Background

It is common practice for a developer to sell a lot in a subdivision before they are the registered proprietor.

However, section 13 of the Sale of Land Act 1970 WA (SLA) prohibits the sale of a lot by a person with the right to sell five or more lots in a subdivision or proposed subdivision, or two or more strata lots, unless the person is the registered proprietor of those lots (though there are exceptions as provided in the section).

Barker v Midstyle Nominees Pty Ltd

In 2014, the WA Court of Appeal confirmed the position of section 13 of the SLA. It found in Barker v Midstyle Nominees Pty Ltd [2014] WASCA 75 that a contract of sale of a proposed lot in a subdivision entered into before the land is owned by the vendor is in breach of Section 13 of the SLA.

The Court of Appeal went on to find that:

  • the sale contract is unenforceable by the vendor, even after the vendor becomes the registered proprietor of the land; and
  • contracts entered into in breach of section 13 of the SLA are enforceable by the purchaser but unenforceable by the vendor.

The situation leaves both the purchaser and the vendor/developer in an uncertain position. The effect is that purchasers and vendors/developers of lots in a proposed subdivision may not be prepared to enter into these types of contract.

Proposed changes

The Sale of Land Amendment Bill 2016 (Bill) was introduced in the Western Australian Parliament on 23 June 2016.

The Bill seeks to balance both the interests of land developers and provide protection to purchasers.

The Bill ensures that the SLA will continue to provide protection to purchasers by providing certainty in relation to sales contracts where the land being sold is not yet owned by the land developer.

The key amendments are:

  • Broader consumer protection: the restriction on the sale of lots will be applied to the sale of one or more lots in a subdivision, including strata subdivisions, rather than on sales of five lots or more or two lots or more in a strata subdivision;
  • Conditional contracts: a contract of sale of any lot in a subdivision where the vendor is not the owner of the land (future lot contract) will be conditional upon the vendor becoming the registered proprietor of the lot within 6 months, or such other date provided in the contract. In addition, a requirement will be included for ‘reasonable endeavours’ to cause the ‘vendor’s condition’ to be satisfied;
  • Pre-contractual statutory warning: it is proposed that a pre-contractual statutory warning be included in the future lot contract. This warning will state that the vendor is not currently the registered owner of the lot and include an explanation of the purchaser’s rights. If the warning is not contained in the contract then the contract will be illegal and void;
  • Greater surety of outcomes: an obligation to inform the purchaser about progress towards the vendor’s condition being satisfied must be included in the future lot contract;
  • Deposits to be held by a stakeholder: any deposit or other monies paid to the vendor/developer will be held by a licensed settlement agent, real estate agent or a solicitor in a trust account in Australia. The deposit monies will be recoverable in the event of the contract of sale being terminated if the vendor’s condition is not satisfied within 6 months or such date as is provided in the future lot contract;
  • Higher penalties: will be introduced for failure to comply with the SLA. The penalty for breach of section 13 of SLA is currently set at $750. This penalty will be increased to $100,000 to provide a greater deterrent.