Section 9AB of the Sale of Land Act (Vic) – The cost of failing to comply with Disclosure Obligations
Section 9AB of the Sale of Land Act 1962 (Vic) (SLA) requires a vendor in an off-the-plan contract to disclose details of works affecting the natural surface level of the lot being sold.
In a recent case, Asia Digital Investments Pty Ltd v Mara Dextra Pty Ltd  VSC 565, a vendor failed to properly comply with section 9AB of the SLA and as a result the purchaser was entitled to rescind the off-the-plan contracts.
Section 9AB of the SLA is particularly important in off-the-plan land sales across all sectors (including residential and industrial) as it provides details to a purchaser about surface levels of the land which will be relevant for any building to be constructed by the purchaser. It can be a disclosure requirement that is often overlooked or not properly considered. The Asia Digital case demonstrates that not dealing properly with disclosure under section 9AB of the SLA does not end well.
Read on for the detail and key takeaways.
Section 9AB of the SLA
Section 9AB of the SLA requires that the vendor under an off-the-plan contract must disclose to the purchaser details of any works affecting the natural surface level of the land in the lot to which the contract relates, or any land abutting the lot which is in the same subdivision.
In respect of works known at the time the off-the-plan contract is exchanged, the vendor must disclose, to the extent of the vendor’s knowledge, surface level works which:
- have been carried out on the land after the certification of the plan of subdivision and before the date of the contract; or
- are at the date of the contract being carried out or proposed to be carried out.
After the off-the-plan contract has been exchanged the vendor must disclose, to the extent not disclosed previously in the contract and to the extent of the vendor’s knowledge, surface level works which:
- have been carried out on the land after the date of the contract and before the registration of the plan of subdivision; or
- are proposed to be carried out before registration of the plan of subdivision.
Section 9AB(3) of the SLA requires the vendor to make disclosure as soon as practicable after the details to be disclosed come to the knowledge of the vendor.
If a vendor fails to comply with its disclosure obligations under section 9AB of the SLA, then a purchaser may rescind an off-the-plan contract at any time before registration of the plan of subdivision in accordance with section 9AE of the SLA.
Further, if it is found that a vendor knowingly or recklessly supplies false information, or fails to supply all information, then the vendor is guilty of a criminal offence and subject to a fine of not more than 50 penalty units (a penalty unit in Victoria is currently $192.31)
The facts of the Asia Digital Case
The case was brought by Asia Digital Investments Pty Ltd, as purchaser under two contracts of sale for 2 adjoining lots in Portsea which had been owned by the vendor, Mara Dextra Pty Ltd, for 60 years. The purchaser engaged an engineering firm to develop the lots on the land, together with the builder and architect to complete the design elements of the dwelling.
The communications after the contracts were entered into and relevant key dates in this case include:
- On 12 November 2021, the vendor’s estate agent emailed a number of engineering plans to the purchaser’s builder, copying in the civil engineering firm and architect.
- On 31 August 2022, the vendor’s estate agent emailed a copy of the engineering plans approved by Council dated 24 December 2021 to the purchaser’s builder and civil engineers.
- On 1 October 2022, surface level works (in the form of the 24 December 2021 Council approved plans) were commenced.
- The works were completed on 24 December 2022.
- On 5 October 2022, the purchaser received its first notice of the impact of the surface level works. Due to the height limit on development of the land, the impact of the surface level works meant it would be difficult for the dwelling to have two storeys as planned.
- On 22 December 2022, the purchaser’s solicitors wrote to the vendor’s solicitor, giving notice of the purchaser’s intention to terminate the contracts unless the vendor provided a legitimate justification in writing for its failure to comply with section 9AB by 6 January 2023.
- On 30 January 2023, the purchaser’s solicitors issued a rescission notice. The vendor contested this rescission notice.
- On 17 February 2023 the vendor’s lawyer issued a formal disclosure notice under section 9AB of the SLA to the purchaser at the notice details provided in the contract of sale.
- The purchaser then issued proceedings in the Supreme Court of Victoria seeking orders that its purported rescission of the contract was valid, and for a return of its deposit.
The issues in dispute were whether the vendor’s purported disclosure met its disclosure obligation under section 9AB of the SLA. In particular, whether the disclosure was made:
- to the purchaser;
- as soon as practicable after the details required to be disclosed came to the knowledge of the vendor; and
- with the requisite details.
Key findings of the Court
The Supreme Court considered whether the vendor complied with its obligation under section 9AB of the SLA, and found as follows:
Was disclosure made to the purchaser? No.
Section 9AB requires that disclosure must be made ‘to the purchaser’. The proper construction of Section 9AB of the SLA requires disclosure to be made directly to the purchaser, or any person nominated by them to receive communications on their behalf (such as their lawyer). This authority must be expressly conferred.
The sending of plans to the purchasers builders, engineers and architect did not amount to disclosure ‘to the purchaser’ for the purposes of Section 9AB.
Was disclosure made as soon as practicable? No
Where plans are prepared and decided upon, works are ‘proposed’ despite the fact that they may change before they are commenced. A vendor is required to make disclosure as soon as reasonably practicable after details of those works are decided upon. Council approval, or any other authority approval, of plans is not a pre-requisite before works have to be disclosed.
Further, section 9AB is not a one off disclosure requirement. Where plans are prepared and decided upon, works would be ‘proposed’ despite the fact that they may change before the time they are commenced. Accordingly, section 9AB contains continuous disclosure obligations, and a vendor is required to make disclosure of the details of the relevant changes to the works as soon as reasonably practicable after those details have been sufficiently decided upon.
Was the requisite detail provided? No
The disclosure did not adequately bring to the purchaser’s attention that works affecting the surface level of the lots were planned to be undertaken. Plans were provided (noting that they were issued to the wrong party), but there was no clear prose to demonstrate that they were being made in respect of mandatory disclosure under section 9AB of the SLA and affected surface level works. No assumptions can be made that a purchaser has specialised knowledge that would ensure they could draw an inference of proposed surface works from the provision of technical plans without reference to the purpose of disclosure.
The Supreme Court maintained the purchaser validly rescinded the contracts under Section 9AE(1) and was entitled to the return of the deposits under Section 9AF(1)(b) of the SLA.
The decision in the Asia Digital Case is an important reminder that in off-the-plan sales section 9AB of the SLA can be a sleeping liability item for developers. If a vendor does not comply with section 9AB of the SLA, then a purchaser has a right to rescind its contract regardless of whether there is any detriment to the purchaser.
Accordingly, it is important for developers to be mindful of the principles of section 9AB and disclosure, as they are the ones managing the technical details around changes to surface levels with their engineers and other consultants. It is not one to put in a drawer and then give to lawyers to disclose just before settlement.
Key takeaways for developers to remember are:
- Section 9AB contains continuous disclosure requirements. If details are disclosed in a contract of sale, and they then change, an update will need to be issued to be purchasers as soon as practicable. This is perhaps the most important takeaway for developers – if changes are in play, also discuss those changes with your lawyers as well as other consultants.
- Give the relevant details to your lawyers to disclose. Attempting to disclose direct to a purchaser may be possible, but is fraught with the danger of not serving the correct person with the disclosure material.
- Make sure the plans show sufficient detail. The formal disclosure notice through your lawyers can then make it clear to purchasers the purpose of disclosure (section 9AB of the SLA) and will draw their attention to those plans.
If you have any questions, or need any help, contact your Development team contact.
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