Practice Paper P303 Conveyancing of Units and Subdivided Property PDF

PRACTICE PAPER P303 Conveyancing of Units and Subdivided Property By Julie Van Dort LLB (Melb) Barrister and Solicitor of the Supreme Court of Victoria Revised by Megan Thorburn BSc, DipLaw (LPAB), GDLP, AccS(Prop) Principal, CCP Law Adjunct Lecturer, The College of Law Victoria August 2023 © 2023 The College of Law Limited This publication is copyright. Except as permitted under the Copyright Act 1968 (Cth), no part of this publication may be reproduced by any process, electronic or otherwise, without the specific written permission of the copyright owner. Neither may information be stored electronically in any form whatsoever without such permission. Disclaimer The practice papers have been prepared as practice guides primarily for students at The College of Law and also for legal practitioners. They are not intended to be a comprehensive statement of the law or practice and should not be relied upon as such. If advice on the law or practice is required or required to be given, professional advice should be sought and practitioners should undertake their own legal research. P303 Conveyancing of Units and Subdivided Property CONTENTS 1 INTRODUCTION......................................................................................................... 7 1.1 Overview..................................................................................................................... 7 1.2 Scope of paper............................................................................................................ 7 1.3 Relevant legislation...................................................................................................... 7 1.4 Forms of subdivision.................................................................................................... 8 2 SUBDIVISION............................................................................................................. 8 2.1 Overview..................................................................................................................... 8 2.2 Lots and common property........................................................................................... 9 2.3 Plan of subdivision....................................................................................................... 9 2.4 Owners corporation...................................................................................................... 9 2.5 Unlimited and limited owners corporation..................................................................... 10 2.6 Owners corporation f unds........................................................................................... 10 2.7 Owners corporation decision-making........................................................................... 10 2.8 Insurances................................................................................................................ 11 2.9 Rules........................................................................................................................ 11 2.10 Lot liability and entitlement.......................................................................................... 12 2.11 Disputes.................................................................................................................... 12 3 MULTIPLE OWNERS CORPORA TIONS..................................................................... 13 4 STAGED SUBDIVISIONS........................................................................................... 13 4.1 Concept and purpose................................................................................................. 13 4.2 Planning legislation.................................................................................................... 13 4.3 Developer’s obligations under the development contract............................................... 13 4.4 Windf all gains tax....................................................................................................... 14 5 PROVISIONS OF THE STANDARD CONTRACT......................................................... 14 5.1 Content of standard contract....................................................................................... 14 5.2 Sale of property off the plan – additional contract provisions.......................................... 14 5.3 Vendor statement...................................................................................................... 15 5.4 Title particulars.......................................................................................................... 15 5.5 Building approvals...................................................................................................... 15 5.6 Restrictions on title..................................................................................................... 15 5.7 Rates and taxes......................................................................................................... 15 5.8 Growth Areas Inf rastructure Contribution..................................................................... 16 5.9 Services.................................................................................................................... 16 5.10 Owners corporation.................................................................................................... 16 6 ACTING FOR THE VENDOR...................................................................................... 17 6.1 Taking instructions..................................................................................................... 17 © The College of Law Limited 3 THE COLLEGE OF LAW PROPERTY 6.2 Owners corporation enquiry.........................................................................................17 6.3 Preparation of vendor statement and contract...............................................................17 7 ACTING FOR THE PURCHASER................................................................................17 7.1 Overview...................................................................................................................17 7.2 Purchaser checklist.....................................................................................................17 7.3 Title investigation........................................................................................................19 7.4 Review of the plan of subdivision.................................................................................20 7.5 Owners Corporation Rules..........................................................................................20 7.6 Lot liability and entitlement..........................................................................................21 7.7 Staged subdivisions....................................................................................................21 7.8 Records and register of the owners corporation.............................................................21 7.9 Contract provisions and any special conditions..............................................................22 7.10 Checking the vendor statement....................................................................................22 7.11 Review of owners corporation certif icate.......................................................................23 7.12 Investigations regarding insurances..............................................................................23 7.13 Notice of transf er........................................................................................................23 7.14 Adjustments...............................................................................................................23 8 OFF-THE-PLA N SALES..............................................................................................24 8.1 Overview...................................................................................................................24 8.2 Off -the-plan difficulties................................................................................................24 8.3 Sale of Land Act requirements.....................................................................................24 8.4 Recommended disclosure...........................................................................................25 8.5 Acting for the vendor...................................................................................................26 8.6 Acting for the purchaser..............................................................................................28 8.7 Legal principles..........................................................................................................29 8.8 Fulf ilment of conditions................................................................................................29 8.9 Change to description of the proposed lot.....................................................................30 8.10 Change to character or use of the development.............................................................31 8.11 Certainty of description of the property.........................................................................31 8.12 Suggested special conditions.......................................................................................31 8.13 Purchaser duty concession..........................................................................................33 APPENDICES.........................................................................................................................34 APPENDIX 1 – INSTRUCTIONS CHECKLIS T – VENDOR..........................................................34 APPENDIX 2 – OFF-THE-PLAN SALES – VENDOR ISSUES.....................................................36 APPENDIX 3 – OFF-THE-PLAN SALES – PURCHASER ISSUES...............................................38 4 © The College of Law Limited P303 Conveyancing of Units and Subdivided Property ABBREVIATIONS Building Act Building Act 1993 (Vic) DBCA Domestic Building Contracts Act 1995 (Vic) GAIC growth areas inf rastructure contribution GC general condition GST goods and services tax OCA Owners Corporations Act 2006 (Vic) OCR Owners Corporations Regulations 2018 (Vic) PEA Planning and Environment Act 1987 (Vic) s 173 agreement agreement under Planning and Environment Act 1987 (Vic) s 173 SLA Sale of Land Act 1962 (Vic) standard contract Contract of sale of land published by the Law Institute of Victoria and the Real Estate Institute of Victoria Ltd (August 2019 version) Subdivision Act Subdivision Act 1988 (Vic) WGT windf all gains tax REFERENCES Condlif f e P, Owners Corporation Disputes – Cases and Materials (Peter Condlif f e, 3rd ed, 2017) Consumer Af f airs Victoria, Guide to owners corporations: Owning, managing and living in a unit or apartment (State of Victoria, 2018) Libbis S, Conveyancing Victoria 2022 (Hybrid Publishers, 8th ed, 2022) Libbis S, Subdivisions Victoria: The Ultimate Guide (Hybrid Publishers, 2nd ed, 2015) Lloyd D P and W F Rimmer, Sale of Land Act Victoria (Thomson Reuters, 2015) © The College of Law Limited 5 THE COLLEGE OF LAW PROPERTY ACKNOWLEDGMENTS This practice paper was written by Julie Van Dort LLB (Melb) and is regularly reviewed and updated (as necessary) by College of Law academic staff and other legal practitioners. Previous reviewers include Tom Pikusa in 2005, Elspeth McNeil BA (Hons), LLB (Melb), GradCertHigherEd(Mon) in March 2006 and 2009–2010, Julie Van Dort in December 2006, Kristoffer Greaves BA, LLB (Hons) (UNE), GDLP (Leo Cussen) in 2011, Kamilla Shaw LLB (Latrobe) in 2012, Kristine Pham LLB (UTAS) in 2013–2015, Lee Lesley Horton BA, DipLaw (LPAB), GDLP in 2016 and 2017, Megan Thorburn BSc, DipLaw (LPAB), GDLP, AccS(Prop) in 2018–2019 and 2021–2022, and Simon Libbis BJuris, LLB, AccS(Prop) in 2020. Current revision by Megan Thorburn, August 2023. 6 © The College of Law Limited P303 Conveyancing of Units and Subdivided Property 1 INTRODUCTION 1.1 Overview When acting f or a client on the sale or purchase of a lot in a plan of subdivision, you need to have a thorough knowledge of general conveyancing law and practice as well as of the specific conveyancing issues that arise on those sales and purchases of f-the-plan. These specific issues include the relevant legislation, conveyancing practices f or of f-the-plan sales and purchases, and council planning requirements, as well as knowledge of the dif f erent types of subdivisions. Most medium to large residential subdivision developments (and many small developments) are marketed of f the plan. The expression “of f-the-plan” is commonly used to describe sales of lots on unregistered plans where the contract is subject to the registration of the plan of subdivision. 1.2 Scope of paper This practice paper considers conveyancing issues and procedures that are particular to the sale and purchase of lots on plans of a subdivision. A brief outline of the various forms of subdivision is provided by way of background. This paper includes a limited discussion of conveyancing procedures. For a more thorough treatment of general conveyancing procedures ref er to Practice Paper P302 Sale and Purchase of Land. 1.3 Relevant legislation The applicable legislation is set out below: Subdivision Act 1988 (Vic) (Subdivision Act); Subdivision (Procedures) Regulations 2011 (Vic); Subdivision (Registrar’s Requirements) Regulations 2011 (Vic); Owners Corporations Act 2006 (Vic) (OCA); Owners Corporations Regulations 2018 (Vic) (OCR); Sale of Land Act 1962 (Vic) (SLA); Building Act 1993 (Vic) (Building Act); Domestic Building Contracts Act 1995 (Vic) (DBCA); Planning and Environment Act 1987 (Vic) (PEA); South Yarra Project (Subdivision and Management) Act 1985 (Vic); Southgate Project Act 1994 (Vic); and Docklands Act 1991 (Vic). Bef ore the Subdivision Act came into operation in 1989, various other f orms of multiple ownership of property existed, including the f ollowing: Local Government Act 1958 (Vic), which applied only to horizontal subdivisions of land and not to building subdivisions; Transfer of Land (Stratum Estates) Act 1960 (Vic), which subsequently made the horizontal and vertical division of a building possible. Although many stratum title developments have been converted to subdivisions, some still exist; Strata Titles Act 1967 (Vic), which provided f or separate land titles to the units in a subdivided building, as well as restricted titles to accessory units such as car spaces. The body corporate rules and the unit owners’ rights and obligations were once f ound in the registered plan and in this Act; and Cluster Titles Act 1974 (Vic), which af f orded greater f lexibility in allowing for subdivision of land and of buildings, as well as accessory or restricted titles. © The College of Law Limited 7 THE COLLEGE OF LAW PROPERTY The Subdivision Act was originally designed f or villa unit developments in suburban areas. Several site-specif ic Acts still exist today that contain provisions in relation to management plans and by-laws, such as the South Yarra Project (Subdivision and Management) Act 1985 (Vic), Southgate Project Act 1994 (Vic) and Docklands Act 1991 (Vic). 1.4 Forms of subdivision When acting f or a vendor or purchaser of a unit or other lot on a plan of subdivision it is important to understand the basic concepts and the various f orms of subdivision. Historically the most common f orm of subdivision has been f or multi-storey residential units or apartment buildings. However, the legislation can also be used f or: townhouses and villa units, either f reestanding or attached; retail shops; commercial of f ices; industrial warehouses; retirement villages; wineries; and f arms. In addition, the legislation accommodates a combination of uses within a single development, known as mixed-use subdivisions. It is not unusual to f ind developments comprising two or more of the f ollowing components: residential; serviced apartments or hotel; retail; and of f ices. 2 SUBDIVISION 2.1 Overview The concept of subdivision includes the subdivision (by a registered plan) of land, a building or airspace into lots, with or without common property. The boundaries of the lots are def ined on the plan of subdivision and the common property is the remainder (being that part of the land, building and airspace that is not comprised in the lots). Lots are cubic airspace (they can also be above and/or below ground), so a subdivision can be perceived as horizontal and vertical in nature. Under the Subdivision Act, separate certif icates of title issue f or each lot (in f ee simple). The common property vests in the owners of the lots af f ected by the relevant owners corporation as tenants in common in proportion to their lot entitlement: s 30. However, while the Registrar of Titles creates a f olio f or any common property in the name of the relevant owners corporation as nominee f or those owners, the Registrar must not produce a certif icate of title f or the f olio: s 31. The titles f or the lots can be dealt with in the same way as a title f or any other Torrens title land; that is, the owner can sell, mortgage, lease or otherwise deal with the lot. Each lot owner’s share of the common property can only be dealt with as part of a dealing with that lot, under Subdivision Act Div 3 or s 32A (alteration, consolidation or re-subdivision of the land) or by the owners corporation in accordance with the OCR: Subdivision Act s 31A. 8 © The College of Law Limited P303 Conveyancing of Units and Subdivided Property 2.2 Lots and common property A lot is def ined as a part (consisting of one or more pieces) of any land (except a road, a reserve or common property) shown on a plan of subdivision that can be disposed of separately: Subdivision Act s 3. A lot may comprise cubic spaces on various levels of a building (which are not contiguous). For instance, part of a lot can be an apartment on an upper level of a building, another part of that lot can be a car space in the basement, and the remainder of the lot can be a storage space on ground level. Alternatively, the lots can be individually marked. The details of the lots and their area are f ound on the plan of subdivision. The location of the lots on a plan of subdivision must be shown by a diagram that def ines their boundaries. Boundaries must be shown by continuous lines, apart f rom certain specif ied boundaries for which broken lines or hatching must be used: Subdivision (Registrar’s Requirements) Regulations 2011 (Vic) reg 11. If a boundary is def ined by reference to a building or part of a building, the plan of subdivision must specify whether the boundary is the middle, interior or exterior face of the walls, ceilings and floors of the relevant part of the building or in another location: reg 10. The diagram must also show any subdivisions of air space, which include everything inside a vertical line extending f rom each boundary. There is no height limitation unless specified on the plan of subdivision. The common property is not restricted to the remainder of the surf ace area of the land but may include any depth underground and all airspace above the building and ground, depending on the registered plan. 2.3 Plan of subdivision A registered plan of subdivision illustrates: 2.4 what is comprised in a lot, f or example, that each apartment is a lot and the car parking space for each apartment is part of the same lot; the boundaries of a lot, for example, the upper boundary of a lot can be seen from the cross-sectional views of the plan; the extent of the common property; the lot liabilities and entitlements in a table; and notations as to any easements, covenants or restrictions on title af f ecting the land. Owners corporation A plan of subdivision may provide, and if the plan includes common property it must provide, f or the creation of one or more owners corporations: Subdivision Act ss 27 and 27A. When a plan providing for the creation of owners corporations or containing common property is registered, each owners corporation is incorporated and the owners of the lots are the members of the owners corporation: s 28(1). An owners corporation is a separate legal entity that has perpetual succession and can sue and be sued. Its powers and f unctions are set out in OCA Pt 2 Div 1. Although an owners corporation has many of the characteristics of a company, the Corporations Act 2001 (Cth) does not apply to it: Subdivision Act s 29. Amendments to the OCA commenced on 1 December 2021. A prescribed owners corporation (defined in the OCR as an owners corporation that levies annual f ees in excess of $200,000 in a f inancial year or that consists of more than 100 lots) has been replaced with f ive tiers of owners corporations: tier one – more than 100 occupiable lots and not a services only owners corporation; tier two – 51 to 100 occupiable lots and not a services only owners corporation; tier three – 10 to 50 occupiable lots and not a services only owners corporation; © The College of Law Limited 9 THE COLLEGE OF LAW PROPERTY tier f our – 3 to 9 occupiable lots and not a services only owners corporation; and tier f ive – owners corporation f or a 2-lot subdivision or a services only owners corporation. Tier one, tier two and tier three owners corporations are required to prepare annual f inancial statements in accordance with Australian Accounting Standards f or presentation at the annual general meeting of the owners corporation. Tier one owners corporations must, at the end of each financial year, have their f inancial statements audited by a registered or authorised auditor. Smaller owners corporations are subject to less stringent requirements. Tier one and tier two owners corporations are required to prepare and approve a maintenance plan. Tier one owners corporations had 12 months af ter 1 December 2021 to prepare and approve a maintenance plan. Tier two owners corporations have 24 months f rom 1 December 2021 to do so. Tier three, tier f our and tier f ive owners corporations may prepare maintenance plans, but it is not compulsory. 2.5 Unlimited and limited owners corporation Some plans create many owners corporations, which enables separation of the responsibilities to maintain and use common property. A lot may be af f ected by more than one owners corporation, of which one must be an unlimited owners corporation. While a lot can be af f ected by several limited owners corporations, it can only be af fected by one unlimited owners corporation: Subdivision Act s 27D. The owners corporation is usually the registered proprietor of the common property as nominee f or the owners of the lots af f ected by the owners corporation. 2.6 Owners corporation funds In addition to levying special f ees f or extraordinary items (OCA s 24), an owners corporation can set annual f ees to cover obligations such as administration, maintenance, repairs and insurance. If the owners corporation has an approved maintenance plan, the annual f ees must include fees based on lot liability that are suf f icient f or the maintenance plan to be implemented: s 23. If an owners corporation has a maintenance plan, then a maintenance f und must be established in the name of the owners corporation: s 40. 2.7 Owners corporation decision-making An owners corporation makes decisions by resolution at a meeting or by ballot: OCA s 90. However, s 11 provides that a power or f unction that does not require a unanimous or special resolution can be delegated to: the committee of the owners corporation; the manager of the owners corporation; a lot owner; the chairperson or secretary of the owners corporation; or an employee of the owners corporation. An owners corporation af fecting 13 or more lots must elect a committee at each annual general meeting: OCA s 100. An owners corporation af fecting f ewer than 13 lots is not required to, but may choose to, elect a committee. A committee must consist of at least three and not more than 12 members: s 103. The committee acts as a representative body of the owners. A committee has all the powers and f unctions delegated to it by or under s 11, subject to the rules of the owners corporation: OCA s 101. However, powers and f unctions that require a unanimous resolution, a special resolution or a resolution at a general meeting of the owners corporation cannot be delegated under s 11. 10 © The College of Law Limited P303 Conveyancing of Units and Subdivided Property Examples of matters that require a unanimous resolution of the members of the owners corporation include: altering the boundaries of any land af fected by the owners corporation: Subdivision Act s 32(c); creating and naming a new owners corporation: s 32(f ); and altering lot liability and lot entitlement: s 33. Examples of matters that require a special resolution of the members of the owners corporation include: providing services to owners and occupiers of lots: OCA s 12; leasing or licensing common property: s 14; and making, amending or repealing rules: s 138. Examples of matters that can only be dealt with at general meetings are: election of members of the committee: OCA s 100; and determination that a matter or type of matter determinable by ordinary resolution may only be determined by ordinary resolution at a general meeting: s 82. Whether or not there is a committee, the owners corporation may appoint a manager: OCA s 119. If the manager is paid a f ee, they must be registered with the Business Licensing Authority: Pt 12 Div 1. Managers of owners corporations may pass interim resolutions on some matters where no lot owner is present at the meeting to ensure that the owners corporations can f unction: s 78(1A). If a general meeting of an owners corporation has a quorum and the special resolution is not passed with the requisite number of votes, but there are no votes against the resolution, then the resolution is taken to be passed as an interim special resolution: s 97(1A). 2.8 Insurances The owners corporation must have reinstatement and replacement insurance f or all buildings on the common property to cover the cost necessary to replace, repair or rebuild the property to a condition substantially the same as when new: OCA s 59. A prescribed owners corporation (under OCR reg 5) must obtain a valuation of all buildings that it is liable to insure every 5 years and can determine that valuations be obtained more f requently: s 65. In addition, the owners corporation must ef f ect: public liability insurance f or the common property f or not less than $20m: OCA s 60; if a building is located above or below common property, a reserve or a lot – public liability insurance f or all lots on the plan of subdivision f or not less than $20m: s 61; and if a building is located above or below common property, a reserve or a lot – reinstatement and replacement insurance f or all buildings on each lot on the plan of subdivision: s 61. The owners corporation may also resolve to insure any additional insurable interest: in the land af f ected by the owners corporation; and relating to the perf ormance of its f unctions: OCA s 62. Large multi-level buildings with separate owners corporations on the same plan of subdivision must insure separately and be valued separately: s 61(3). 2.9 Rules When a plan of subdivision providing for the creation of an owners corporation is lodged for registration, it may be accompanied by proposed rules. On registration of the plan, those rules are taken to have been made by the owners corporation but can be later revoked or amended: Subdivision Act s 27E. Alternatively, the owners corporation may make rules later: OCA s 138. © The College of Law Limited 11 THE COLLEGE OF LAW PROPERTY If the owners corporation does not make any rules or revokes all of its rules, then the model rules will apply: OCA s 139. The model rules are set out in OCR Sch 2. A rule or a change to a rule only becomes ef f ective on the day that it is recorded in the Register at the Land Registry: OCA s 142. Rules essentially regulate the day-to-day living in a development. The rules must be f or the control, management, administration, use or enjoyment of the common property or a lot: OCA s 138(3). These are in addition to the duties and rights of lot owners and occupiers set out in OCA Pt 7. Rules bind the owners corporation, the lot owners, any lessee or sub-lessee of a lot and any occupier of a lot: s 141. Not all rules are valid and their recording in the Register does not necessarily making them valid. For example, see Owners Corporation PS 501391P v Balcombe VSC 384, which concerned the validity of rules prohibiting short stay accommodation. Sections 159A–159F have since been added to the OCA in an attempt to deal with this issue. An owners corporation may make rules in respect of proposed works to renovate or alter the external appearance of a lot (s 138B): to protect the quiet enjoyment of all other lots and the common property during those works; to protect the structural integrity of any building on the plan of subdivision f rom those works; and to ensure the market value of any other lot does not decrease as a result of those works. Rules cannot be oppressive to, unf airly prejudicial to or unf airly discriminate against, a lot owner or an occupier of a lot: s 140(a). 2.10 Lot liability and entitlement Lot liability is the proportion of the administrative and general expenses of the owners corporation for which the lot owner will be liable. Lot entitlement relates to the extent of the lot owner’s interest in any common property affected by the owners corporation. These numbers are allocated by the developer to the lots in proportion to the respective values of the lots as at the date of registration of the subdivision plan. A plan of subdivision that provides f or the creation of an owners corporation must specify details of the lot entitlement and lot liability (shown on a schedule) and must be accompanied by a document that specif ies the basis of the allocation: Subdivision Act s 27F. 2.11 Disputes The dispute resolution process is set out in OCA Pts 10 and 11 and in the OCR. A lot owner or occupier or a manager can make a complaint to the owners corporation about an alleged breach of the OCA, the OCR or the applicable rules: OCA s 152. The owners corporation must then decide whether to take action. However, it must not take action under Pt 10 or apply to the Victorian Civil and Administrative Tribunal (VCAT) f or an order requiring rectif ication of the breach (Pt 11) unless the dispute resolution process in the owners corporation rules (model rules r 6, set out in OCR Sch 2) has f irst been f ollowed and the matter has not been resolved (s 153). The owners corporation must also believe on reasonable grounds that the alleged breach has been committed. A complaint can be made to the Director of Consumer Af fairs Victoria, who has power to ref er the dispute f or conciliation or mediation, where the dispute is between any of (OCA s 161(1)): 12 a current or f ormer lot owner; a mortgagee of a lot; an insurer; an occupier of a lot; a purchaser of a lot; or a manager of an owners corporation. © The College of Law Limited P303 Conveyancing of Units and Subdivided Property The Director can also apply to VCAT to resolve the dispute, as can any of the above parties (other than a purchaser): s 163. A lot owner may apply to VCAT on behalf of an owners corporation to resolve a dispute: s 163(1A). VCAT may hear and determine a dispute relating to (s 162): the operation of an owners corporation; an alleged breach of an obligation by a lot owner or occupier; or the exercise of a f unction of a manager in relation to the owners corporation. The orders VCAT can make are set out in s 165. If a person f ails to comply with a rule of an owners corporation imposing an obligation on that person, VCAT may make an order imposing a civil penalty not exceeding $1,100 payable to the owners corporation: s 166. 3 MULTIPLE OWNERS CORPORATIONS A developer can create more than one owners corporation on a plan of subdivision: Subdivision Act s 27. For example, a developer may create separate owners corporations f or each f loor of an office building. This permits the sale of individual f loors to groups of individuals who can then manage their own building expenses largely independently of the other f loors of the building. Another example is the development of a large block of land into a number of different buildings, in which case an owners corporation will normally be established f or each building to manage its f uture maintenance. It is necessary to ref er to the schedule on the plan of subdivision to identif y how many owners corporations are created and to advise your client how many owners corporations affect each title. Often, your client will be a member of at least two owners corporations – an unlimited owners corporation and a limited owners corporation. 4 STAGED SUBDIVISIONS 4.1 Concept and purpose Land may be subdivided in stages: Subdivision Act s 37. The developer can change the f orm of a subdivision being developed in a staged manner without f irst obtaining the approval of the owners corporation. This is particularly so in relation to second or subsequent stages of a subdivision. 4.2 Planning legislation In the subdivision process, it is necessary to have regard not only to the Subdivision Act but also to the PEA and local Planning Schemes. The steps necessary to register a plan of subdivision are closely linked to the steps required f or a planning permit to use or develop land. The local council or responsible authority’s certif ication of a plan of subdivision (a precursor to registration) is contingent upon the grant of a planning permit f or the land. For more inf ormation about the planning and subdivision processes, see Practice Paper P304 Planning and Environmental Law Practice. Where a purchaser has bought a lot in a staged development, they will have a right to object to any planning application made by the developer for a subsequent stage in the development (f or example, where the developer makes an application to amend the approved plans). However, the purchaser does not have grounds to object to any such proposal where the basis of the objection is the ef f ect that the proposal may have on the purchaser’s lot entitlement or liability, as these are not relevant planning matters. 4.3 Developer’s obligations under the development contract It is important to ensure that the developer agrees with the other parties to the contract (jointly and severally) that the developer: © The College of Law Limited 13 THE COLLEGE OF LAW PROPERTY must carry out warranted development in the manner set out in the contract; and may carry out development described as authorised proposals. Section 68 of the OCA requires the developer (the initial owner) to: act honestly and in good f aith and with due care and diligence in the interests of the owners corporation; and take all reasonable steps to enf orce any domestic building contract entered into by the developer in respect of land in the plan of subdivision providing f or the creation of the owners corporation: – while the developer is the owner of the majority of the lots affected by the owners corporation; and – 4.4 only until the end of the period of 5 years f ollowing the registration of the plan of subdivision. Windfall gains tax From 1 July 2023, land that is subject to rezoning resulting in a value uplif t to the land of more than $100,000 will, with some exemptions, be subject to the new windf all gains tax (WGT) under the Windfall Gains Tax and State Taxation and Other Acts Further Amendment Act 2021 (Vic). The tax relates to contracts entered into af ter 15 May 2021 and commercial decisions made now. The landowner at the date of rezoning is liable to pay the tax. Windf all gains tax is applied to the “value uplif t”, that is, the increase in the land’s capital improved value resulting f rom the rezoning. The tax applies at a rate of 62.5% on an uplif t of more than $100,000 but less than $500,000 and will apply at 50% to the total uplift f or uplif ts greater than $500,000. Liability to pay WGT is incurred when the rezoning occurs but can be def erred (with interest) f or up to 30 years. Lawyers must advise clients involved in transactions that WGT provisions may apply to that dutiable transactions may end the def erral of payment of WGT, notably the sale of land. 5 PROVISIONS OF THE STANDARD CONTRACT 5.1 Content of standard contract The Contract of sale of land published by the Law Institute of Victoria and the Real Estate Institute of Victoria Ltd (August 2019 version) (standard contract) contains various matters relevant to the conveyance of lots on plans of subdivision. The standard contract comprises: the particulars of sale (including details of vendor and purchaser and their representatives, details of the property, goods sold with the property, purchase price, settlement date and encumbrances); general conditions (GCs); and special conditions (SCs) (if any are inserted into the standard contract). These are particularly relevant to sales of lots on plans of subdivision. 5.2 Sale of property off the plan – additional contract provisions In March 2023, the Law Institute of Victoria published an additional set of standard contract provisions f or of f-the-plan contracts of sale of land. The additional general conditions complement the August 2019 version of the standard contract. These additional provisions were not intended to cover all possible clauses f or developer vendors. It was intended that the additional general conditions require f ew, if any, amendments by way of special conditions f or smaller residential or broadacre subdivisions with or without owners corporations. 14 © The College of Law Limited P303 Conveyancing of Units and Subdivided Property The provisions are divided into three parts: Subdivision, Owners Corporation and Building. The particulars provide f or settlement to be 21 days (not 14 days) following the later of the registration of the plan of subdivision or the issuing of an occupancy permit/certif icate of f inal inspection. Law Institute of Victoria, Sale of Property Off the Plan – Additional Contract Provisions (2023) is available f or purchase f rom the Law Institute Bookshop, online or f rom property inf ormation brokers. 5.3 Vendor statement The vendor must give the purchaser a statement addressing all the matters specified in SLA Pt II Div 2: s 32. This “vendor statement” must accompany the contract of sale. The vendor statement identifies, in an approved f orm, all the potential interests that may af f ect the vendor’s title. Great care is required when preparing or reviewing a vendor statement, as a purchaser may be entitled to withdraw f rom the contract bef ore completion, where they can show that they would not have entered into the contract if the correct inf ormation had been given: s 32K. 5.4 Title particulars The vendor must include in the vendor statement copies of the certif icate of title and the plan of subdivision. Where the plan of subdivision has not yet been registered, the vendor must provide a copy of the Register Search Statement (title search) f or the whole of the land (known as the parent title) as well as a copy of the certified plan of subdivision. If the plan has not been certif ied, a copy of the latest version of the plan must be attached. Additional inf ormation is required in the case of a staged subdivision: SLA s 32I. 5.5 Building approvals A vendor is obliged to include in the vendor statement details of all building approvals issued that affect lots on plans of subdivision: SLA s 32E. These usually include certif icates of occupancy or practical completion. The vendor must also disclose details of the statutory builder’s warranty insurance as required by the Building Act. The statutory warranties only apply to domestic building contracts, so enquiries must be made to confirm whether the contract is a domestic building contract and whether the vendor is the same legal entity as the builder. 5.6 Restrictions on title The vendor statement must list restrictions, including any easements, covenants or other restrictions that may af f ect title: SLA s 32C(a). You must check any easements noted on the parent title to see if they af f ect the plan of subdivision and particularly the lots being sold. Also check any easements or other restrictions that are marked on the plan of subdivision to determine if they af f ect the lots being sold. An agreement made under PEA s 173 (s 173 agreement) may be registered on title. A s 173 agreement is an agreement between the responsible authority (the council) and the owner of land (the developer) that sets out conditions or restrictions on the use or development of the land, or other planning objectives in relation to the land. It may impose material restrictions on title that result in obligations f or the lot owners or the owners corporation. 5.7 Rates and taxes Rates and taxes and any other charges or similar outgoings must be disclosed: SLA s 32A(c). You need to ensure that the rates notices and any land tax assessment are in relation to the lot or lots being sold and not the land as a whole. If the lot or lots are not separately rated because the plan has just registered, then the rates and land tax inf ormation f or the parent title is usually included in the vendor statement. If the plan of subdivision has not yet been registered, you also need to consider what the likely owners corporation f ees will be on registration. © The College of Law Limited 15 THE COLLEGE OF LAW PROPERTY 5.8 Growth Areas Infrastructure Contribution If a lot on a plan of subdivision is within a growth area under PEA s 46AO, it could be land in respect of which there is a growth areas inf rastructure contribution (GAIC) recording under s 201SQ. If so, the vendor statement must specify whether the land is in accordance with a work-in-kind agreement (under PEA Pt 9B), which is to be transf erred under the agreement, or land on which works are to be carried out under the agreement, or land in respect of which a GAIC is imposed: SLA s 32G. A GAIC certif icate or notice must also be attached to the vendor statement: s 32G(2). 5.9 Services The vendor statement must specif y if the various services, such as gas, electricity, water, sewerage and telephone, are not connected to the lot: SLA s 32H. In circumstances where the plan of subdivision has not yet been registered and the services are not yet connected, it is best practice to state that the services are not connected even though they will become available on completion of the building work. 5.10 Owners corporation If the lot is af f ected by an owners corporation, the vendor must attach to the vendor statement and contract of sale (SLA s 32F): a copy of the current owners corporation certif icate containing the inf ormation prescribed under OCA s 151(4)(a) and OCR reg 11: – f ees, charges and other money payable, imposed, or proposed to be imposed, or owing in respect of the lot; – – – – – – – – – insurance; repairs and maintenance; the f unds held by the owners corporation; liabilities and contingent liabilities of the owners corporation; contracts, leases, licences and agreements af f ecting the common property; services provided to lot owners and occupiers and the public; notices and orders served on the owners corporation and any legal proceedings it is a party to; the manager (if any); and any appointment of an administrator; and the documents prescribed under OCA s 151(4)(b), including: – a copy of the owners corporation rules, whether the model rules under OCA s 139 (prescribed under reg 8 in the f orm of OCR Sch 2) or rules made under OCA s 138; – the Statement of Advice and Inf ormation f or Prospective Purchasers and Lot Owners prescribed under reg 12 in the f orm of OCR Sch 3; – a copy of all resolutions made at the last annual general meeting of the owners corporation; and – a statement advising that f urther inf ormation on prescribed matters can be obtained by inspection of the owners corporation register: OCA Pt 9 Div 2. Care should be taken to identify how many owners corporations affect the lot. If there is more than one owners corporation af fecting the lot, then one set of documents from each relevant owners corporation must be obtained. If the owners corporation is inactive, this must be specified in the vendor statement: SLA s 32F(1)(b). 16 © The College of Law Limited P303 Conveyancing of Units and Subdivided Property 6 ACTING FOR THE VENDOR 6.1 Taking instructions It is essential that you take detailed instructions in relation to subdivision-specific matters (issues af f ecting the development and the particular lot or lots being sold) to protect against breach of the vendor’s duties of disclosure. Although all of the vendor disclosure documents required to be attached to a contract can be obtained by searches and enquiries, you should be mindf ul of the possible changes to those documents af ter they are obtained. For instance, if a general meeting of the owners corporation is about to be held to change the rules, to grant a lease or easement over common property, it is important for you to be aware of that meeting. A consequence of that meeting, a change of rules, an amendment to the development contract or a creation of easement may be recorded or registered, or about to be recorded or registered. A creation of easement or amendment to the development would, if registered, need to be attached to comply with the vendor disclosure obligation. Any amendments to the rules or development contract that are not yet recorded or registered, should be disclosed. Appendix 1 sets out the types of specif ic matters you should raise with the vendor when taking instructions f or the sale of a lot on a plan of subdivision. 6.2 Owners corporation enquiry The vendor’s lawyer must make pre-contract enquires with the owners corporation and obtain the required certif icate and other prescribed statements and inf ormation (OCA s 151(4)): SLA s 32F. It is also prudent to ask the vendor questions of the type set out in Appendix 1. 6.3 Preparation of vendor statement and contract A detailed explanation of the method of completing the vendor statement is contained in Practice Paper P302 Sale and Purchase of Land. An explanation of the method of completing the standard contract can be found in Practice Paper P301 Contract of Sale of Land. The disclosures and conditions specifically relating to developments and lots on plans of subdivision are considered above. 7 ACTING FOR THE PURCHASER 7.1 Overview One aspect of conveyancing of a lot on a plan of subdivision that separates it f rom the conveyance of an ordinary Torrens title property is that the purchaser must be mindf ul of matters associated with the owners corporation. The acquisition is not merely an acquisition of property, as the purchaser also acquires an interest in a corporation which has unlimited liability. The purchaser’s lawyer and the purchaser must place particular emphasis on the af f airs of the owners corporation. 7.2 Purchaser checklist A checklist of the conveyancing procedures f or the purchase of a lot on a plan of subdivision is set out below. A more detailed discussion of some aspects of the checklist then f ollows. Not all of the procedures associated with an ordinary conveyance are covered by the checklist. This does not mean that those other general conveyancing procedures are not required to be carried out or f ollowed. For general conveyancing procedure ref er to Practice Paper P302 Sale and Purchase of Land. © The College of Law Limited 17 THE COLLEGE OF LAW PROPERTY Procedure Comments Review the title to the lot and the common property (being folio for the lot or lots, folio for the common property and documents that relate to notations on the folios). The relevant documents should be attached to the draft contract submitted to the purchaser (to comply with Subdivision Act s 32). Any restrictions on the title to the lots or the common property should be considered and appropriate advice given to the purchaser. Care should be taken to identify any s 173 agreements, any restrictive covenants and any GAIC recording attached to the lot or common property. Review the registered plan of subdivision. This is important to establish that the purchaser is aware of the location of the property (for example, which floor the apartment is on and which floor the car space is on). The location of structural boundaries must be identified and explained to the purchaser. Consider the owners corporation rules and advise the purchaser. The rules should be examined as the rules will impact the purchaser’s rights and obligations. Advise the purchaser as to any rules that may be beyond power and unenforceable. Advise the purchaser of the lot entitlement and liability for the lot and explain the entitlement and liability concept. The lot entitlement and liability determine the purchaser’s proportion of the owners corporation fees and the purchaser’s voting power. If the subdivision is a staged subdivision, explain the effect of the development contract and the rights of the developer to carry out future development under the development contract. This is important because the purchaser should be aware of the type of development that will or may be undertaken and the rights of the developer to make changes to the plan in future stages. Check if the lot is affected by more than one owners corporation. The owners corporation search report will identify the relevant owners corporation for the lot (and perhaps individual owners’ rights and obligations). Request a copy of the minutes of the last one or two annual general meetings of the owners corporation. A representative of a purchaser of a lot is also entitled to inspect the records of the owners corporation: OCA s 146. Although some protection is provided to the purchaser by the standard form of vendor statement (which gives the purchaser a right of rescission for certain matters not disclosed to the purchaser), the minutes will provide the purchaser with valuable information about the scheme and the affairs of the owners corporation. Consider obtaining building inspection and pest inspection reports. As in the case of any other dwelling or building, the purchaser should assess whether a building inspection report and pest inspection report may be necessary. Advise the purchaser on the contract provisions, including the vendor warranties (especially any special conditions that have been included that change the operation of the standard contract). Alterations to the standard contract are not uncommon and it is essential for the purchaser to determine the effect of any changes. Check that all the relevant documents have been attached to the vendor statement and that proper disclosure has been made. If proper disclosure has not been made, the purchaser should be advised that the purchaser may have a right of rescission. Undertake the usual searches and enquiries that are made to determine whether there has been full disclosure and that the documents attached to the vendor statement are current and accurate. The purchaser should be made aware of anything that may give the purchaser a right of rescission. The right of rescission applies until completion. 18 © The College of Law Limited P303 Conveyancing of Units and Subdivided Property Procedure Comments Make further investigation regarding the insurances in respect of the lot or lots being purchased and the common property. Not only should the purchaser’s lawyer be concerned to ensure that the proper insurances have been taken out, but also that the damage policy is for an appropriate amount. The purchaser takes the risk that the building is under insured. Where building work is involved, request details of current builder warranty insurance. Request to be made at least 21 days before settlement. Note, however, that the standard contract only requires the vendor to provide details of current builder warranty insurance “in the vendor’s possession”. If the purchase price is $750,000 or more, check the contract documents for an Australian Taxation Office clearance certificate. Purchasers of real estate worth $750,000 or more must withhold 12.5% of the purchase price (and remit that to the Australian Taxation Office), unless they are given a clearance certificate by the vendor in accordance with the Tax and Superannuation Laws Amendment (2015 Measures No. 6) Act 2016 (Cth). As the property being sold is “new residential property” or “potential residential land”, the vendor must forward a goods and services tax (GST) withholding notice to the purchaser’s lawyer or conveyancer notifying them that GST is to be withheld at settlement. Request a GST withholding notice from the vendor’s lawyer or conveyancer, if not already provided. Draft transfer in PEXA. The purchaser must prepare the transfer in the PEXA workspace, usually when the invitation is accepted. Submit adjustment statement. The adjustments for lots on plans of subdivision will include the adjustment of the owners corporation annual fees, special fees and maintenance fund contributions, council rates, water and sewerage charges, land tax (if any) and GAIC (if any). Carry out a final title search. This should be done just before settlement to ensure that there has not been any change to the title. Advise the purchaser to physically check the lot boundaries before settlement. In new developments, physical changes can occur – for example, plant might be installed in a car space lot meant for the purchaser. It is preferable to resolve such issues before settlement. Once settlement is effected, send a notice of acquisition to the owners corporation, council and water authority The owners corporation must be advised of the name and address of the new lot owner within 1 month of settlement: OCA s 134. Unless the purchaser is recorded as the owner, the purchaser will not have the right to vote. 7.3 Title investigation The vendor statement given to the purchaser should contain copies of the title searches of the f olio for the lot or lots, or a title search of the parent title if the plan is unregistered. It should also contain the folio f or the common property together with copies of documents that affect the common property or the lot (such as easements, s 173 agreements, restrictive covenants that benef it or burden the common property or lot, any positive covenant and any GAIC recording). © The College of Law Limited 19 THE COLLEGE OF LAW PROPERTY Any interests on the common property f olio must be reviewed caref ully, because an easement, restriction and/or agreement noted on the common property f olio may burden one or more of the lots (and not just the common property) if registered on the plan of subdivision. 7.4 Review of the plan of subdivision It is crucial to caref ully review the current plan of subdivision and advise the purchaser of the location of the lot, which owners corporation is the unlimited owners corporation, and the boundaries of lots and common property, if they are shown. Conf irm whether the purchaser’s understanding of the location and nature of the property accords with the plan of subdivision. The f ollowing matters illustrate the need f or care in this regard: a balcony, a new structure on the roof or a car park may not be marked on the plan of subdivision and may be on common property; levels on the plan may not correspond with actual levels (f or example, the plan of subdivision may show the basement car park as level 1, the ground f loor as level 2 and the f irst f loor of apartments as level 3); misunderstandings can easily occur in relation to the level on which the car space is located if there are numerous parking levels (f or example, the purchaser may believe that the car space is on the f irst level below ground level, when the car space is actually on basement level 3); and the purchaser may mistakenly believe that the property includes a lock up garage, but f rom the plan of subdivision it can be seen that the purchaser’s lot includes a car space. In addition, you should advise the purchaser precisely how the title is structured. For example, where the purchaser understands that the vendor is selling an apartment, a car space and a storage area, these may be provided: all as part of the one lot (and theref ore the plan of subdivision will reveal that the cubic spaces for the apartment, car space and storage spaces are part lots); or all having separate titles. Some properties have car stackers. There are various ways that titles f or these can structured. For example, it may be an airspace title with easements over other airspace titles, or it could be common property af fected by a separate limited owners corporation. It is important to ascertain the nature of the title and explain it to the purchaser. If there is any doubt as to the location of a particular lot or part of it, or need to rectif y a def ect in the plan of subdivision, you should contact Land Use Victoria. It may also be necessary to engage a surveyor to assist (and provide an identif ication survey report). 7.5 Owners Corporation Rules If the owners corporation does not make rules or revokes its rules under OCA s 138, then the model rules prescribed by reg 8 and set out in OCR Sch 2 apply: OCA s 139. A plan of subdivision providing f or the creation of an owners corporation lodged for registration may be accompanied by proposed rules. On registration of the plan, those rules are taken to have been made by the owners corporation: Subdivision Act s 27E. If the owners corporation does make rules af ter the plan of subdivision has been registered, a certified copy must be lodged at Land Use Victoria. Any amendments to the rules require the owners corporation to lodge a certif ied copy of the consolidated rules at Land Use Victoria. The rules or consolidated rules must be recorded on the f olio for the common property and do not take ef f ect until recorded: OCA s 142. 20 © The College of Law Limited P303 Conveyancing of Units and Subdivided Property 7.6 Lot liability and entitlement The lot entitlement and liability concept must be explained to the purchaser, and the purchaser should be made aware of their proportional entitlement and liability for the property. The purchaser should rely on the lot entitlement and liability schedule on the registered plan of subdivision as the initial lot entitlement and liability schedule shown on the unregistered plan of subdivision may have changed. Any change will show on a current register search of the plan. You or the purchaser can also confirm the lot entitlement and liability by inspecting the owners corporation register. Matters to note about lot entitlement and liability are: the purchaser’s voting right (af ter acquisition of the property) will be in accordance with the proportional lot entitlement; the purchaser’s proportion of the annual and special f ees payable to the owners corporation will be in accordance with the proportional lot liability; and surplus f unds paid to the lot owners or payments on dissolution or winding up of the owners corporation are in accordance with lot entitlement. You should look for any discrepancies in lot entitlements and liabilities. If it is obvious that the allocation has not been made with ref erence to value, the purchaser may wish to engage an expert to assist in this assessment. There is provision f or alteration of lot entitlement and liability in Subdivision Act s 33. If there is a unanimous resolution of the members, the owners corporation may apply to the Registrar of Titles for an alteration, having regard to the value of the lot and the proportion that bears to the total value of the lots af f ected by the owners corporation. Where a unanimous resolution cannot be reached, an application can be made to VCAT under Subdivision Act s 34D: The Concept Developer Pty Ltd v Conroy VSC 464. 7.7 Staged subdivisions A developer of a staged subdivision can amend the liabilities and entitlements of existing lot holders in subsequent stages. Section 37 of the Subdivision Act also allows f or: creation of additional owners corporations and common property; creation, variation and removal of easements and restrictions; vesting of additional roads or reserves; and addition to existing common property and membership of an existing owners corporation. If the scheme is a staged subdivision, the purchaser should be made aware of the permitted development under the development contract and the scope available to the developer to change the scheme. The purchaser must seek as much inf ormation about the scheme as possible from the vendor and seek to have as much of that inf ormation as possible included in the contract. It is crucial that you review a current plan of subdivision, as it is common for the current registered plan of subdivision to be dif f erent f rom the plan of subdivision attached to the contract. The kinds of documents that should be attached to the contract include certified plans of subdivision as well as plans showing the location of the buildings proposed to be constructed, elevations, sections, perspectives and f inished levels. Inclusion of these details in the contract places the purchaser in a better position f or claiming f or any potential damage against the vendor, in the event there is a later material change to the development. 7.8 Records and register of the owners corporation On request by the purchaser of a lot or representative, the owners corporation must make the required records of the owners corporation available f or inspection at any reasonable time and f ree © The College of Law Limited 21 THE COLLEGE OF LAW PROPERTY of charge: OCA s 146. The list of records that must be kept by the owners corporation under s 144, and available f or inspection, is extensive and includes: the f ull name and address of each lot owner; a consolidated copy of the rules; minutes of meetings and copies of resolutions; records of the results of ballots, proxies and voting papers or ballots; correspondence; accounting records, records of assets and liabilities, financial statements, income tax returns of the owners corporation and GST records; insurance policies; maintenance plans; notices and orders served on and notices served by the owners corporation; and contracts, agreements, leases and licences entered into by the owners corporation. The owners corporation register must also be made available for inspection at any reasonable time and f ree of charge on request by the purchaser of a lot: OCA s 150. The list of information that must be kept on the register under s 148 is again extensive: the owners corporation plan number and address; the name and address of each lot owner; the name, registration number and contact details of the manager (if any); 7.9 lot liability and lot entitlement: the total, the individual f or each lot af fected by the owners corporation and the basis f or setting them; the date of each amendment to the rules and the date of recording of the consolidated rules in the Register at the Land Registry; details of any notices or orders served on the owners corporation by a court or tribunal; details of contracts, leases and licences entered into by the owners corporation; and insurance details. Contract provisions and any special conditions In addition to the disclosure required in the vendor statement in relation to owners corporations, it is not unusual f or the vendor to include additional special conditions in the contract f or a lot on a plan of subdivision. You should consider and explain these conditions to the purchaser. Examples of matters the vendor may have covered by special conditions include: entry into s 173 agreements under the Planning Scheme; and the vendor’s right to receive a surplus payment f rom one of the owners corporation f unds (which will be made af ter completion). For of f -the-plan sales, additional special conditions will invariably be included in the contract. 7.10 Checking the vendor statement If a document that is required to be attached to the contract is not attached to the contract, the purchaser may have a right of rescission under SLA s 32K. Although the purchaser’s lawyer does not have an obligation to advise the vendor’s lawyer (or conveyancer) if the contract does not contain all of the vendor disclosure documents, the purchaser’s lawyer is obliged to advise the purchaser of that f act (so that the purchaser can decide whether to rescind the contract). The purchaser can seek to exercise the right of rescission under SLA s 32K up to completion if the vendor provides inadequate or incorrect inf ormation in the vendor statement. The purchaser cannot 22 © The College of Law Limited P303 Conveyancing of Units and Subdivided Property rescind if the vendor acted honestly and reasonably and if the purchaser is in substantially as good a position as if the disclosure had been made: s 32K(4). The purchaser must have been unaware of the existence of the matter when the contract was entered into and must show that they would not have entered into the contract had they been aware of that f act. As such, you should carry out the usual enquiries of statutory authorities and owners corporations relating to all the matters identif ied in the vendor statement. Even if the vendor attached all the required information to the vendor statement, you should verify these matters by undertaking your own enquiries. This is because the vendor’s searches may be out of date and a notice (of a type that is adverse) may have been issued between the date of the vendor’s search and the date of the contract. For subdivisions with building units, a common form of notice is the fire safety notice issued by the local council. To determine whether a f ire saf ety notice applies to the subdivision, you should make an enquiry with the council. If the vendor has disclosed the existence of a f ire saf ety notice, the vendor will have eliminated the prospect that the purchaser may rescind on that basis. 7.11 Review of owners corporation certificate The owners corporation is required to certif y certain matters in the certif icate under OCA s 151. The assumption is that the certif icate will be current. You should query whether the vendor has complied with its obligation to provide the certif icate if the certif icate is signif icantly out of date. Although this certificate provides the purchaser with crucial inf ormation, it does not obviate the need for the purchaser to inspect the owners corporation records and register. 7.12 Investigations regarding insurances Although details of the insurances are set out in the owners corporation certif icate, you should independently check they are current (by obtaining certificates of currency or copies of the policies) and assist the purchaser in assessing whether the damage policy is f or an adequate amount. The purchaser can also take out insurance in respect of destruction of or damage to the lot being purchased or the lot owner’s interest in the common property: OCA s 55. It is unlikely that the purchaser can make a claim if it is f ound that the owners corporation reinstatement and replacement policy is insufficient. However, the purchaser can try to persuade the vendor to procure the owners corporation to increase the insurance or take out additional insurance. 7.13 Notice of transfer The purchaser must notif y the owners corporation of their name and address within 1 month of settlement of the purchase of a lot: OCA s 134(2). Until the purchaser is recorded on the register as the owner, the purchaser will have no right to vote. If the owners corporation has a manager, the notice can be posted to the manager. Otherwise the notice should be sent to the secretary or chairperson of the owners corporation (and committee, if any). The owners corporation address must be kept on the owners corporation register. 7.14 Adjustments For adjustment purposes, it is necessary to consider whether a particular contribution to a f und or payment under a rule can be adjusted. Annual owners corporation f ees should be adjusted. © The College of Law Limited 23 THE COLLEGE OF LAW PROPERTY 8 OFF-THE-PLAN SALES 8.1 Overview Sales of properties off the plan are common in Victoria. The considerations and problems associated with of f-the-plan sales are dif ferent to those f or purchases of existing properties. There are two main types of off-the-plan sales – f or a lot on an unregistered plan of subdivision and f or a building where construction has not yet been completed. Many apartment sales involve both. Although a purchaser of an existing property is subject to the caveat emptor principle (let the buyer beware), the purchaser receives some protection from the statutory vendor disclosure requirements in the SLA, the DBCA, the OCA and the Australian Consumer Law (Competition and Consumer Law Act 2010 (Cth) Sch 2). In of f-the-plan sales, the vendor is agreeing to sell the property and deliver the property with the agreed improvements constructed on it at a certain f ixed contract price. 8.2 Off-the-plan difficulties The main dif f iculties that are particular to of f -the-plan sales are: there is no capacity f or the purchaser to inspect a completed building and theref ore the purchaser must rely on interpreting plans, specif ications and marketing material; given that at the time of entering into the contract a completed building cannot be inspected, access (including to the apartment, parking and storage areas) cannot be checked f or adequacy, and the f unctionality of aspects of the development (such as storage and parking) cannot be properly assessed; the developer will invariably have the capacity to change title dimensions, built works and f inishes of the development (within certain parameters); the owners corporation is not created until registration of the plan of subdivision; and the limited disclosure obligation on the vendor may result in matters not being disclosed to the purchaser that the purchaser would ordinarily expect to know (f or example, management agreements and other arrangements with third parties, creation of easements and requirements of authorities). These matters give rise to the need f or greater care on the part of the purchaser and on the part of the purchaser’s lawyer, especially in the pre-contract negotiation stage. There is a real possibility of discrepancies between what the purchaser believes will be delivered by the vendor and what is actually delivered by the vendor. 8.3 Sale of Land Act requirements Care must be taken to comply with the requirements of the SLA s 32, not only in relation to vendor statements but also ss 9AA–9AH and 10: The contract of sale must provide that the deposit must be paid to a lawyer, conveyancer or licensed estate agent acting f or the vendor to be held on trust f or the purchaser until the registration of the plan of subdivision. 24 The contract must provide that the deposit must not exceed 10% of the purchase. Additionally, the contract must make provision f or the deposit to be paid to the vendor’s estate agent, lawyer or conveyancer and held by the estate agent, lawyer or conveyancer on trust f or the purchaser until the registration of the plan of subdivision. A provision to this ef f ect is included in the standard contract at GC 14.2. If an owners corporation is created under the plan of subdivision, the vendor must effect insurance in accordance with the OCA, as if the vendor were the owners corporation until the end of 1 month © The College of Law Limited P303 Conveyancing of Units and Subdivided Property af ter the owners corporation’s first meeting, or if it does not meet by the end of 6 months af ter the plan is registered, at the end of 6 months. The vendor must disclose in the contract of sale details of works affecting the natural surf ace level of the land, or any adjoining land in the same subdivision, which to the vendor’s knowledge: – have been carried out on the land af ter the certif ication of the plan but bef ore the date of the contract; or – are at the date of the contract being carried out or proposed to be carried out. Where works are to be carried out or are proposed to be carried out, af ter the date of contract but bef ore the registration of the plan of subdivision, the vendor must disclose (in writing) details of the works to the purchaser as soon as practicable af ter the details come to the knowledge of the vendor. If any works have been or are being carried out at the direction of a local council or public authority and the vendor was required to submit plans for the works, then the vendor must include copies of the plans in the contract of sale or, if the works are carried out af ter the contract of sale is signed, at the time of disclosing the works to the purchaser. The vendor must notif y the purchaser of any amendments to the plan of subdivision prior to registration that are requested by the vendor or required by the Registrar of Titles, within 14 days. The purchaser can rescind the contract if the amendment will have a “material ef f ect”: Harris v K7@Surry Hills Pty Ltd VSC 551. The purchaser is not entitled to possession of the lot before registration of the plan of subdivision. However, the purchaser may have reasonable access to the lot f or any purpose connected with the proposed development or use of the lot. This prohibition also does not apply if the purchaser takes possession in consideration f or the payment of an occupation f ee; however, note the ef fect of terms contract provisions in the SLA in these circumstances. If a plan of subdivision is not registered within 18 months af ter the date of the contract (or if the contract specif ies another period, bef ore the end of that specified period) the purchaser may, at any time af ter that period but bef ore the plan is registered, rescind the contract. Where there is a substantial discrepancy between the actual boundary of the lot and the boundary of the lot shown on the plan of subdivision, and not more than 18 months have passed since the contract was entered into, the purchaser may avoid the sale. A purchaser may avoid the sale at any time before registration of the plan, if any amendment to the plan is made af ter the contract is entered into which restricts or limits the use of the lot, unless the amendment results f rom any recommendation of a public authority or government department. However, the contract of sale may specify that the purchaser’s right to avoid the contract does not apply in respect of the f inal location of an easement shown on a certif ied plan. 8.4 For all residential of f -the-plan contracts the vendor can only exercise a right of rescission under a “sunset clause” (as def ined in s 2) in limited circumstances: ss 10A–10F. A vendor can only rescind with the consent of the purchaser af ter providing inf ormation about the reason f or the delay and why the vendor wants to rescind the contract. Where the purchaser does agree to the contract being rescinded, the vendor may make an application to the Supreme Court f or an order that the contract is rescinded. Recommended disclosure In addition to the required disclosures under the SLA and DBCA, it is in the vendor’s interests to attach to the contract the f ollowing non-compulsory documents: draf t plans; details of the building structure and f loor lay-out plan; © The College of Law Limited 25 THE COLLEGE OF LAW PROPERTY details of the quality and types of f inishes; draf t management related documents such as owners corporation rules and draf t maintenance plan; any maintenance or f ire saf ety plan, works or orders required under the Building Act; and f or a staged subdivision, a copy of the development contract. Detailed disclosure enables the vendor to describe the property with suf f icient certainty and protects against the purchaser claiming they received something substantially different f rom that which they contracted to buy. 8.5 Acting for the vendor The general legal principles relevant to of f -the-plan sales demonstrate why the vendor should be mindf ul of : the need f or the vendor to take reasonable steps to satisf y the conditions; the need f or the vendor to describe the property being sold with suf f icient certainty; the prospect of the purchaser rescinding the contract (or claiming damages) f or a material or substantial change to the property or the development proposal as set out in the contract; and changing the character of the development without a disclosure to that ef f ect at the outset. Appendix 2 sets out some of the more important matters to be considered when acting f or a vendor in an of f -the-plan development. Building legislation The purpose of SLA ss 9AA–9AH and 10 and Building Act ss 135–137, as well as the DBCA, is to ensure that where a contract f or an of f-the-plan purchase is made that requires or involves building work, the vendor discloses that: the building work has or will be done by a registered builder; and domestic building insurance, if applicable, is in place. Of f -the-plan contracts involve dif fering circumstances that have complicated the application of these general principles. Theref ore, great care is needed to ensure that any of f -the-plan contract complies with this legislation. The f irst complication that arises is that dif ferent requirements apply according to whether or not the sale of a property involves domestic or non-domestic building work. If the former, different requirements apply according to whether the building work is completed or is yet to be completed. If the vendor does not comply with these provisions by making proper disclosure in the sale contract, the purchaser is entitled under the Building Act to avoid the contract at any time before completion and the vendor may be liable to a penalty. If requested, the vendor must provide details of current builder warranty insurance at settlement: standard contract GC 12. However, the standard contract only requires the vendor to provide details of current builder warranty insurance “in the vendor’s possession”. Domestic building work Section 137B of the Building Act imposes various disclosure obligations on a vendor, whether an owner builder or a registered builder, who constructs a home f or sale. The Building Act adopts the very wide DBCA def inition of “home”. The Building Act’s def inition of “construct” is also very wide and includes renovations or ref urbishment. Under s 137B(2), a vendor must not enter into a contract to sell a home under which settlement will take place within the prescribed period (as def ined in s 137B(7)) unless: 26 © The College of Law Limited P303 Conveyancing of Units and Subdivided Property the vendor is covered by the insurance required under s 137D; the vendor has given the purchaser a certif icate of insurance; and the contract sets out the warranties implied by s 137C. In addition, if the vendor is an owner builder, including a developer who has entered into a major domestic building contract f or a registered builder to do the building work, the vendor must give to the purchaser a report on the building f rom an architect, building surveyor, building inspector or engineer. If the vendor enters into a contract in contravention of s 137B(2), the purchaser may be able to avoid the contract at any time bef ore settlement: s 137B(3). Where the building work is not complete, a person must not enter into a contract of sale to sell a home unless the home is being or will be constructed under a major domestic building contract or the contract of sale is a major domestic building contract: s 137E. This precludes an owner builder f rom selling a home under construction. The main dif ficulty with these provisions is that the sale contract could easily be characterised as a major domestic building contract. In those circumstances, problems arise due to the f act that the SLA imposes dif f erent requirements to the DBCA. Domestic building insurance Section 135 of the Building Act requires builders to have various policies of insurance in place bef ore undertaking building work. In the case of a home, builders must obtain a policy of domestic building insurance bef ore commencing any building work. Under Building Regulations 2006 (Vic) Pt 18 Div 3, the f ollowing persons are exempt f rom the insurance requirements of the Building Act: a builder who carries out domestic building work under a major domestic building contract f or the construction of a multi-storey residential building; or an owner builder who constructs a multi-storey building. A multi-storey building is a building that has more than three storeys and contains two or more separate dwellings: reg 1807. Theref ore, if a sale contract is f or an apartment in a high-rise building, there is no requirement f or domestic building insurance to be in place. It is important f or the vendor to have disclosed the building permit, the occupancy permit or certif icate of occupancy and possibly the major domestic building contract or, in the absence of these things, a statutory declaration as to the date of practical completion. Many domestic building insurance policies were issued by the HIH Group and FAI Insurance Ltd. Under the House Contracts Guarantee (HIH) Act 2001 (Vic), these policies remain ef f ective f or the purposes of the disclosure requirements of the Building Act and are administered by the Housing Guarantee Fund Ltd. Only insurers within the categories specified in Building Act s 137AA can issue domestic building insurance. Non-domestic building work Section 137B of the Building Act applies to building work that includes domestic building work and extends to an owner builder who constructs a building other than a home f or sale. Where there has been building work on the land within the last 10 years, the vendor has to comply with that section, whether or not the vendor completes construction of the building bef ore entering into the contract of sale. If the vendor does not comply with s 137B, the purchaser can avoid the contract any time up to completion and the vendor may be liable to a penalty. © The College of Law Limited 27 THE COLLEGE OF LAW PROPERTY 8.6 Acting for the purchaser The prudent purchaser in an of f -the-plan development will embark on an extensive inf ormation gathering exercise in order to become an inf ormed purchaser and minimise the risks associated with an of f-the-plan sale. The purchaser should ask questions of the agent in respect of matters of particular concern, seek to obtain all marketing material available, and carefully consider all plans and documents attached to the contract. Most purchasers f ocus on assessing the plan of subdivision, f loor plan and schedule of f inishes, as these are perceived by the purchaser to have the greatest impact on the property and the use and enjoyment of it. However, it is important that you, as the lawyer f or the purchaser, consider (and provide appropriate advice on) the arrangements that are more of a legal or operational nature, including proposed easements, proposed management agreements, the rules and obvious impediments. Appendix 3 sets out some of the more important matters to be considered when acting f or a purchaser in an of f-the-plan development. Note that additional matters may be relevant depending on the nature of the particular development. Caretaker agreements and other agreements with third parties You should advise your client on the vendor’s capacity to put in place agreements f or the provision of services by third parties. The vendor can do this by procuring the owners corporation to enter into agreements immediately f ollowing the registration of the plan of subdivision while the vendor has complete voting power or by obtaining the purchaser’s proxy to put the agreement in place. There are no restrictions on the owners corporation entering into agreements f or the provision of services, where they have been approved by special resolution: OCA s 12. Commonly, these agreements are: a service contract, or a series of them (f or example, cleaning, landscaping, security and f acilities management); or a comprehensive building and grounds management agreement, commonly known as a building management agreement or caretaker agreement (and ref erred to in this paper as a “caretaker agreement”). Although most developers who propose that the owners corporation enter into a caretaker agreement are likely to include an empowering rule in the rules (so that there is no doubt that the owners corporation has the power to make the agreements), many agreements can be made without the owners corporation adding to its powers in that way. You should also make enquiries to determine whether there are any proposals to put in place a management agreement (because the proposal may not be set out in the rules). Usually, a management agreement will be supplemented by a lease or licence of a lot or the common property (f or example, exclusive use of the reception desk and store rooms). After exchange Apart f rom the review of the registered plans and documents, the steps to be taken af ter exchange are essentially the same as those f or a conveyance of an existing property. The review of the registered plans and documents is a crucial step. You should be mindf ul of the time limits f or the purchaser to exercise rights in relation to changes that have occurred in the development. Generally, the vendor will allow rescission within a short period (commonly 7–14 days) af ter the vendor notif ies the purchaser of the registration of the plan of subdivision if the changes detrimentally affect the purchaser. 28 © The College of Law Limited P303 Conveyancing of Units and Subdivided Property 8.7 Legal principles The purchaser has much to lose if they wrongfully rescind. A wrongful rescission is a repudiation of the contract by the purchaser, which exposes the purchaser to loss of the deposit and liability for damages. There are some key principles to bear in mind when acting f or either a vendor or a purchaser in an of f -the-plan sale. Fulfilment of conditions The vendor is under an obligation to take reasonable steps to satisf y conditions in of f -the-plan sales (most notably the registration of the plan of subdivision). This obligation will be implied if it is not expressly stated. The crucial condition f or a vendor to satisf y is the registration of the plan of subdivision by the “sunset” date. Matters beyond the vendor’s control (for example, builder’s delays the vendor has not allowed f or) will not be a breach of this obligation. Description of the proposed lot – changes The general law principle is the rule in Flight v Booth (1834) 1 Bing NC 370; 131 ER 1160, which states that the purchaser can rescind if the vendor purports to deliver a lot that is substantially (or materially) dif ferent to that which the purchaser contracted to buy (that is, as described in the contract). That general principle applies in the absence of a special condition that sets out a different test. “Substantial” has no f ixed meaning – its particular meaning will depend on the context. Usually, a test will be included in the contract along the same lines as the general law principle (but which only allows rescission). For instance, the contract might state that the purchaser can rescind if there is a difference between the lot shown in the plans attached to the contract and the lot as constructed that is “detrimental and not minor”. Character or use of the development – change Generally, the vendor will not be permitted to make marked changes to the character or use of the building. If it is not an express term, the court would imply a term to that effect. The courts will recognise that the purchaser places reliance on the character of the development as it is marketed and shown in the contract. A change in the use of the property f rom wholly residential to partly residential and partly some other use may expose the vendor to rescission by purchasers (if it is not disclosed). It would need to be a signif icant change and an extreme case. Description of the property – certainty The contract will be void f or uncertainty if the lot cannot be def ined with suf ficient certainty. There is a risk that the contract will be void f or uncertainty if one or more of the draf t plan of subdivision, the draft f loor plan and the schedule of f inishes are not attached to the contract. 8.8 Fulfilment of conditions Of f -the-plan contracts can be subject to a number of conditions. Although the onus is on the vendor to satisf y the conditions, invariably the contract will allow both parties to rescind if a condition is not satisf ied. Of course, in all cases the contract will be subject to the vendor ef f ecting the registration of the plan of subdivision by a certain date (commonly known as the sunset date). However, it is not unusual f or there to be other conditions to be satisf ied bef ore that registration condition. The need f or clarity and f airness in the draf ting of the special conditions cannot be overstated. The courts have had to consider a large number of cases where express terms did not cover matters such as: the date f or f ulf ilment of the condition; whether the benef it of the condition can be waived by one or both of the parties; © The College of Law Limited 29 THE COLLEGE OF LAW PROPERTY the manner of terminating the contract if the condition is not f ulf illed; and whether the purchaser is entitled to a ref und of the deposit on termination. The f ollowing are settled principles: in the absence of the contract fixing a time for complying with a condition, a reasonable time will be allowed (which will be a question of f act determined in each case); the vendor (or the contracting party whose conduct is required to fulfil the condition) has an implied obligation to take all reasonable steps to satisfy the condition. Different language may be used, for example, “do what is reasonable and proper” or “act with reasonable diligence” or “use reasonable ef f orts”; that implied obligation to take reasonable steps would not generally require appeal against a local council ref usal or significant expenditure that was not contemplated to satisf y the condition; and it would be a breach of that implied obligation if the vendor materially contributes to the non-f ulfilment of the condition (that is, the vendor cannot rely on the condition to rescind where this would result in the vendor taking advantage of a situation caused by the vendor’s breach). Although the obligation to take reasonable steps to perf orm a condition will be implied in the contract, the vendor’s obligation should be stated in the contract (especially if the purchaser requires a more stringent onus which would require making appeals or incurring expenses). The obligation to take reasonable steps to ef fect registration of the plan of subdivision may extend beyond the date specified in the contract f or registration of the plan: Etna v Arif 2 VR 353; VSCA 99. The vendor must act diligently in ef f ecting registration of an of f-the-plan sale. In most cases this requires diligently pursing permits and consents, obtaining f inance and properly supervising the construction under the building contract. Matters clearly beyond the vendor’s control do not result in a breach of this obligation. For instance, if the plan of subdivision was not registered by the sunset date because of the builder’s delays (despite the reasonable ef f orts of the vendor) the vendor will be entitled to rescind. A good illustration of this is Woodcock v Parlby Investments Pty Ltd (1989) NSW ConvR ¶55-454. There is a divergence of views expressed in relation to whether the reasonable endeavours obligation is qualif ied in respect of matters that require the developer to rely on specialist expertise: Masters v Belpate Pty Ltd (2001) NSW ConvR ¶55-988; NSWSC 169; Wardy v Hardy (2003) NSW ConvR ¶56-034; NSWCA 215. The vendor will be taken to have breached the obligation to take reasonable steps to satisfy the “subject to registration of the plan of subdivision” condition (which will either be an express term or implied into the contract) if the vendor is reckless in entering into the contract. For instance, the vendor would be reckless if they should have known when entering into the contract that it was virtually impossible to have the plan of subdivision registered within the specif ied time period, which is unrealistically short. If the obligation is breached, the potential damages claims by purchasers in a large development in which there have been numerous sales of f -the-plan will obviously be substantial. 8.9 Change to description of the proposed lot In of f -the-plan situations, it is to be expected that changes may occur in the development proposal between exchange of contracts and completion. Marketing generally occurs at an early stage (bef ore construction commences) when all aspects of the development have not been f inalised. In the absence of the contract specifying the rights of the parties where there are changes to the property, the rule in Flight v Booth will apply. Depending on the extent of the dif ference between what the purchaser contracted to buy and what the vendor purported to deliver, the purchaser may be entitled to rescind or may only have a claim in damages. 30 © The College of Law Limited P303 Conveyancing of Units and Subdivided Property Generally, there will be a test in the contract f or the rights of the purchaser in relation to changes to the lot f rom the description of the lot set out in the contract. Of ten, that description of the property in the contract is by ref erence to the draf t plan of subdivision, draft f loor layout plan and the schedule of f inishes attached to the contract. 8.10 Change to character or use of the development A vendor may reserve the right in the special conditions in the contract to change the nature of certain aspects of the development. If this is the case, the purchaser will not have cause to complain if the change occurs within the parameters of what was disclosed. An undisclosed change in character would need to be signif icant to allow the purchaser to rescind. In Tarval Pty Ltd v Stevens ANZ ConvR 595; (1990) NSW ConvR ¶55-552, the purchaser was able to rescind because the vendor altered the use and character of the proposed development (as it was depicted in the contract special conditions and draf t plan of subdivision) between exchange and completion. 8.11 Certainty of description of the property If an essential term of the contract is not agreed with suf f icient certainty, the contract will be void for uncertainty. In the of f -the-plan context, this will have particular relevance in relation to the lot the subject of the sale. The vendor’s lawyer should ensure that the proposed lot is described in suf f icient detail. For this purpose, ideally the contract should attach: a draf t plan of subdivision; a draf t f loor layout plan f or the apartment; and a schedule of f inishes (f or the apartment and the common property). A case that shows the importance of the description of the property is Williams v King ANZ ConvR 104. 8.12 Suggested special conditions Some of the important matters that should be the subject of special conditions in the contract are set out below. Variations to plans and documents The vendor in an of f -the-plan contract should set out the rights of the purchaser if there is a dif ference between the lot as constructed and the lot as described in the contract. This involves stating a test of what constitutes a change that is not permitted and the consequences of such a change. It is usual f or the vendor to seek to limit the purchaser’s right to rescission only (not allowing a claim for damages). The test applied is commonly that the purchaser can rescind if the variation or change to a plan or document attached to the contract is “detrimental and substantial” or “material and adverse” or “detrimental and not minor”. These tests are consistent with those applied at general law. In some cases, the vendor will deem certain changes to be detrimental (and acknowledge that the purchaser can rescind if those circumstances arise). For example, the vendor may include a provision allowing rescission if the actual area of the apartment is at least 5% less than the area shown in the draf t plan of subdivision attached to the contract. Some purchasers consider that they require certainty in relation to the minimum size of the apartment. However, the purchaser’s lawyer should ensure this does not come at the expense of entitling the purchaser to rescind in other circumstances. In other words, the purchaser should still be entitled to rescind if there are other changes (not to the size) that have a detrimental ef f ect. See Lockwood v PSP investments Pty Ltd VSC 10 and Ausgrand Pty © The College of Law Limited 31 THE COLLEGE OF LAW PROPERTY Ltd v Freeland-Smalls VCC 942 on when an amendment to a plan of subdivision has been held to materially af f ect a lot. This has also been dealt with in Harris v K7@Surry Hills Pty Ltd VSC 551. Standard of construction The standard contract does not contain an obligation on the vendor to construct the property (or the building of which the property f orms part) to a certain standard. The vendor should be obliged to construct the improvements in a good and workmanlike manner. Finishes The contract should include a schedule of f inishes and inclusions f or the property (including the common property). A clause should be included in the contract giving the vendor the (limited) f lexibility to change the f inishes and inclusions, of ten only to f inishes and inclusions of equivalent quality. The purchaser should also have appropriate rights if the f inishes and inclusions have changed. A dispute resolution mechanism should be included to deal with a dispute in relation to whether a f inish or inclusion was changed to a f inish or inclusion of equivalent quality. A vendor would seek to prohibit the purchaser f rom rescinding if there is a change to the quality of the f inishes or inclusions. The purchaser would be entitled to make a claim f or damages if any f inishes or inclusions are changed to those of inf erior quality. Defect rectification The developer vendor will generally obtain a 12-month def ect liability period from the builder. Purchasers have a reasonable expectation that they will also obtain the benef it of a def ect liability provision, generally f or a period that does not exceed the vendor’s def ect liability period. It is generally accepted that the def ect liability provision in the contract will not allow the purchaser to ref use to complete the purchase until all defects are remedied; rather, only serious defects are required to be rectif ied before completion. Any other def ects of a minor nature can be rectif ied by the vendor as soon as possible af ter completion. Disclosures The vendor should include special conditions disclosing matter

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