On 3 May 2013, the Supreme Court of Victoria handed down its decision in Lockwood v PSP Investments Pty Ltd  VSC 10.
This decision considers when an amendment to a proposed plan of subdivision by a vendor gives a purchaser the right to rescind a contract of sale.
In January 2010 Mr Lockwood entered into eight contracts with PSP Investments Pty Ltd ("PSP Investments") for the sale of land off the plan. Four of the contracts related to the purchase of apartments, and four related to car parks to be constructed on a development known as 'Ecosquare.'
In early 2012, the City of Port Phillip required the car park lots to be deleted from the Plan of Subdivision ("the Plan") and converted into common property. Lot 800 on the Plan was also deleted and merged into common property. Mr Lockwood was not informed of these amendments until after the Plan had been registered.
Mr Lockwood commenced proceedings for a declaration under section 9AC(2) of the Sale of Land Act 1962 ("the Act") that the four contracts for the purchase of the apartment lots had been validly rescinded, and for the return of the deposit monies paid in respect of the contracts. Mr Lockwood contended that the apartment contracts had been materially affected by the amendments to the Plan.
The issue before the Supreme Court was whether the amendments to the Plan materially affected the lot, and therefore entitled the purchaser to rescind the apartment contracts under section 9AC(2) of the Act.
The Victorian Supreme Court Decision
Justice Judd in the Supreme Court referred to the decision of Justice Pagone in Besser v Alma Homes Pty Ltd 1, and stated that there is no requirement in section 9AC(2) of the Act that the material effect be deleterious or adversely affect the lot or the rights of the purchaser.
The Court stated that the material effect required under section 9AC(1) is a change in the subject matter of the contract of sale. Here, Justice Judd stated that the deletion of the car parking lots and lot 800 from the Plan had the effect of enlarging the common property relating to each apartment lot, and therefore changed the corresponding rights and obligations of the owners of each apartment.
Justice Judd also indicated that when considering the impact of the amendment, the car park and apartment contracts should be considered together. He found that both parties would have understood that the car parks were purchased for use with the apartment lots, and that the car park lots enhanced the value to the purchaser of each apartment. Justice Judd found that the deletion of the car park lots and the inability of the vendor to complete those contracts, materially (and adversely) affected each apartment lot. The Court declared that the apartment contracts had been validly rescinded pursuant to section 9AC(2) of the Act. The Court ordered the return of the deposit monies paid in respect of these contracts under section 9AF(1)(b) of the Act.
Impact of the Decision
When considering whether an amendment to a plan of subdivision has materially affected a lot, vendors should be aware that:
- The effect need not be detrimental to the purchaser, any material affect may give rise to the right to rescind a contract of sale;
- Consideration must be given to the subject matter of the contract, and whether the amendment has changed the context in which the purchaser entered into the contract;
- Contracts between the purchaser and vendor that appear to be related should be considered together when determining the impact of the amendment on a lot.