There have been changes to the law affecting off the plan contracts for the sale of land. As a result of these changes and changes to the prescribed General Conditions, vendors risk facing contractual uncertainty if they do not update:
- the form of their off the plan contracts of sale;
- any outdated contracts in circulation but not yet signed by purchasers; and
- any outdated contracts signed after 1 March 2012 which do not reflect the changes in the law (with purchaser's consent).
What are the changes in law?
As a result of changes to the Sale of Land Act 1962 (Vic) (SLA):
- Purchasers of land no longer lose their cooling off rights if they have received pre-contractual legal advice, provided that:
- they comply with the cooling off provisions (e.g. written notice provided within 3 clear business days of signing the contract); and
- there is no other applicable exception to the cooling off provisions (e.g. public auction, purchaser is a company, land used for industrial or commercial purposes).
- Deposits can no longer be held in vendor/purchaser joint accounts for off-the-plan sales.
In addition, amendments to the Estate Agents (Contract) Regulations 2008 (Regulations) have resulted in changes to the prescribed General Conditions to the Contract of Sale. The revised General Conditions include, amongst other amendments, the changes to the SLA described above.
The above changes came into effect on 1 March 2012.
Issues arising where sale of land contract was prepared but not signed before 1 March 2012
Contracts prepared using the old form General Conditions that were not signed before 1 March 2012 do not comply with the requirements of the SLA.
Section 9AE of the SLA – Deposit Monies
In relation to off the plan contracts, section 9AA(2) of the SLA provides that deposit moneys paid by the purchaser before registration of the plan must be paid to the legal practitioner, conveyancer or licensed estate agent acting for the vendor. Accordingly, contracts of sale which include the former General Condition 11.2(b)(ii), which allowed the deposit to be held in vendor / purchaser joint accounts are in breach of section 9AA(2). This does not affect those deposits held in interest bearing trust accounts or controlled monies accounts.
If a vendor of a property being sold off the plan does not comply with section 9AA of the SLA, then the purchaser has a right to rescind the contract any time before registration of the plan of subdivision (s 9AE, SLA).
Section 31(7) of the SLA – Notice to Purchasers – Cooling Off
If the cooling off provisions apply, the sale of land contract must contain a conspicuous notice advising the purchaser of his right to terminate the contract within three clear business days (s 31(6) SLA). If such a contract does not include the requisite notice, under s 31(7) purchaser may rescind the contract at any time before settlement.
This may include situations where the notice is not accurate, for example, where the previous standard form contract of sale was used, which stated that purchasers who received independent legal advice before signing the contract were not entitled to rely on the cooling off provisions.
Changes to General Conditions
General Condition 2.1 of the standard from contract of sale is a warranty by the Vendor that the General Conditions are identical to those prescribed by the Regulations. Any contract prepared before 1 March 2012 therefore must either be amended to update the new form General Conditions, or delete the warranty included at General Condition 2.1.
The issues arising under section 31(7) and General Condition 2.1 are not only applicable to off the plan contracts, but may exist for other contracts for the sale of land.
What are the consequences of not making these amendments?
The purchaser may have a right to rescind the contract at any time before the plan is registered or possibly at any time before settlement. The purchaser may also have rights arising from a breach of General Condition 2.1.
Recommendations for Vendors / Developers
All contracts for the sale of land signed on or after 1 March 2012 must comply with the change in the law.
- Contracts of Sale prepared prior to 1 March 2012 (using the now outdated General Conditions and cooling off notice) and signed after 1 March 2012 should be amended as follows:
- change the cooling off notice period by deleting the exception applicable where the purchaser receives independent legal advice before signing the contract;
- delete all of General Condition 2.1 (the Vendor warranty as to the form of the general conditions); and
- delete all of General Condition 11.2(b)(ii) (which allowed the deposit to be held jointly by the purchaser and vendor).
- Contracts of Sale prepared prior to 1 March 2012 which remain unsigned should be updated to include the new General Conditions (including the changes to the cooling off notice to purchasers).
Law Institute of Victoria – Legal Practitioners' Liability Committee, LPLC Bulletin, 'Important changes to Sale of Land Contracts: What practitioners need to do about it' ( March 2012).