the property, or
- a fact is known to be important to a specific purchaser.
The maximum penalty for knowingly concealing a material fact when selling land is:
- a fine of over $19,000 (120 penalty units), or
- up to 12 months imprisonment.
The Director of Consumer Affairs Victoria may make guidelines to assist vendors with understanding what a “material fact” is for their disclosure purposes under the Act.
To review the current guidelines please visit Consumer Affairs Victoria’s page:
3. Prohibited terms contracts for residential land
A person must not knowingly sell any residential land (other than residential land that is agricultural land) under a terms contract where the sale price of the land is less than the prescribed amount, currently set in the regulations at $750,000.
Selling, arranging, brokering the sale of or inducing someone to enter into a prohibited terms contract could lead to fines of up to 240 penalty units (approximately $40,000) for individuals, or imprisonment of up to 2 years, or both. Corporations risk fines of 1,200 penalty units (approximately $200,000).
Any purchasers under these prohibited terms contracts can void them by written notice. Unlike other prohibited terms contracts under the Act, vendors cannot obtain court orders to prevent the cancellation.
4. Prohibition on certain “rent-to-buy arrangements”
“Rent-to-buy arrangements”, involving a right of or obligation on a purchaser to buy residential land after paying rent (or similar) to occupy that land for more than 6 months are prohibited, unless entered into by the Director of Housing, a registered housing association, or as permitted by regulations.
This new provision is designed to protect consumers from previously unregulated schemes designed to take advantage of those for whom home ownership was otherwise impossible.
Penalties for breach of this new provision are similar for breach of prohibited terms contract provisions and whilst some schemes are permitted under the regulations, this is an area where vendors and real estate agents should tread with extreme caution.
5. Restrictions on options to purchase land under “land banking schemes”
Land Banking Schemes involve consumers buying a small interest, usually via an option agreement, in a large parcel of land purchased by developers on the hope that the subject land will be rezoned and/or increase significantly in value in the future. The purchaser does not obtain a proprietary interest in the land and there have been many cases where the purchaser, often enticed through a property seminar, loses their option fee or purchases a right in something that never actually existed.
Section 29WH prohibits the sale of options in land banking schemes unless the scheme is a registered scheme or the deposit is held in a trust account and provides that the deposit must be returned to the purchaser if the event triggering the option does not occur within five years.
- Failure by the vendor to transfer the option fee into a trust account leads to fines of 240 penalty units (approximately $40,000), or imprisonment of up to 2 years (or both) and corporations face a fine of 1,200 penalty units (approximately $200,000).
For a more detailed analysis of how the new provisions apply to your situation please contact Elizabeth Chase, Partner – Property & Commercial.
P: +61 3 9670 4033 | D: +61 3 9602 9011