Practice Paper P302 Sale and Purchase of Land PDF 2023

PRACTICE PAPER P302 Sale and Purchase of Land By Lisa J Gaddie 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. P302 Sale and Purchase of Land CONTENTS 1 INTRODUCTION................................................................................................................. 10 1.1 Overview............................................................................................................................. 10 1.2 Torrens system................................................................................................................... 10 1.3 Paper conveyances............................................................................................................. 10 2 OVERVIEW OF ELECTRONIC CONVEYANCING............................................................. 11 2.1 Electronic Conveyancing National Law............................................................................... 11 2.2 Key concepts....................................................................................................................... 11 3 OVERVIEW OF CONVEYANCING..................................................................................... 12 4 ESTATE AGENTS.............................................................................................................. 20 4.1 Regulation of estate agents................................................................................................. 20 4.2 Authorities to sell................................................................................................................. 21 4.3 Unfair contract terms........................................................................................................... 22 4.4 Underquoting laws.............................................................................................................. 22 5 METHODS OF SALE.......................................................................................................... 23 5.1 Overview............................................................................................................................. 23 5.2 Auctions.............................................................................................................................. 23 5.3 Tenders............................................................................................................................... 25 6 OBTAINING INSTRUCTIONS............................................................................................. 25 6.1 Verification of identity.......................................................................................................... 25 6.2 Due diligence...................................................................................................................... 26 7 BUILDING ENERGY EFFICIENCY DISCLOSURE............................................................. 26 8 VENDOR STATEMENT...................................................................................................... 27 8.1 Overview............................................................................................................................. 27 8.2 Content of the vendor statement......................................................................................... 27 8.3 Attached property certificates and title documents.............................................................. 29 8.4 Issues arising in respect of disclosures in a vendor statement............................................ 30 8.5 Consequences of insufficient or incorrect information in a vendor statement..................... 33 8.6 Previous contract................................................................................................................ 33 9 SALE INVOLVING OWNERS CORPORATION.................................................................. 33 10 CONTRACT........................................................................................................................ 33 10.1 Outline................................................................................................................................. 33 10.2 Contract of sale of land....................................................................................................... 34 11 REVIEW OF THE CONTRACT........................................................................................... 34 11.1 Outline................................................................................................................................. 34 11.2 Execution............................................................................................................................ 34 11.3 Cooling-off period................................................................................................................ 34 © The College of Law Limited 3 THE COLLEGE OF LAW PROPERTY 11.4 Vendor................................................................................................................................ 35 11.5 Purchaser............................................................................................................................ 35 11.6 Property address and land.................................................................................................. 35 11.7 Goods................................................................................................................................. 35 11.8 Payment.............................................................................................................................. 36 11.9 Day of sale/settlement date................................................................................................. 36 11.10 Encumbrances and leases.................................................................................................. 36 11.11 General conditions.............................................................................................................. 36 11.12 Special conditions............................................................................................................... 37 11.13 Guarantees......................................................................................................................... 37 12 TERMS CONTRACTS........................................................................................................ 37 13 OFF-THE-PLAN CONTRACTS........................................................................................... 38 13.1 Outline................................................................................................................................. 38 13.2 Subdivision process............................................................................................................ 38 13.3 Plan of subdivision.............................................................................................................. 39 13.4 Sale of Land Act requirements............................................................................................ 39 14 SALES OF NEW HOMES................................................................................................... 41 14.1 Outline................................................................................................................................. 41 14.2 Builders............................................................................................................................... 41 14.3 Owner-builders.................................................................................................................... 42 14.4 On-selling............................................................................................................................ 42 15 PRE-SELLING HOMES UNDER CONSTRUCTION........................................................... 42 15.1 Outline................................................................................................................................. 42 15.2 Developers.......................................................................................................................... 43 15.3 Builders............................................................................................................................... 43 15.4 Owner-builders.................................................................................................................... 43 15.5 Duty – off-the-plan sales..................................................................................................... 43 16 SALES OF NEW COMMERCIAL BUILDINGS.................................................................... 44 16.1 Overview............................................................................................................................. 44 16.2 Misleading or deceptive conduct......................................................................................... 44 16.3 Duty..................................................................................................................................... 44 17 DEPOSIT............................................................................................................................ 44 18 ACTING FOR THE VENDOR............................................................................................. 45 18.1 Outline................................................................................................................................. 45 18.2 Preliminary enquiries........................................................................................................... 45 18.3 Material facts....................................................................................................................... 46 18.4 Due diligence...................................................................................................................... 46 18.5 Tenders............................................................................................................................... 47 4 © The College of Law Limited P302 Sale and Purchase of Land 18.6 Vendor statement................................................................................................................ 47 18.7 Title search.......................................................................................................................... 48 18.8 Contract of sale................................................................................................................... 49 18.9 Goods and services tax....................................................................................................... 50 18.10 GST Withholding................................................................................................................. 50 18.11 Foreign resident capital gains withholding regime............................................................... 51 18.12 Windfall gains tax................................................................................................................ 51 18.13 Deposit................................................................................................................................ 51 18.14 Foreign Investment Review Board...................................................................................... 52 18.15 Service agreements............................................................................................................ 52 18.16 Off-the-plan sales................................................................................................................ 52 18.17 Vacant possession or tenancy............................................................................................ 53 18.18 Outgoing mortgagee........................................................................................................... 54 19 ACTING FOR THE PURCHASER...................................................................................... 54 19.1 Outline................................................................................................................................. 54 19.2 Defects................................................................................................................................ 54 19.3 Due diligence...................................................................................................................... 55 19.4 Property enquiries............................................................................................................... 56 19.5 Tenders............................................................................................................................... 59 19.6 Vendor statement................................................................................................................ 59 19.7 Contract of sale................................................................................................................... 59 19.8 Owners corporation............................................................................................................. 60 19.9 Finance............................................................................................................................... 60 19.10 Nomination.......................................................................................................................... 61 19.11 Leases................................................................................................................................ 62 19.12 Service agreements............................................................................................................ 62 19.13 Insurance............................................................................................................................ 62 19.14 Caveat................................................................................................................................. 62 19.15 Off-the-plan purchases........................................................................................................ 63 19.16 Deposit................................................................................................................................ 64 20 PREPARING FOR SETTLEMENT...................................................................................... 65 20.1 Registration with an electronic lodgment network............................................................... 65 20.2 Obtaining client authorisation and verification of identity..................................................... 65 20.3 Creating and populating the workspace.............................................................................. 65 20.4 Adjustments........................................................................................................................ 66 20.5 Settlement money and the Financial Settlement Schedule................................................. 67 20.6 Transfer............................................................................................................................... 68 20.7 Notice of acquisition............................................................................................................ 68 © The College of Law Limited 5 THE COLLEGE OF LAW PROPERTY 20.8 Other notices....................................................................................................................... 69 20.9 Digital Duties Form.............................................................................................................. 69 20.10 Priority notice...................................................................................................................... 69 20.11 Satisfying mortgagees’ requirements.................................................................................. 70 20.12 Original documents............................................................................................................. 70 20.13 Title activity checks............................................................................................................. 70 20.14 Pre-settlement inspection.................................................................................................... 70 20.15 Pre-settlement letter............................................................................................................ 71 20.16 Final search........................................................................................................................ 71 21 SETTLEMENT.................................................................................................................... 71 21.1 Date of settlement............................................................................................................... 71 21.2 Electronic settlement........................................................................................................... 72 22 AFTER SETTLEMENT........................................................................................................ 72 22.1 Reporting to the client......................................................................................................... 72 22.2 Land transfer duty............................................................................................................... 72 22.3 Other matters...................................................................................................................... 73 23 CONCLUSION.................................................................................................................... 73 APPENDICES................................................................................................................................... 74 APPENDIX 1 – CLIENT AUTHORISATION FORM........................................................................... 74 APPENDIX 2 – PROPERTY QUESTIONNAIRE FOR VENDOR – RESIDENTIAL AND COMMERCIAL.................................................................................................................................. 75 APPENDIX 3 – SECTION 27 STATEMENT...................................................................................... 78 APPENDIX 4 – GST WITHHOLDING NOTICE................................................................................. 79 APPENDIX 5 – LEASE REVIEW FORM........................................................................................... 80 APPENDIX 6 – SERVICE AGREEMENT REVIEW FORM............................................................... 82 APPENDIX 7 – NOMINATION FORM............................................................................................... 83 APPENDIX 8 – STATEMENT OF ADJUSTMENTS AND SETTLEMENT STATEMENT................... 84 6 © The College of Law Limited P302 Sale and Purchase of Land ABBREVIATIONS ACL Australian Consumer Law (Competition and Consumer Act 2010 (Cth) Sch 2) ARNECC Australian Registrars’ National Electronic Conveyancing Council ATO Australian Taxation Office auction rules Rules for the Conduct of Public Auctions of Land (Sale of Land (Public Auctions) Regulations 2014 (Vic) Schs 1–4) BEEC building energy efficiency certificate Building Act Building Act 1993 (Vic) Climate Change Act Climate Change Act 2010 (Vic) DBCA Domestic Building Contracts Act 1995 (Vic) DOL Duties Online (State Revenue Office, Victoria) Duties Act Duties Act 2000 (Vic) EAA Estate Agents Act 1980 (Vic) ECNL Electronic Conveyancing National Law e-Conveyancing electronic conveyancing eCT electronic Certificate of Title ELN electronic lodgment network ELNO electronic lodgment network operator EPA Environment Protection Authority FRCGW foreign resident capital gains withholding GAIC growth areas infrastructure contribution GC general condition GST goods and services tax LIV Law Institute of Victoria LPUL Legal Profession Uniform Law (Legal Profession Uniform Law Application Act 2014 (Vic) Sch 1) LUV Land Use Victoria NABERS National Australian Built Environment Rating System © The College of Law Limited 7 THE COLLEGE OF LAW PROPERTY OCA Owners Corporations Act 2006 (Vic) OCR Owners Corporations Regulations 2018 (Vic) PEA Planning and Environment Act 1987 (Vic) PEXA Property Exchange Australia Ltd PPSR Personal Property Securities Register REIV Real Estate Institute of Victoria Ltd SLA Sale of Land Act 1962 (Vic) SLPAR Sale of Land (Public Auctions) Regulations 2014 (Vic) SRO State Revenue Office standard contract Contract of sale of land published by the Law Institute of Victoria and the Real Estate Institute of Victoria Ltd Subdivision Act Subdivision Act 1988 (Vic) TAC title activity check TLA Transfer of Land Act 1958 (Vic) VIC Participation Rules Participation Rules determined by the Registrar of Titles VOI verification of identity WGT windfall gains tax REFERENCES CCH Australia Limited, Victorian Conveyancing Law and Practice (looseleaf and online) Consumer Affairs Victoria, Real Estate — A Guide for Buyers and Sellers Libbis S, Conveyancing Victoria 2022 (Hybrid Publishers, 8th ed, 2022) Lloyd D and W F Rimmer, Sale of Land Act Victoria (Thomson Reuters, 2015) 8 © The College of Law Limited P302 Sale and Purchase of Land ACKNOWLEDGMENTS This practice paper was written by Lisa J Gaddie and is regularly reviewed and updated (as necessary) by College of Law academic staff and other legal practitioners. Previous reviewers include Elspeth McNeil BA (Hons), LLB (Melb), GradCertHigherEd (Mon) in December 2005, 2007–2009 and January 2011, College of Law academic staff in 2006, Kristoffer Greaves BA, LLB (Hons) (UNE), GDLP (Leo Cussen) in October 2011, Kamilla Shaw LLB (Latrobe) in 2012, Kristine Pham LLB (UTAS) in 2013–2015, Silvana Marasco LLB (Melb), BComm (Melb) in 2016, Lee Lesley Horton BA, DipLaw (LPAB), GDLP in 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. © The College of Law Limited 9 THE COLLEGE OF LAW PROPERTY 1 INTRODUCTION 1.1 Overview This practice paper addresses the sale and purchase of Torrens title land in Victoria. It covers both residential and commercial land and refers, where relevant, to any differences in the conveyancing process for residential and commercial property transactions. “Torrens title” is commonly used to refer to the Torrens system of title by registration. The sale and purchase of residential property discussed in this paper assumes that the contract used is the Contract of sale of land published by the Law Institute of Victoria (LIV) and the Real Estate Institute of Victoria Ltd (REIV) (August 2019 edition) (standard contract). The standard contract is available to purchase in hard copy through the LIV bookstore and electronic copies can be purchased online. 1.2 Torrens system Under the Torrens system of land registration, the Registrar of Titles keeps a register recording the current owner of each parcel of land. Most land in Victoria is held under the Torrens system. There is some land in Victoria that is “general law” land (also known as “old system title” land). This is land granted by the Crown between 1838 and 1862 that has not since been brought under the operation of the Transfer of Land Act 1958 (Vic) (TLA). The issues that arise when a person sells or buys general law land are beyond the scope of this paper. Land Use Victoria (LUV) has implemented a state-wide program to convert the remaining general law land to the Torrens title registration system. 1.3 Paper conveyances Prior to electronic conveyancing (e-Conveyancing) the only method of settling a conveyance of land or any other dealing with land was by using paper processes. Settlement was undertaken by a physical meeting of the transacting parties where documents and cheques were exchanged to “settle” the transaction. Registration of the land dealing was also by physical lodgment of the documents at the land registry. From 1 August 2019, e-Conveyancing is mandatory for mainstream land transactions in Victoria. Consequently, paper conveyances continue to occur only in very limited circumstances. Paper certificates of title in Victoria have been converted to electronic certificates of title (eCT). Where a client holds an original certificate of title, the client’s representative can confirm whether the title has been converted to an eCT by doing a title search. Once it is confirmed that the conversion to eCT has taken place, the paper certificate of title holds no further value and can be destroyed or marked not for use. Where previously clients would sign the transfer documents themselves, e-Conveyancing clients must now sign a Client Authorisation Form (see Appendix 1), which provides their representative with authority to sign the documents electronically in the electronic workspace on the client’s behalf. In addition, the client will be required to undertake a verification of identity (VOI). The VOI is completed at the time of signing the Client Authorisation Form. The necessary VOI can be undertaken in-house, remotely, or via Australia Post or another approved VOI agent service. Land Use Victoria will accept paper lodgment of certain instruments that cannot be lodged electronically or such documents can be lodged as residual documents on PEXA (Property Exchange Australia Ltd). Those instruments include, but are not limited to: 10 © The College of Law Limited P302 Sale and Purchase of Land a transfer of lease interest, survivorship or transmission application; a transfer where one or more proprietors on title is not a participant in the transfer; and dealings with part land, including a lot in a multiple lot portfolio. Where a land transaction meets the requirement for an exception to electronic lodgment, a paper application along with a ‘Request to accept paper lodgment’ must be lodged. For more information on these exceptions, see the Land Use Victoria website. 2 OVERVIEW OF ELECTRONIC CONVEYANCING 2.1 Electronic Conveyancing National Law The practice of e-Conveyancing stems from an expansive statutory framework. It is important that lawyers in a conveyancing transaction understand the key participants in the statutory framework and how they operate together. The Electronic Conveyancing National Law (ECNL) governs the operation of e-Conveyancing in Australia. It also develops and publishes model operating requirements and model participation rules to be implemented by the Land Title Registrars in their respective jurisdictions. The ECNL provides that: documents may be lodged electronically (in a form and by means approved by the Registrar General); the Registrar General must receive and deal with documents lodged electronically; electronic documents have the same status as the equivalent paper documents; and documents signed digitally have the same effect as if they had been executed by the relevant party. The Australian Registrars’ National Electronic Conveyancing Council (ARNECC) is responsible for facilitating the operation of the legal framework for e-Conveyancing, including setting the Model Operating Requirements and Model Participation Rules. It is constituted under the Electronic Conveyancing National Law Intergovernmental Agreement among the state and territory governments. ARNECC is comprised of the Land Title Registrar (or their nominee) from each Australian state and territory that has entered into the Intergovernmental Agreement. The Model Participation Rules are a set of specific rules that all parties using an approved electronic lodgment network operator (ELNO) are required to adhere to. Before a party in Victoria can begin using an approved ELNO, they must agree to comply with the Participation Rules determined by the Registrar of Titles (VIC Participation Rules). The Model Operating Requirements govern the relationship between the ELNO and the Land Titles Registry in the jurisdiction. The Operating Requirements as determined by the Registrar of Titles are made by the Registrar General under ECNL s 22. 2.2 Key concepts There are several key terms and concepts that lawyers must be familiar with to conduct an electronic conveyance. Electronic certificate of title An eCT is a title that is issued and held in electronic format. The practical difference between a paper certificate of title and an eCT relates to the way consent to the lodgment of a dealing or instrument is given. Where there is an eCT and a discharging mortgagee, an electronic consent must be lodged electronically by the mortgagee in the electronic lodgment platform. © The College of Law Limited 11 THE COLLEGE OF LAW PROPERTY Subscriber A Subscriber is a person authorised under a participation agreement to use an electronic lodgment network (ELN) to complete conveyancing transactions on behalf of themself or another person. For the purposes of this paper, Subscribers are the vendor’s lawyer and the purchaser’s lawyer. The Responsible Subscriber completes lodgment instructions in PEXA and has eCT control after settlement. This is usually the incoming mortgagee (if any). ELN and ELNO An ELNO is the party operating the ELN that is used for conducting online conveyancing transactions. Applications to become an ELNO are made to ARNECC. The first, and major, ELNO in Australia is PEXA. For the purposes of this practice paper, PEXA is the ELNO used in a conveyance. Sympli is another ELNO that will become available for transfer transactions in Victoria once interoperability issues are resolved. Source funds and destination accounts Source funds are the funds provided for settlement. In PEXA, source funds can only be made available for debit by the financial institution’s bank account (as mortgagee), the Subscriber’s trust account or the PEXA source account. The Victorian Legal Services Board and Commissioner has determined that, for Victoria, eConveyancing funds are best categorised as general trust money under the Legal Profession Uniform Law (Legal Profession Uniform Law Application Act 2014 (Vic) Sch 1) (LPUL) and therefore they must be placed in a general trust account. ELNO source accounts, such as the PEXA source account, are not trust accounts and are not regulated under the LPUL: ss 136 and 137. The Victorian Legal Services Board and Commissioner has therefore concluded that Victorian lawyers should not use ELNO source accounts. Workspace status Workspace status or “workspace status indicators” refer to the bars displayed at the top of each PEXA workspace representing the status of both lodgment and financial settlement. These assist in quickly identifying the stage of the transaction and the steps that remain to be taken. 3 OVERVIEW OF CONVEYANCING The following table is an overview of the steps usually taken in a conveyancing transaction by the legal representative for the vendor or purchaser in the sale or purchase of residential land. The steps are not to be regarded as comprehensive or as steps that are necessarily taken in the order in which they are set out. Every sale and purchase of land can have its own problems that may require taking additional steps or a variation of the order in which steps are taken. The following table assumes that: the conveyancing transaction is conducted electronically using PEXA; the land is not being sold “off-the-plan” or under a “terms contract”; and the land does not contain a new home or a home under construction. 12 © The College of Law Limited P302 Sale and Purchase of Land VENDOR Obtaining instructions 1. Receive instructions to act for a vendor client on the sale of a property. Confirm instructions to complete the vendor statement with the client. PURCHASER [The first step occurs later in this overview.] 2. Provide costs disclosure and send costs agreement for signing by the client. 3. Advise the client of steps involved in the proposed sale. Obtaining client authorisation and VOI 4. Obtain client authorisation by completing the relevant Client Authorisation Form: VIC Participation Rules Sch 4. 5. Conduct VOI for each client by the taking of reasonable steps. For best practice, apply the Verification of Identity Standard (set out in VIC Participation Rules Sch 8). Pre-contract searches and enquiries 6. Undertake title search and order property certificates. Seek further detailed instructions from the client about the property (including requesting copy of any leases) to enable the preparation of the vendor statement. For vacant residential land or land on which there is a residence, the estate agent (or vendor where there is no estate agent) must provide to a purchaser a due diligence checklist from the time the land is offered for sale. Additional documents may be required: if applicable, for commercial property, prepare due diligence documentation (for example, confidentiality agreement, data room conditions) and assist with the due diligence process; and if applicable, prepare a request for an expression of interest or tender. The request may include a copy of the client’s preferred form of contract of sale, in which case it must also contain a vendor statement signed by the client as vendor. 7. If the sale price of the property is over $750,000, obtain a foreign resident capital gains withholding (FRCGW) clearance certificate from the Australian Taxation Office (ATO). If the vendor is a foreign resident, inform them that at settlement the purchaser’s lawyer will withhold 12.5% of the sale price and forward it to the ATO in accordance with capital gains withholding provisions. © The College of Law Limited 13 THE COLLEGE OF LAW PROPERTY VENDOR PURCHASER Vendor disclosure 8. Prepare a vendor statement and submit it to the client for review and approval. If further information is required to finalise the statement, seek this from the client. Once the vendor statement has been approved, arrange for the client to sign it. 9. Complete discharge authority for signing by the client (if not already completed by the client online). Forward discharge authority to any outgoing mortgagee with a request for information required to complete the statement under Sale of Land Act 1962 (Vic) (SLA) s 27. Once the information in support of deposit release is obtained from the mortgagee, prepare the s 27 statement and send it to the client for signing. Preparing the contract 10. Prepare a contract of sale (including drafting of any relevant special conditions) and submit it to the client for approval. Where any further information is required to finalise the contract, request this from the client. Draw the client’s attention to any obligations under the contract, including vendor warranties and any other issues of which the client should be aware. Obtaining instructions 1. Receive instructions to act for the purchaser client on the purchase of a property. If the purchaser has already signed the contract, the estate agent will forward a copy of the signed contract. 2. Provide costs disclosure and send costs agreement for signing by the client. Obtaining client authorisation and VOI 3. Obtain client authorisation by completing the relevant Client Authorisation Form: VIC Participation Rules Sch 4. 4. Conduct VOI for each client by the taking of reasonable steps. For best practice, apply the Verification of Identity Standard (set out in VIC Participation Rules Sch 8). 14 © The College of Law Limited P302 Sale and Purchase of Land VENDOR PURCHASER Reviewing the contract 5. Review the contract and vendor statement for the purchaser. Advise the client on: any special conditions in the contract; their rights (for example, cooling-off) and the events and consequences of default; and steps in the transaction and any recommended actions (for example, to effect insurance or undertake a physical inspection). Pre-contract searches and enquiries 6. Review the title search and other property certificates included with the vendor statement (if received). Advise the client of any issues of concern. If the purchaser is obtaining finance, request the incoming mortgagee’s details and written confirmation of the loan approval from the purchaser. If finance is not approved and the contract is “subject to finance”, write to the vendor’s representative requesting an extension of time for finance approval. If the vendor refuses to grant the extension, then seek the client’s instructions to write to the vendor saying that the contract is at an end (otherwise the contract becomes unconditional). If applicable, for commercial property, assist the client with undertaking a due diligence of the property and report to the client on any issues of concern. If applicable, review any request for an expression of interest or tender documentation and assist the client with assembling a tender. Check if the vendor is a foreign resident and whether the FRCGW regime applies. Request a FRCGW clearance certificate from the vendor’s representative (if the sale price of the property is over $750,000) if not included with the vendor statement. Consider whether the goods and services tax (GST) withholding provisions apply to the transaction. If not already provided, request a GST withholding notice from the vendor’s representative. © The College of Law Limited 15 THE COLLEGE OF LAW PROPERTY VENDOR PURCHASER Seek instructions from your client about lodging a caveat, priority notice or subscribing to the Property Transaction Alert Service provided by LANDATA and, if so instructed, attend to this. 7. Write to the incoming mortgagee requesting their requirements for preparation for settlement and attend to these. Negotiating 11. On receipt of any request for amendments to the contract of sale, seek instructions from the vendor and negotiate any requested amendments with the purchaser’s representative. Negotiating 8. Advise the vendor’s representative of any amendments required and set out proposed amendments. 9. If proposed amendments are rejected, discuss further with the purchaser and, if so instructed, with the vendor’s representative. Receive instructions from the client to accept or reject final draft contract and advise vendor’s representative of this. Execution 12. Once the contract has been signed by both parties, request a copy of the signed contract, and check any blank items were completed properly by the agent and that the contract has been signed by the purchaser and vendor. Also check whether any hand-marked amendments have been made and, if so, confirm that these were initialled by both parties. 13. If the purchaser is a company, undertake a company search to confirm that the purchaser is a registered company, and also confirm details of the directors and secretary of the purchaser. Check that the guarantee has been completed and executed correctly if required. Execution 10. Once the contract terms have been negotiated (if applicable), the contract is signed by both parties. This is usually co-ordinated by the agent, who then sends a copy of the signed contract to the vendor and purchaser’s representatives. Confirm that any blank items in the contract were completed properly by the agent and that the contract has been signed by the vendor and purchaser. Also check whether any hand-marked amendments have been made and, if so, confirm that these were initialled by both parties. 11. If the vendor is a company, undertake a company search to confirm that the vendor is a registered company, and also confirm details of the directors and secretary of the vendor. Also confirm whether there are security interests relating to the property that need to be released at settlement. 12. If the client is nominating an additional or substitute purchaser, prepare a nomination form for signing by the purchaser and nominee. On return of the nomination form, send it to the vendor’s representative in the time required under the contract. 16 © The College of Law Limited P302 Sale and Purchase of Land VENDOR PURCHASER Finalising the s 27 statement 14. Send the s 27 statement to the purchaser’s representative and monitor dates so that the deposit can be released (28 days from service). If a signed s 27 statement is received from the purchaser and the estate agent is holding the deposit, forward a copy of the signed statement to the agent confirming that they may release the deposit (less the agent’s commission and advertising costs) to the client. Reviewing and finalising the s 27 statement 13. Review the s 27 statement if received from the vendor’s representative. If appropriate, write to the vendor’s representative objecting to early release of the deposit. If the information provided in the statement is satisfactory, send the statement to your client to sign, explaining its effect. On return of the signed s 27 statement, forward it to the vendor’s representative. PEXA 15. Log in to PEXA. If purchaser’s lawyer has created the workspace, accept invitation to join the workspace. Otherwise, create the workspace, and provide the required information in the workspace. PEXA 14, Log in to PEXA. If vendor’s lawyer has created the workspace, accept invitation to join the workspace. Otherwise, create the workspace, and provide the required information in the workspace. 16. Select who you represent and invite other participants to join the workspace. 15. Select who you represent and invite other participants to join the workspace. Reviewing and signing the transfer 17. Confirm details in the transfer prepared by the purchaser’s representative in the PEXA workspace. Once confirmed, digitally sign the transfer. Preparing and signing the transfer and Notice of Acquisition 16. Create the transfer in the PEXA workspace. The Notice of Acquisition (NOA) is created when the transfer information is entered. Complete details of the NOA. Once completed, digitally sign the transfer and NOA. Preparing the Digital Duties Form 18. Prepare the State Revenue Office (SRO) Digital Duties Form by entering the contract information in Duties Online to create a Transferor Statement. Invite the purchaser’s representative to complete the Transferee Statement, then forward the Transferor Statement to the vendor for signing (an email automatically generated by the SRO). Completing and signing the Digital Duties Form 17. Accept the vendor’s invitation to complete the SRO Digital Duties Form in Duties Online and complete relevant transferee details to create a Transferee Statement. Forward the Transferee Statement to the purchaser for signing (an email automatically generated by the SRO). When both parties have signed the form, land transfer duty can be assessed in Duties Online and then stamp duty can be verified in PEXA. Release of security interests 19. Request a release of any charge over the property from any chargee, including those holding a registered security interest on the Personal Property Securities Register (PPSR), before or at settlement. Release of security interests 18. At least 21 days before settlement, send a written request to the vendor’s representative for a release of the property from any security interest as registered on the PPSR, or any other registered charge. © The College of Law Limited 17 THE COLLEGE OF LAW PROPERTY VENDOR Payment of tax 20. If the property being sold is ‘new residential property’ or ‘potential residential land’, forward a GST withholding notice to the purchaser’s representative notifying them of the amount of GST to be withheld at settlement. PURCHASER Payment of tax 19. Request a GST withholding notice from the vendor’s representative, if not already provided. Note the amount of GST to be forwarded to the ATO at settlement (withheld from the vendor’s funds) and include as a destination financial line item in the PEXA Financial Settlement Schedule. 20. Consider whether the FRCGW regime applies. If it does apply and a clearance certificate has not been received from the vendor, then withhold 12.5% of the contract price at settlement and include as a destination financial line item in the Financial Settlement Schedule. Adjustments 21. Check the statement of adjustments and settlement statement prepared by the purchaser’s representative and send a copy of the statement to the client for their approval. Request payout amount from outgoing mortgagee (if indicative payout not already received) and notify the client of this amount. Adjustments 21. Prepare statement of adjustments and settlement statement in the PEXA workspace. Send a copy of the statement of adjustments to the client. Confirm financial line items entered in the Financial Settlement Schedule by the vendor’s representative. Obtain client’s account details for payment of surplus funds in PEXA at settlement by phone or using PEXA Key. Populating and signing Financial Settlement Schedule 22. In the Financial Settlement Schedule, add as destination financial line items any council or water rate payments, any payments to third parties and your professional costs. PEXA fees and LUV lodgment fees are automatically entered as destination financial line items. 23. Once the Financial Settlement Schedule is balanced, digitally sign it. 18 Populating and signing Financial Settlement Schedule 22. In the Financial Settlement Schedule, add as destination financial line items any payments to third parties and your professional costs. PEXA fees, LUV lodgment fees and land transfer duty are automatically entered as destination financial line items. 23. Once the Financial Settlement Schedule is balanced, digitally sign it. If money is to be debited from the Subscriber’s trust account, sign as the “trust signatory”. © The College of Law Limited P302 Sale and Purchase of Land VENDOR Cancellation of utilities 24. Advise the client to arrange a reading of gas, electricity and water services and the cancellation of phone services from the settlement date. PURCHASER Availability of utilities 24. Advise the client to set up new accounts for gas, electricity and water services and to connect the phone services from the settlement date. Preparing a settlement statement 25. Generate an SRO settlement statement from the Digital Duties Form. This statement contains a form ID and an SRO estimate of duty payable. Pre-settlement 25. Obtain any original leases from the client required to be handed over at settlement. 26. Prepare attornment notices or letters to the tenants (if any) advising of the sale of the property and that rent should be paid to the purchaser after settlement. 27. Send a pre-settlement letter to the client. Pre-settlement 26. Send a pre-settlement letter to the client: attaching adjustments, settlement statement, statement of account and tax invoice; and advising the client to undertake a pre-settlement inspection within 7 days before settlement. Final searches 27. On the day of settlement, order a final search and confirm there is no activity on title. PEXA also runs an automated title activity check (TAC) on the morning of settlement and 55 minutes before the time of settlement. Settlement 28. Once the workspace status is “Ready/Ready”, at settlement time the workspace will lock and settlement will commence. Settlement 28. Once the workspace status is “Ready/Ready”, at settlement time the workspace will lock and settlement will commence. PEXA arranges for: electronic documents to be lodged at LUV; and payment instructions to be sent and settlement money transferred, then disbursed to the nominated destination accounts. PEXA notifies Subscribers that settlement has been effected. PEXA arranges for: electronic documents to be lodged at LUV; and payment instructions to be sent and settlement money transferred, then disbursed to the nominated destination accounts. PEXA notifies Subscribers that settlement has been effected. 29. Report to the client and the estate agent (in writing) that settlement has been effected. After receipt of confirmation of settlement, the estate agent will release the keys to the purchaser. © The College of Law Limited 29. Report to the client (in writing) that settlement has been effected. Ask the client to confirm with the estate agent that the agent has received written confirmation of settlement before the client collects the keys from the agent. 19 THE COLLEGE OF LAW PROPERTY VENDOR PURCHASER After settlement 30. If the property is a lot on a plan of subdivision, advise owners corporation (if any) of new owner’s details within 1 month of settlement. After settlement 30. Send attornment notices or letters to any tenants advising them of the change in ownership. 31. Send final letter to the client enclosing tax invoice, trust statement, statement of adjustments and settlement statement. 31. Email the Notice of Acquisition to the local council and water authority. Any outstanding rates payments would have been entered as destination financial line items and paid at settlement. 32. If there is no incoming mortgagee, the purchaser’s representative attends to the payment of land transfer duty via the SRO’s Duties Online (DOL), otherwise the incoming mortgagee retrieves and claims the settlement statement or ELNO lodgment. 33. Send FRCGW amount to ATO (if relevant). 34. If the property is a lot on a plan of subdivision, notify the owners corporation (if any) of the new owner’s details within 1 month of settlement. 35. Send final letter to the client enclosing tax invoice, trust statement, statement of adjustments and settlement statement. 4 ESTATE AGENTS 4.1 Regulation of estate agents Estate agents are regulated by the Estate Agents Act 1980 (Vic) (EAA) and regulations made under the EAA. The EAA requires anyone in the business of selling, buying or otherwise dealing with or disposing of land on behalf of any other person to hold an estate agent’s licence or to be employed by a licensed estate agent as an agent’s representative. The EAA imposes the following obligations on an estate agent: An estate agent may only recover commission and outgoings if there is a written authority signed by the vendor (a copy of which must have been provided to the vendor). Commission may be a flat rate or a percentage of the sale price, and the amount is a matter of negotiation between the vendor and the estate agent: ss 49A and 50. An estate agent must advise a prospective vendor that all commission plus other outgoings are negotiable, before the prospective vendor signs a written authority: s 49A(1)(b). An estate agent must, before a prospective vendor signs a written authority, disclose to the prospective vendor if the estate agent is sharing the commission with someone other than a licensed estate agent or agent’s representative in their agency, or a licensed estate agent they are in partnership with: s 48. An estate agent must state an estimated selling price in a written authority before the prospective vendor signs the authority and must not make any false representations in relation to the estimate: ss 47A and 47B. When advertising a property, an estate agent must not quote or advertise a figure that is less than the estimated selling price stated in the written authority: s 47C. An estate agent must not retain rebates but must pay them to the client: s 48A. 20 © The College of Law Limited P302 Sale and Purchase of Land An estate agent must not charge a vendor more for outgoings than the amount paid by the agent: s 48B. An estate agent must not charge a vendor more than was authorised by the written authority: s 50(4). Estate agents are also bound by the rules of professional conduct set out in the Estate Agents (Professional Conduct) Regulations 2018 (Vic). These regulations deal with the conduct of estate agents and agents’ representatives and cover issues such as conflicts of interest, confidentiality, good practice, dispute resolution and communication. The general requirement set out in reg 16 provides for an estate agent or agent’s representative to communicate to the principal (the person who engaged the estate agent) any offers made to the estate agent/agent’s representative as soon as possible after the offer is made. Regulation 17 deals with bids and offers at public auctions and creates an exception to the general requirement, such that an estate agent/agent’s representative must not communicate to any person any bid or offer made after the property has been knocked down to the successful bidder at a public auction, unless the vendor or successful bidder at the auction refuses to sign the contract following the auction. A vendor and purchaser can deal directly with each other without using an estate agent. However, most vendors and purchasers deal with an estate agent. You should advise your client to deal only with a licensed estate agent and recommend that it be verified that the agent is licensed. The Business Licensing Authority, Victoria, keeps an online register of licensed estate agents. Estate agents are bound by rules of professional conduct, and therefore must act ethically and responsibly when dealing with both vendors and purchasers. However, the relationship an estate agent has with a vendor is different from the relationship they have with a purchaser. An estate agent is retained by the vendor and therefore is accountable, and owes a fiduciary duty, to the vendor, not the purchaser. An estate agent does, however, have a duty not to mislead purchasers in relation to the price of a property. An estate agent who engages in misleading or deceptive conduct may breach Australian Consumer Law (Competition and Consumer Act 2010 (Cth) Sch 2) (ACL) s 18, and an estate agent who makes false or misleading representations may be liable under s 30. A purchaser may engage an estate agent to act as a buyer’s advocate. A buyer’s advocate will usually source properties, bid at auction and generally represent the purchaser throughout the purchasing process in return for a fee. In this case, the estate agent acts in the capacity of the purchaser’s representative rather than the vendor’s representative. 4.2 Authorities to sell The EAA does not prescribe forms of authority. However, the REIV has prepared two standard forms for use by its members – a general authority and an exclusive (or sole) authority. The REIV is an industry association representing estate agents; in Victoria, most estate agents are members of the REIV. Estate agents often use the forms of authority prepared by the REIV. Under a general authority, a vendor can list with more than one estate agent and is only obliged to pay commission to the agent who sells the property. Under an exclusive or sole authority, a vendor engages the services of only one estate agent for a fixed period. The written authority will end at the time specified in the written authority, or if no time is specified: in the case of an auction, 30 days after the date of the auction; and in any other case (for example, private sale), 60 days after the authority is signed by the vendor: EAA s 54. © The College of Law Limited 21 THE COLLEGE OF LAW PROPERTY Where the estate agent sells the property during the authority period, they are entitled to the commission. An estate agent will often urge a vendor to sign an exclusive authority with a lengthy authority period. However, this has several disadvantages, including that a vendor will not be able to appoint another estate agent during the period should they become dissatisfied with the agent. 4.3 Unfair contract terms Part 2-3 of the ACL regulates unfair terms of consumer contracts. A term is unfair if it would cause a significant imbalance in the parties’ rights and obligations under the contract, it is not reasonably necessary to protect the legitimate interests of the party who would be advantaged by the term, and it would cause detriment to a party if it were to be applied or relied on. The unfair contract term protections apply to all standard form contracts where: the contract is for the supply of goods or services or the sale or grant of an interest in land; at least one of the parties is a small business (that is, employs fewer than 20 people); and the upfront price payable under the contract is no more than $300,000, or $1m if the contact is for more than 12 months. A standard form contract is typically a “take it or leave it” contract, where negotiation on the contract terms is limited. After 9 November 2023, a person is prohibited from making a contract with an unfair contract term. A pecuniary penalty can be imposed if a person contravenes this prohibition. 4.4 Underquoting laws Underquoting laws in the EAA apply to the sale of residential property but not to commercial, industrial or rural property. Estate agents and their representatives’ obligations relate to: estimated selling price; reporting comparable property sales; a Statement of Information for prospective buyers; and advertising prices, terms and symbols. The Statement of Information is a pricing fact sheet agents must prepare for every residential property they are engaged to sell in Victoria. It must include an indicative selling price for the property, details of the three property sales most comparable to the property for sale, and the median house or unit price for the suburb. The Statement of Information must be: displayed at all “open for inspections”; included with online advertising; given to a prospective buyer within 2 business days of a request; and updated if there is a change in the indicative selling price. When marketing a property for sale, agents may advertise the price as a single figure or a range of up to 10%. They must not use any words or symbols to qualify the price, such as “offers above”, “from”, or ”+”. Agents who do not comply with the underquoting laws risk a penalty of more than $33,000 and, for more serious offences, may also lose any commission they received for the property sale. For further information on the underquoting laws, see the Consumer Affairs Victoria website. 22 © The College of Law Limited P302 Sale and Purchase of Land 5 METHODS OF SALE 5.1 Overview There are three main ways a property can be bought and sold: private sale – the property is advertised and offers are invited from prospective purchasers. The sale is negotiated between the vendor and purchaser (often with the assistance of an estate agent); public auction – the property is advertised for public sale at a specific place, time and date. Prospective bidders bid and the property is sold to the highest bidder (if the vendor accepts this bid); and tender – the property is advertised for sale by an “expression of interest” or tender, which are invited from prospective purchasers by a specified date. The vendor and successful tenderer (if any) then enter into a contract of sale. Residential properties are most commonly sold privately or by public auction. Commercial and industrial properties are usually sold by public auction or tender. There are some notable differences between the private sale, public auction and tender processes, including: in a private sale, the parties may negotiate the terms of the contract and may agree to make the contract conditional (for example, subject to finance). Generally, an auction contract is unconditional. The vendor of a property for sale by tender can exercise their discretion whether to accept conditions proposed by a prospective purchaser; in a private sale or sale by tender of residential property, the purchaser generally has a cooling-off period of 3 business days. Where a purchaser buys a property at auction, there is no cooling-off period under SLA s 31; the estate agent’s commission is generally the same whether the property is sold privately, at auction or by tender. Advertising costs are often higher when selling by auction or by tender; where there is an auction or a sale by tender, the property is widely advertised, and opportunities for market feedback are created; and an auction sometimes results in a quicker sale. 5.2 Auctions An auction must be conducted according to the Rules for the Conduct of Public Auctions of Land (auction rules) (Sale of Land (Public Auctions) Regulations 2014 (Vic) (SLPAR) Schs 1–4). Schedule 5 of the SLPAR contains an information statement concerning public auctions. The SLPAR provide for different auction rules to apply according to the number of owners of the property being sold and whether one or more of any co-owners intend to bid at the auction. The auction rules are required to take a particular form as set out in SLPAR reg 6(2) and (6). Regulation 6(1) of the SLPAR provides that the auctioneer must make available for public inspection not less than 30 minutes before the auction starts: the relevant auction rules; the Information Concerning the Conduct of Public Auctions of Land (known as the information statement); and any other conditions applying to the auction: SLA s 43. An auctioneer must also audibly state certain matters before accepting any bid at an auction: SLPAR reg 7. These include that: © The College of Law Limited 23 THE COLLEGE OF LAW PROPERTY the auction will be conducted according to the auction rules and any additional conditions made available for public inspection; the auction rules prohibit an auctioneer from accepting bids or offers after the property has been knocked down to the successful bidder; the auctioneer must indicate bidders, on request; and the law prohibits false bids, major disruptions by bidders and attempts by bidders to prevent others from bidding and provides for fines for such prohibited conduct. If asked to do so by another person at the auction, the auctioneer must indicate the person who made a bid before taking another bid: reg 8. Dummy bidding Dummy bidding is prohibited and subject to significant penalties: SLA s 38. A dummy bid is a bid by or on behalf of a vendor (also referred to as a vendor bid) whether or not made at the request of, or with the knowledge of, the vendor. It does not matter whether the person making the bid is in Victoria at the time of the bid. Evidence that a person who made a bid had the intention of benefitting the vendor is evidence that the person made the bid on the vendor’s behalf: s 38. An auctioneer is prohibited from knowingly accepting a dummy bid and from acknowledging the making of a bid if no bid was made: s 39. Certain vendor bids are permissible: SLA s 41. See SLPAR reg 7 as to the limitations on vendor bidding. Disruption of auction prohibited Section 47 of the SLA makes provision for the conduct of people attending auctions. Among other things, a person must not: knowingly prevent or hinder an actual or potential rival bidder from attending, participating in or bidding at an auction; harass an actual or potential rival bidder so as to interfere with the rival bidder’s attendance, participation in or bidding at an auction; and induce or attempt to adduce an actual or potential rival bidder not to attend, or not to bid at, an auction. However, these prohibitions do not preclude a person at the auction from asking, in good faith, a reasonable number of questions about the land, the contract of sale and the conduct of the auction: s 47(6). Reserve An estate agent will ask a vendor to fix a reserve price – the lowest price at which the vendor is prepared to sell their property. If the reserve price is not reached at auction, an auctioneer will pass in the property (withdraw the property from auction) but will open negotiations with the highest bidder (where the highest bid is not a vendor bid). Advertising after an auction If a property is passed in on a vendor bid, the estate agent must not quote the amount of this last bid when advertising or marketing the property without disclosing that it was a vendor bid: SLA s 46. Compensation A purchaser who has suffered any loss or damage as a result of a person’s failure to comply with the auction requirements under the SLA is entitled to compensation from that person: SLA s 44. 24 © The College of Law Limited P302 Sale and Purchase of Land An application for compensation must be lodged with the Victorian Civil and Administrative Tribunal (VCAT) before the second anniversary of the date of the auction: s 44(2). However, if VCAT is satisfied that the application for compensation is frivolous, vexatious or without substance, it may order that the applicant pay: compensation to the vendor for any loss or damage resulting from the application: s 44(3); and costs in relation to the application: s 44(4). 5.3 Tenders Often, commercial and industrial properties, and sometimes residential properties, are sold by tender. A tender is a written offer for the purchase of the property that is capable of acceptance by the vendor. Generally, the tendering process is as follows: The vendor (often through an estate agent) advertises that they are seeking an expression of interest and intending to request tenders. Interested parties contact the vendor or estate agent with an expression of interest and seeking more information. They are provided with a request for tender and supporting documentation, including a vendor statement and contract of sale. The interested parties submit tenders by the specified date. The tenders are usually sealed and are not opened before the final date for lodging tenders has passed. A tender may be either conforming (complies with the conditions of the request for tender) or non-conforming (does not comply with the conditions of the request for tender). The request for tender usually specifies whether the vendor has any obligation to considering non-conforming tenders. The request for tender usually provides specific conditions as to acceptance of a tender. Where a vendor accepts a tender, the vendor and successful tenderer will then enter into a contract of sale. Requests for an expression of interest and tenders are regarded as invitations to treat, not as offers. Consequently, the vendor is not bound to sell to the most favourable tenderer. However, this is qualified in the following ways: a vendor may promise to accept the most favourable tender; or the vendor may be contractually obliged to follow the rules set out in the request for tender. 6 OBTAINING INSTRUCTIONS 6.1 Verification of identity The parties to a conveyancing transaction must have their identity verified. The Registrar’s requirements for VOI require a legal representative to take reasonable steps to verify the identity of each of their clients before dealings can be lodged at LUV for registration. The VOI requirements also apply to confirming the identity of mortgagors. The VOI procedures apply to individuals and corporations. The purpose of carrying out the VOI process is to reduce the risk of identity fraud and the registration of fraudulent land transactions. Land Use Victoria has published guides on its website to assist in the VOI procedure. The Legal Practitioners’ Liability Committee has also developed online guides to assist lawyers in the VOI process. Rule 6.5 of the ARNECC Model Participation Rules contains current VOI requirements relating to electronic transactions. Guidance notes have also been issued to help explain the model participation rules: Model Participation Rules Guidance Note 2. © The College of Law Limited 25 THE COLLEGE OF LAW PROPERTY 6.2 Due diligence It is prudent for a purchaser to conduct due diligence before buying a commercial property. The due diligence process involves investigating all things that might be relevant to assessing the value of the property, as well as examining any possible risks associated with purchasing the property. The purchaser will usually engage a lawyer and other experts to undertake the due diligence. The purchaser’s representative may negotiate with the vendor’s representative to include in the contract of sale special conditions to address any issues of concern arising from the due diligence process, or warranties to address any issues undetected by conducting due diligence. A vendor will usually resist providing additional warranties and will usually exclude any liability in relation to matters that they disclosed during the due diligence process or that the purchaser has knowledge of. The vendor will usually engage a lawyer to assist in making full disclosure to a purchaser of all relevant documents pertaining to the property, and generally in relation to the due diligence process. The extent of the due diligence will be governed by the complexity of the transaction, the purchaser’s budget and the time available for the purchaser to undertake the due diligence. Where a purchaser is engaged in due diligence and any of the documents contain commercially sensitive or confidential information, a vendor may require the purchaser to enter into a confidentiality agreement with the vendor to protect the vendor against the purchaser disclosing that information. Where a large number of documents are being made available to a purchaser and/or the documents contain confidential information, the documents may be placed in a central location (often referred to as a “data room”) with the purchaser being given access during a specified period. The vendor’s lawyer will usually prepare a document (often in the form of a deed poll signed by the purchaser) regulating access to, and use of, the data room. Where there is vacant residential land or land on which there is a residence, the estate agent (or vendor where there is no estate agent) must provide to a purchaser a due diligence checklist from the time the land is offered for sale. The due diligence checklist is available on the Consumer Affairs Victoria website. Where there is no estate agent, lawyers should inform their vendor client of the need to provide the checklist. A purchaser has no rights where the due diligence checklist is not provided but a fine may be imposed. 7 BUILDING ENERGY EFFICIENCY DISCLOSURE Section 11 of the Building Energy Efficiency Disclosure Act 2010 (Cth) provides that a corporation that owns a disclosure-affected building must not offer or continue to offer to sell the building or invite or continue to invite offers to purchase the building unless a valid, current building energy efficiency certificate (BEEC) for the building is registered. A disclosure-affected building is one that is used or capable of being used as an office, and is of a kind that has been determined to be disclosure affected: s 3. A building (including all areas in that building) is not disclosure affected if: the building is a mixed use building and the total office space comprises less than 75% of the total space by net lettable area (or gross lettable area); the building is either new or subject to major refurbishment and a certificate of occupancy has either not been issued or was issued less than 2 years prior; or the building is held under strata title. All other buildings are disclosure affected where the office space in the building (or area of a building) is 1,000m2 or more. 26 © The College of Law Limited P302 Sale and Purchase of Land Building owners are required to: obtain and register a BEEC when selling or leasing a disclosure-affected office building or area of a building: ss 11 or 12; include the BEEC energy efficiency star rating for the building in any advertisement for the sale, lease or sublease of the building or area: s 15; and provide information about, and access to, a disclosure-affected office if requested by a CBD Accredited Assessor: s 18. Tenants (including lessors and sub-lessors) have corresponding obligations in that they must: obtain and register a BEEC when subletting a disclosure-affected office: ss 11 and 12; include the BEEC energy efficiency star rating for the building in any advertisement for the sublease of the building or area: s 15; and provide information about, and access to, a disclosure-affected office if requested by a CBD Accredited Assessor: s 18. More information about the national Commercial Building Disclosure Program is available on the Commercial Building Disclosure Program website. 8 VENDOR STATEMENT 8.1 Overview In addition to the minimal disclosure obligations imposed on a vendor by the common law, there are statutory disclosure obligations on the part of a vendor: SLA s 32. A vendor is required to give a signed statement, known as a “vendor statement”, to the purchaser before the purchaser signs the contract of sale. A vendor cannot contract out of any s 32 disclosure requirements. A vendor’s representative is responsible for preparing the vendor statement. Once prepared, the vendor statement is signed by the vendor and made available to prospective purchasers, usually by the estate agent. 8.2 Content of the vendor statement Under SLA s 32A, the vendor statement must contain the following financial matters in respect of the land: information concerning any mortgage (whether registered or unregistered), which is not to be discharged before settlement; information concerning any statutory charge (whether registered or unregistered); information concerning the amount of rates, taxes, charges or similar outgoings affecting the land, including any interest, and a statement that the total amount does not exceed the amount specified: s 32A(c)(i) and (ii); and in the case of a terms contract, the information set out in SLA Sch 2. Section 32B requires the vendor to provide to the purchaser of a property on which there is a residence: if the contract for the sale of the land does not provide for the land to remain at the risk of the vendor until the purchaser becomes entitled to possession or receipt of rents and profits – particulars of any policy of insurance maintained by the vendor in respect of any damage to or destruction of the land; and in the case of a residence to which Building Act 1993 (Vic) (Building Act) s 137B applies that was constructed within the preceding 6 years – particulars of any required insurance under that Act applying to that residence. © The College of Law Limited 27 THE COLLEGE OF LAW PROPERTY Section 32C provides that the vendor statement must contain the following information in connection with a property: a description of any easement, covenant or other similar restriction (whether registered or unregistered) and information concerning any existing failure to comply with their terms; if the land is a designated bushfire prone area within the meaning of regulations made under the Building Act, a statement that the land is in such area; if there is no access to the property by road, a statement that there is no such access; and planning information, namely; – the applicable planning instrument; – the applicable responsible authority; – the zoning of the land; and – the name of any planning overlay affecting the land. Information concerning any notice, order, declaration, report or recommendation of a public authority or government department or approved proposal the vendor might reasonably be expected to have knowledge of (including any notice of intention to acquire under the Land Acquisition and Compensation Act 1986 (Vic)) must be disclosed: SLA s 32D. A vendor statement must contain particulars of any building permit issued under the Building Act in the preceding 7 years in relation to a building on the land: SLA s 32E. If the land is a lot on a plan of subdivision and is affected by an owners corporation within the meaning of the Owners Corporations Act 2006 (Vic) (OCA), the vendor must also comply with SLA s 32F. The vendor must either: attach to the vendor statement and contract of sale for each owners corporation affecting the land a copy of the current owners corporation certificate containing the information prescribed under OCA s 151(4)(a) and Owners Corporations Regulations 2018 (Vic) (OCR) reg 11; or specify in the vendor statement the information prescribed in OCA s 151(4)(a) relating to the owners corporation; and attach to the vendor statement a copy of 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 form of OCR Sch 2) or rules made under OCA s 138; – the Statement of Advice and Information for Prospective Purchasers and Lot Owners prescribed under reg 12 in the form 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 further information on prescribed matters can be obtained by inspection of the owners corporation register: OCA Pt 9 Div 2. It is essential that all this information be attached to the vendor statement. The fee prescribed for each certificate is $150 (inclusive of GST): OCR reg 10. The SLA does not prescribe the form the vendor statement must take, and lawyers generally prepare their own form of the vendor statement or use the form prepared by the REIV and the LIV. The REIV/LIV current form of vendor statement is available on the Law Institute of Victoria website. If the owners corporation is inactive, this should be specified in the vendor statement. A vendor statement must specify information as to whether the land is in accordance with a work-in-kind agreement (within the meaning of Planning and Environment Act 1987 (Vic) (PEA) Pt 9B): SLA s 32G(1), that is: 28 © The College of Law Limited P302 Sale and Purchase of Land land that is to be transferred under the agreement; land on which works are to be carried out under the agreement (other than Crown land); or land in respect of which a growth areas infrastructure contribution (GAIC) is imposed. In the case of land for which there is a GAIC recording (within the meaning of PEA Pt 9B), the following certificates or notices must also be attached (s 32G(2)): (a) (b) (c) (d) (e) (f) (g) any certificate of release from liability to pay a growth areas infrastructure contribution imposed in respect of the land issued under that Part; any certificate of deferral of the liability to pay the whole or part of a growth areas infrastructure contribution imposed in respect of the land issued under that Part; any certificate of exemption from liability to pay a growth areas infrastructure contribution imposed in respect of the land issued under that Part; any certificate of staged payment approval; any certificate of no GAIC liability relating to the land issued under that Part; any notice given under that Part providing evidence of the grant of a reduction of the whole or part of the liability to pay a growth areas infrastructure contribution imposed in respect of the land or an exemption from that liability; if no certificate or notice of a type specified in paragraphs (a) to (f) is provided, a GAIC certificate relating to the land issued under that Part. The vendor must provide disclosure of certain services that are not connected to the land, including electricity supply, gas supply, water supply, sewerage and telephone services: s 32H. A copy of relevant title documents must also be attached to the vendor statement: SLA s 32I. In the case of land under the TLA, this includes a copy of the Register Search Statement and the document, or part of the document, referred to as the diagram location in the Register Search Statement that identifies the land and its location: s 32I(a). 8.3 Attached property certificates and title documents Under SLA s 32, the vendor may disclose certain information about the property that is required to be disclosed by attaching a copy of the relevant certificate issued by a public authority. The matters that may be disclosed in this way are those concerning: applicable planning instruments: s 32C(d); rates, taxes, charges and other outgoings: s 32A(c); and any notice, order, declaration, report or recommendation of a public authority or government department or approved proposal: s 32D. In addition, information on restrictions affecting the property can be provided by attaching copies of the relevant title documents: s 32C(a). Once you receive instructions, you will need to prepare the vendor statement. You should undertake the following enquires and obtain the following certificates: title search; planning certificate issued by LANDATA (a business of LUV) or by the local council; land information certificate from the local council; fire services property levy from the local council; water rates and encumbrances information statement from the local water authority; building permit information from the local council; certificate from VicRoads; land tax clearance certificate from the SRO; extract from Environment Protection Authority (EPA) Priority Sites Register; © The College of Law Limited 29 THE COLLEGE OF LAW PROPERTY owners corporation certificate (if applicable); heritage certificate (if appropriate); Aboriginal Heritage Register certificate (if appropriate); GAIC certificate; bushfire prone area report; and any emergency order, building notice or building order relating to combustible cladding. If the vendor is a corporation and the property includes a commercial building that may be disclosure affected, you should also obtain the relevant NABERS (National Australian Built Environment Rating System) or BEEC. You should let your client know beforehand that you will be undertaking searches and the costs involved. You should also obtain detailed instructions from the client regarding the property and the sale, such as by sending the client a questionnaire to complete. See Appendix 2 for examples in relation to residential and commercial properties. Once you have prepared a draft vendor statement, you should submit it to your client for review and approval and advise your client of the consequences under the SLA of supplying false information or failing to supply all required information. 8.4 Issues arising in respect of disclosures in a vendor statement Some issues arising in respect of disclosures in the vendor statement are set out below. These are not definitive, and you must consider the particular circumstances of the property when preparing the vendor statement. Mortgages The vendor statement must disclose any mortgage not to be discharged at settlement: SLA s 32A(a). “Mortgage” is defined broadly in the SLA to include a charge or lien to secure money (subject to some limited exceptions). However, it is rare for a property to be sold subject to a mortgage, and mortgages are usually discharged at settlement. Statutory charges All charges imposed under an Act affecting the property, whether they will be discharged at settlement or not, must be disclosed: SLA s 32A(b). Examples of such charges are road construction costs, sewerage scheme connection costs, and rates and land tax that are due but unpaid. A deferred GAIC is also a charge on the affected land, has priority over all other encumbrances the land is subject to, and can be recorded on title: PEA s 201SQ. Easements, covenants, etc Any registered or unregistered easements, covenants and other similar restrictions affecting the property must be disclosed in the vendor statement: SLA s 32C(a). You can find out what registered easements and covenants affect the property by ordering a title search. If the description of the easement or covenant on title is insufficient to describe it adequately, a copy of the document that created the easement or covenant must be attached to the vendor statement. Unregistered easements, covenants and similar restrictions generally can only be disclosed by your client (the vendor). Unregistered easements may include the existence of a water, sewerage or 30 © The College of Law Limited P302 Sale and Purchase of Land drainage pipe. Information about these can usually be obtained from the relevant water authority. Unregistered restrictions may include the existence of an option to purchase the property. Restrictive and ongoing conditions attaching to a planning permit may also constitute restrictions on the property, particularly where the conditions affect the use of the property and will continue beyond settlement. It is prudent to search the planning permits that currently apply to the property by requesting copies from the local council or searching the property file at the local council’s office, and attaching applicable planning permits to the vendor statement. Whether a lease is a restriction on a property remains unsettled. It should, therefore, be disclosed in the vendor statement. The preferred view is that if the property is sold subject to a lease, the lease should not be disclosed in the vendor statement but should be attached to the contract of sale. Particulars of any such leases must be included in the particulars of sale in the contract. A current breach of any easement, covenant or restriction must also be disclosed. Forest carbon rights and Forestry and Carbon Management Agreements Part 4 of the Climate Change Act 2010 (Vic) (Climate Change Act) affects Torrens land. You should be aware that the Climate Change Act allows for the creation of forest carbon rights and Forestry and Carbon Management Agreements. Among its main purposes, the Act is intended to: provide a framework for the Victorian Government’s roles and responsibilities in response to climate change; provide for a strategic response to climate change through a Climate Change Adaptation Plan; promote collaboration, co-operation and innovation in response to climate change; and promote transparency and accountability through the provision of accessible information on climate change to the Victorian community. The Climate Change Act provides for the creation of forest carbon rights that create an interest in the land that can be registered, transferred, mortgaged or surrendered: Pt 4 Div 2. A forest carbon right is created by an instrument of transfer in a form approved by the Registrar under the TLA: Climate Change Act s 26. The existence of a registered forest carbon right would appear on a current certificate of title or most recent Register Search Statement for the land. Within the context of the vendor statement requirements in SLA s 32, an agreement for the transfer of a forest carbon right does not constitute an agreement for sale of land. A vendor statement is not required with an agreement solely to transfer a forest carbon right: s 32P. The Climate Change Act also allows for the creation of Forestry and Carbon Management Agreements, which do not create an interest in land but may be recorded on title: Pt 4 Div 3. If the agreement is recorded on title, the registered proprietor’s obligations under the Forestry and Carbon Management Agreement run with the land. You should discuss the existence and terms of any such forest carbon right or Forestry and Carbon Management Agreement with your client before proceeding with the sale of land contract. For a description of how the Climate Change Act affects land registry procedures, see Land Victoria Customer Bulletin No 130/2011. Planning Disclosure of planning information under SLA s 32C(d) is intended to provide the purchaser with the basic details of the relevant planning instrument, the responsible authority, and the zoning or reservation of the property. The vendor is not required to annex parts of the planning scheme to the vendor statement or to explain the impact of the planning scheme on the property. Once the basic details are disclosed, it is the purchaser’s responsibility to ascertain the effect of any planning restrictions affecting the property. © The College of Law Limited 31 THE COLLEGE OF LAW PROPERTY Rates, taxes, etc The vendor statement must include information about the rates, taxes, charges and outgoings affecting the property (including interest on unpaid amounts) that the purchaser may become liable to pay as a consequence of the purchase, of which the vendor would reasonably be expected to have knowledge: SLA s 32A(c). The amount can be inserted as a maximum figure for total rates and charges applying to the property. The more prudent approach is to attach certificates to the vendor statement, because due and unpaid rates and land tax constitute currently existing charges over the property that must be disclosed. Certificates are available for council rates, water rates, land tax and GAIC. There may be other charges or outgoings affecting the property, such as the community infrastructure levy, which may become payable in the future, and that should be disclosed. Any outgoings arising only because of the transfer of the property to the purchaser must be disclosed, for example, special land tax. Part 4 Div 5 of the Land Tax Act 2005 (Vic) allows for certain properties that have been exempt from land tax to be assessed for a one-off special land tax after a change of ownership if the use of the property changes. If the use changes upon the sale or within 60 days of the sale, the previous owner is liable, but if the use changes more than 60 days after the change of ownership, the new owner is liable. The vendor statement should also disclose if the property being sold is assessed as part of a larger piece of land. Notices, orders, etc Examples of notices and orders that require disclosure (SLA s 32D) include: a building notice requiring works to be performed on the property; notification of the property being listed on the EPA Priority Sites Register or the issue of a statement of environmental audit under the Environment Protection Act 1970 (Vic); and notification under the Heritage Act 1995 (Vic) that the property has been nominated for inclusion in the Victorian Heritage Register. Services The vendor must provide disclosure of non-connected services: SLA s 32H. Title A copy of the Register Search Statement should be attached to the vendor statement. The term “Register Search Statement” is used by LUV and is generally understood to be a title search: SLA s 321. If the vendor is not the registered owner of the property, evidence of the vendor’s right to sell is required. If the land has ever been subdivided, a copy of the plan of subdivision must be attached to the vendor statement. If the land is a lot on a proposed plan of subdivision, a copy of the proposed plan must be attached to the vendor statement. This will be a copy of the certified plan if the plan has been certified by the local council, or a copy of the latest version (including any proposed amendments) of the plan if it has not yet been certified: SLA s 32I(d). See SLA s 32I(e) for the requirements where the land is in a staged subdivision. 32 © The College of Law Limited P302 Sale and Purchase of Land 8.5 Consequences of insufficient or incorrect information in a vendor statement Where a vendor supplies false information or fails to supply all the information specified in SLA s 32: the vendor is guilty of an offence: s 32L; and the purchaser can rescind the contract entered into on the basis of that information at any time before the purchaser accepts title and becomes entitled to possession or to the receipt of rents or profits: s 32K(2). However, if a vendor has acted honestly, reasonably and ought fairly to be excused, then if the purchaser is in substantially as good a position as if all the relevant information had been provided, the court may determine that the purchaser is not entitled to rescind: SLA s 32K(4). Whether the vendor has acted reasonably is determined according to an objective test: Payne v Morrison (1992) V ConvR ¶54-428; Paterson v Batrouney VSC 313; McHutchison v Asli VSC 258. 8.6 Previous contract Under SLA s 320, the vendor is not required to give the purchaser another vendor statement where the parties: have already entered into a previous contract of sale and the vendor has given the purchaser a vendor statement; and enter a subsequent contract for the same land on substantially the same terms. 9 SALE INVOLVING OWNERS CORPORATION A person must not sell land affected by an owners corporation (often referred to as a lot on a plan of subdivision) unless the vendor or the owners corporation has a current insurance policy in accordance with the OCA: SLA s 11. Failure to comply with this section makes the contract voidable at the option of the purchaser before settlement. Under the OCA, an owners corporation has an insurable interest in the land affected by the owners corporation (s 56) and must have the following insurance: reinstatement and replacement insurance for all buildings on the common property: s 59; public liability insurance for the common property of not less than $10m (or another amount prescribed) per claim: s 60; and in a multi-level development, if a building on the plan of subdivision is located above or below common property, a reserve or a lot then the owners corporation must take out reinstatement and replacement insurance for all buildings on each lot in the plan as well as public liability insurance for the common property: s 61. An owners corporation may also have additional insurance: s 62. None of these provisions or the regulations limit a lot owner’s right to insure against destruction of or damage to their lot or interest in the property. For further information, see Practice Paper P303 Conveyancing of Units and Subdivided Property. 10 CONTRACT 10.1 Outline The Instruments Act 1958 (Vic) requires a contract of sale of land to be in writing and signed by the party against whom it is to be enforced (or a person authorised in writing to sign on that party’s behalf), © The College of Law Limited 33 THE COLLEGE OF LAW PROPERTY before the other party can enforce the contract: s 126. Where these requirements are not met, a contract may still be enforceable in equity if the requirements for part performance are satisfied. 10.2 Contract of sale of land There is no prescribed form of contract for use by lawyers. However, many lawyers use the standard contract published by the LIV/REIV, which consists of particulars of sale and general conditions (GCs) with provision to insert special conditions. An estate agent can fill out the contract of sale of land, but in that case the contract must be in a form approved by the Legal Services Board or a professional association within the meaning of the LPUL, such as the LIV: EAA s 53A. 11 REVIEW OF THE CONTRACT 11.1 Outline In many cases, your client will ask you to review the contract before they have signed it. Before signing, there is an opportunity to amend the contract by inserting special conditions and striking out provisions. You may recommend amendments to the purchaser, and where the purchaser provides instructions you may negotiate amendments with the vendor’s lawyer. In other cases, you will receive the contract after it has already been signed and therefore there is no opportunity to amend the contract. Where you receive a signed contract, your review will consist of drawing issues of concern to your client’s attention. Matters to consider when reviewing the contract of sale are set out in the following paragraphs. You will always need to read the contract in full and consider the individual circumstances of the transaction. 11.2 Execution The contract is usually signed on the front page. You should check the contract has been signed properly by each party as set out below: An individual should sign and date the contract personally, print their name and state the nature of their authority (if applicable). There is no need for a witness. Where a person signs the contract on another’s behalf, you should obtain a copy of the written authority. Ideally, the authority should be given by a power of attorney. However, an authority may be given in writing under Instruments Act 1958 (Vic) s 126. Where a contract is executed on a company’s behalf, it is preferable if it is signed by two directors or a director and secretary (or where it is a single director/secretary company, by that person) either with or without a company seal in accordance with Corporations Act 2001 (Cth) s 127. If, however, an authorised officer signs the contract on the company’s behalf, you should seek appropriate evidence that the signatory had appropriate authority to do so, as well as undertake a company search to obtain details of the company’s officers so you can confirm that the contract was executed properly. You should check that any hand-marked amendments to the contract have been initialled by both parties. 11.3 Cooling-off period A purchaser of land has a cooling-off period of 3 clear business days after the purchaser has signed the contract for the purchase of the land, except in relation to land used primarily for industrial or commercial purposes and more than 20 hectares and used for farming: SLA s 31. 34 © The College of Law Limited P302 Sale and Purchase of Land During the cooling-off period, the purchaser can terminate the contract by written notice and obtain a refund of all money paid, except for $100 or 0.2% of the purchase price, whichever is greater. The notice can be given either by hand delivery or by leaving it at the address of the vendor or its agent. A cooling-off notice is permitted to be served on the vendor’s estate agent, even if the agent’s authority has expired at the time of service: standard contract GC 27.2. A contract SLA s 31 applies to must contain a conspicuous notice advising the purchaser of their cooling-off rights, otherwise the purchaser may rescind the contract at any time before they become entitled to possession of, or the receipt of rents and profits from, the property (usually settlement): s 31(6). In the standard contract, the conspicuous notice given under s 31(6) is found under the heading “Important Notice to Purchasers”. The cooling-off period does not apply where (s 31(5)): the sale is by publicly advertised auction; the property is purchased within 3 clear business days before or after a publicly advertised auction; the purchaser has previously signed a contract with the vendor for the same property in substantially the same terms; or the purchaser is an estate agent within the meaning of the EAA or a corporate body. 11.4 Vendor You should ensure the vendor’s name is spelt correctly, in full, and matches the name of the registered owner on the title search (unless there is other evidence of the vendor’s right to sell). 11.5 Purchaser You should ensure the purchaser’s name is spelled correctly and in full, including their middle names, if any. Where there is more than one purchaser, you should ensure that, unless the purchasers intend to buy as joint tenants or as tenants in common in equal shares, the contract specifies the intended division of shares between the purchasers. Where a contract of sale fails to specify the division of shares between two or

Practice Paper P302 Sale and Purchase of Land PDF 2023

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