After a tumultuous 2014, off the plan subdivision sales of land in Western Australia seem set for reinvigoration following the publication of Landgate’s Consultation Paper in March 2015 titled ‘Sale of Land Act: Proposals for Changes to Section 13’ (Consultation Paper).

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).

In the following Alert, Partner Catherine Wheeler and Associate Gulshan Price provide an outline, and discuss the proposed changes. 

As administrator of the SLA, Landgate must balance the need for consumer protection with the promotion of land development. 

In the Consultation Paper, Landgate proposes that the SLA be amended to allow vendors to enter into sale contracts before they own the relevant land subject to the imposition of certain purchaser protections, including:

  • Conditional Contracts (Contracts to be conditional upon the vendor becoming the registered proprietor of the sale property within 6 months);
  • Pre-contractual Statutory Warning (Contracts to include warnings disclosing that  the vendor is not the registered proprietor of the sale property and explaining the purchaser’s rights if the vendor does not become the registered proprietor of the sale property); and
  • Deposits to be Held by a Stakeholder (the purchaser’s deposit to be held by a third party such as a solicitor, settlement agent or real estate agent).

Background

In Barker v Midstyle Nominees Pty Ltd[1] (Barker) in 2014, the Court of Appeal found that the policy behind section 13 of the SLA was to:

  • constrain the business operations of land developers who are carrying out relatively large subdivisions; and
  • protect a purchaser from the risk that a vendor/developer never obtains title and is unable to effect settlement, causing loss to the purchaser.[2]

The Court of Appeal went on to find that:

  • Contracts entered into in breach of section 13 of the SLA are enforceable by the purchaser but unenforceable by the vendor; and
  • Contracts remain unenforceable by the vendor even if the vendor later becomes the registered proprietor of the sale property.

Impact

Landgate recognised that following the Barker decision, purchasers and vendor developers could be left in an uncertain position.  The need for purchasers to be protected, however, still remained.

Having regard to the advantages and disadvantages of permitting vendors to enter into sale contracts for subdivision lots prior to owning the land (referred to below and in the Consultation Paper as “Non-Owner Sale off the Plan contracts”), Landgate (in favour of the proposal) stated:   

“Landgate’s view, following consultation with Key Stakeholders, is that the advantages of Non-Owner Sale off the Plan contracts outweigh the disadvantages and that, providing the consumer protection policy objectives of section 13 can be addressed, Non-Owner Sale off the Plan contracts should be permitted.”[3]

Consultation Paper Proposals

Following consultation with industry representatives, professional bodies and government, Landgate developed the following proposals for comment:

Contract Conditional [4]

Proposal 1:   The prohibition against a Non-Owner Sale off the Plan of a lot in a Large Subdivision not apply if the sale contract is conditional on the vendor becoming the registered proprietor, or becoming entitled to become the proprietor, of the lot within 6 months, or such other date provided in the contract (which could be varied by agreement).

Proposal 2:  A contract not conditional on the vendor becoming the registered proprietor within 6 months, or within another time provided in the contract, would be void. Any deposit paid would be returned.

Proposal 3:  The Act set out the consequence of the condition in Proposal 1 not being met within time, including requiring the return to the purchaser of any deposit paid.

Proposal 4:  The consequence for the condition in Proposal 1 not being met within the time could be, in addition to the return any deposit paid, that:

  • 4.1        the sale contract automatically terminates with no need for notice by either party; or
  • 4.2        the vendor can terminate by giving notice within a set time; or
  • 4.3        the purchaser can terminate by giving notice within a set time; or
  • 4.4        either the purchaser or the vendor can terminate by giving notice within a set time; or
  • 4.5        either the purchaser or the vendor can terminate by giving notice within a set time, up until the time condition is satisfied.

Pre-contractual Statutory Warning [5]

Proposal 5:  If any of Proposals 4.2 – 4.5 above are implemented, that the Act require a pre-contractual statutory warning to be included in a Non-Owner Sale off the Plan contract for a lot in a Large Subdivision. A pre-contractual statutory warning would not be required if Proposal 4.1 was implemented.

Proposal 6:  That the statutory warning include, as a minimum, a statement:

  • 6.1        that the vendor is not currently the registered owner of the lot; or
  • 6.2        an explanation of the purchaser’s rights if the vendor does not become the registered owner of the Land; or
  • 6.3        a combination of 6.1 and 6.2 above: a warning that the vendor is not currently the registered owner of the lot and an explanation of the purchaser’s rights if the vendor does not become the registered owner of the Land.

Deposit to be Held by Stakeholder [6]

Proposal 7:  A Non-Owner Sale off the Plan contract for a lot in a Large Subdivision should require the purchaser’s deposit to be paid to a solicitor, settlement agent or real estate agent as stakeholder.

Proposal 8:  The deposit should be retained until the earlier of:

  • 8.1        the vendor becoming the registered owner of the land; or
  • 8.2        the settlement and the registration of the transfer to the purchaser; or
  • 8.3        if Proposal 1 is adopted, satisfaction on the condition.

Proposal 9:  The purchaser has the right to avoid the contract if the contract does not require the purchaser’s deposit to be paid to a solicitor, settlement agent or real estate agent as stakeholder.

Conclusion

The period for comment on the Consultation Paper has now closed.

We eagerly anticipate the outcome of the consultation process and potential draft changes to the SLA in due course.  Whilst it may be too early to speculate on which proposals may be implemented, it is clear that the signs are positive for developers and consumers alike.