In September 2018, we published an article regarding the retrospective changes proposed to residential off-the-plan sunset clauses under the Sale of Land Amendment Bill 2018 (Bill). The Bill, amongst other things, regulates how a vendor may terminate an off-the-plan contract on the grounds that a sunset date for registration of the plan of subdivision has lapsed.

The Bill, which came out of the Andrews Labor Government’s broader consumer property law review in 2016/2017, has been reintroduced into the Legislative Assembly and received its second reading speech on 21 March 2019. Its passing as law now appears imminent.

Sunset date termination restrictions

The terms of the Bill that has been reintroduced to Parliament in 2019, are almost identical to the 2018 Bill. To re-cap from our previous article, a vendor will be required to undertake the following steps before it can exercise its sunset date termination right:

1. The vendor must obtain the purchaser’s prior written consent.
2. A contract may only be rescinded under a sunset clause if the plan of subdivision has not registered, or an occupancy permit has not yet issued.
3. The vendor must provide the purchaser with at least 28 days’ notice and the notice must set out reasons why the vendor is proposing to rescind the contract and the reason for the delay in either obtaining registration of the plan or issuing of the occupancy permit.
4. A purchaser is not required to accept the vendor’s proposed rescission. The only avenue available to the vendor if the purchaser does not accept is to apply for an order from the Supreme Court.
5. The Supreme Court may make an order permitting the vendor to rescind the contract if it believes it is 'just and equitable in all the circumstances.' The Bill sets out various items which the Court may consider in determining whether to make this order.

Other changes by the Bill

There are a number of other notable changes introduced by the Bill, including the following:

Increased vendor disclosure requirements when selling land

The Bill increases a vendor’s disclosure obligations under the Sale of Land Act 1962 (Vic) (SLA). It will be an offence for a person to ‘knowingly’ (previously ‘fraudulently’) conceal a material fact with the intention of inducing any person to buy land. This obligation is in addition to the prescribed list of disclosure items contained in S32 of the SLA.

The records of Parliament’s debate over the Bill reveal that the Government was concerned about disclosure of certain facts regarding a sale of a property, such as its history of the site of a homicide, or its past use as a site on which illicit drugs were manufactured. However, does the reference to ‘knowingly’ rather than ‘fraudulently’ go further and capture, for example, contamination that a vendor considers may be present at a development parcel?

It is intended that the Director of Consumer Affairs may make guidelines to help vendors of land and estate agents understand what is likely to be a material fact. What is clear is the increased level of thought and analysis that will be required when selling land to identify any material facts which should be disclosed, particularly before any guidelines are issued by the Director of Consumer Affairs.

Rent to buy restrictions

In a challenging market, clients are considering a number of different ways to realise income, particularly where they hold larger quantities of residual stock. One model which may be appropriate in limited circumstances is for a purchaser to rent a dwelling for a period of time before purchasing the dwelling. That model typically involves a residential tenancy agreement coupled with an option to purchase, with rental payments being set off against the purchase price on settlement.

The Government considers that rent to buy arrangements pose significant risks for consumers, particularly if a purchaser/tenant falls behind with rent and has its agreements terminated, or cannot afford to settle, forfeiting potentially considerable sums to the vendor.

As a result, the Bill prohibits rent to buy arrangements unless one of the parties is the Director of Housing or a registered housing association, or the arrangements comply with guidelines yet to be issued by the Government. Assuming the guidelines are issued shortly, watch out for an update on those rent to buy arrangements that will be acceptable in the next edition of The Lot.

Terms contracts

The Bill will amend the SLA to prohibit the use of terms contracts absolutely for residential land sales (other than agricultural land) under a monetary threshold that is yet to be prescribed in regulations made under the SLA.

As a reminder, a terms contract of sale is, broadly, a contract of sale under which the purchaser is:

• obliged to make two or more payments (other than a deposit or final payment) to the vendor after contract execution and before it is entitled to take a transfer of the land; or
• entitled to possession of the land before it becomes entitled to take a transfer of the land.

The SLA currently imposes additional requirements on a vendor and purchaser if they intend to enter into a terms contract.

The Government’s consumer property law review identified concerns that terms contracts could be used to take advantage of vulnerable purchasers who could not access conventional mortgage finance. Those purchasers may be able to sign up to a terms contract and afford to make some, but not all, instalment payments and might, as a result, forfeit all instalments paid if they could not settle.

The Government did note that terms contract arrangements may be appropriate and useful for the sale of commercial high value residential and agricultural land. We anticipate the monetary threshold should be sufficient to allow these arrangements to continue.