The decision in the Supreme Court of Victoria, Besser v Alma Homes Pty Ltd1, provides some guidance as to the basis on which a purchaser may rescind an ‘off-the-plan’ contract where the vendor amends the plan of subdivision in a way which will “materially affect the lot to which the contract relates”.
The case concerned a contract of sale for a lot on an unregistered plan of subdivision (defined as a “prescribed contract of sale” in the Sale of Land Act 1962 (Vic), but commonly referred to as an ‘off-the-plan’ contract).
The purchaser (Ms Besser) entered into an ‘off-the-plan’ contract to acquire the property from the vendor, one of four lots on an unregistered plan of subdivision, and paid a 10% deposit of $125,000 in doing so.
The property was identified in the contract by reference to a proposed plan of subdivision, a copy of which was annexed to the vendor’s statement. That plan included an owner’s corporation schedule identifying the entitlements and liabilities of each lot. The purchaser’s entitlement and liability was specified as 25% of the total (i.e. 100 out of 400).
The plan of subdivision that was ultimately registered identified the purchaser’s lot entitlement and liability as .49% (1 out of 202).
After receiving notification of the plan’s registration, the Purchaser sought to rescind the contract on the basis that the amendment to the plan of subdivision would “materially affect the lot to which the contract relates” under section 9AC of the Sale of Land Act 1962 (Vic). Section 9AC states as follows:
- If after a prescribed contract has been entered into and before the registration of the relevant plan of subdivision an amendment to the plan is required by the Registrar or requested by the vendor, the vendor shall within 14 days after the receipt of the requirement of the Registrar or the making of the request by the vendor (as the case requires) advise the purchaser in writing of the proposed amendment.
- The purchaser may rescind a prescribed contract of sale within 14 days after being advised by the vendor under subsection (1) of an amendment to the plan of subdivision which will materially affect the lot to which the contract relates.
The purchaser also sought a refund of the deposit on the basis of her purported rescission.
The vendor contended that the purchaser was not entitled to rescind or to a refund of the deposit on the following grounds:
- The amendment to the lot entitlement and liability was not an amendment to the plan of subdivision because it “did not affect the boundaries of the property or its physical features”.
- The amendment to the lot entitlement and liability did not materially affect the purchaser’s lot because it was primarily made in order to benefit the purchaser’s lot by shifting the liability for the maintenance of the common property to the lots in the plan which would have more use of the common property.
Decision of Supreme Court
The Supreme Court ultimately declared the purchaser’s rescission to be valid and ordered the return of her deposit by the vendor. The Court determined that the amendment to the lot entitlement and liability within the meaning of Section 9AC:
- was “an amendment to the plan”; and
- did “materially affect the lot”,
In determining that an amendment had been made to the plan of subdivision, the Court adopted a broad view of what constitutes a plan of subdivision, extending it beyond the physical dimensions and boundaries to “the respective rights and obligations which were attached to each of the lots” by virtue of the owners’ corporation entitlement and liability.
In determining that the amendment to the lot entitlement and liability would “materially affect the lot”, the Court:
- promoted a test which looks at “objective facts and circumstances” (rather than the reason for, or benefits which may arise from, the amendment); and
- considered the various voting and other rights under the Owners Corporation Act 2006 which would be affected by such a significant change to a lot’s entitlement and liability.
Lessons to be learned
Amendments to plans of subdivision prior to registration are common, particularly in large master-planned or multi-stage developments.
Developers should remain mindful of the risks associated with amending their plans of subdivision during the course of development, including where the amendment will result in a change to a purchaser’s owner’s corporation lot entitlement or liability.
Such risks may be mitigated by developers by ensuring that the proposed plans of subdivision attached to their ‘off-the-plan’ contracts are as close to their final form as possible.