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Crucial changes to the Sale of Land Act 1962 (Vic) are coming into effect on 1 March 2020. How can developers avoid some costly mistakes?

Mark McKinley, Shaun Burmester

We released an updated Alert on this topic on 27 March 2020, click here to view.

The final changes from the Sale of Land Amendment Act 2019 (Vic) (Amendment Act) come into effect on 1 March 2020. We previously wrote about some of the potential changes from 31 Aug 2018.

The Amendment Act made several changes to the Sale of Land Act 1962 (Vic) (Act). The most significant change to date was to largely prohibit developers from being able to cancel residential off-the-plan contracts of sale under sunset clauses without either the purchaser’s consent, or an order from the Victorian Supreme Court.

Five other key changes from the Amendment Act are now coming into effect on 1 March 2020. These five changes bring some substantial financial penalties and consequences if they are not complied with, and developers, other vendors, and purchasers should be aware of these new requirements to avoid pitfalls. 

On and from 1 March 2020:

1. Mandatory statement in residential off-the-plan contract sunset clauses

All “residential off-the-plan contracts” (as defined in the Act) which contain “sunset clauses” must contain a statement in the sunset clause that complies with the new section 10F from the Amendment Act.

A “sunset clause” is a clause that allows a residential off-the-plan contract to be rescinded by a “sunset date” if by that sunset date:

  • the plan of subdivision is not registered; or
  • occupancy permit has not been issued.

The required text is prescribed and the changes are easy to make to developers’ residential off-the-plan contracts.

Given that developers are mostly corporations, any breach of this new section 10F risks a fine of up to 1,200 penalty units (approximately $200,000) per offence. Developers and estate agents must ensure that these statements are included in all residential off-the-plan contracts to avoid that fine.

2. Material facts – relevant for all vendor’s statements, vendors and estate agents

The Director of Consumer Affairs Victoria may make guidelines to assist vendors with understanding what a “material fact” is for their disclosure purposes under the Act. Consumer Affairs Victoria has produced a set of draft guidelines and is currently consulting with industry bodies and participants. Some participants, including the Law Institute of Victoria, have identified a number of practical issues with the draft guidelines and have made detailed submissions on improvements which could be made. We are keeping a close eye on the progress of these guidelines as they could have serious ramifications for vendors and their agents.

Anyone who knowingly conceals any material fact or recklessly makes any statement which is misleading or deceptive and which is made with the intention of inducing anyone to buy land will now face a fine of 120 penalty units (approximately $20,000).

3. Prohibited terms contracts for some residential land

“Terms contracts” (as defined in the Act) for residential land (unless it is also agricultural land) that have sale prices less than a prescribed amount are now prohibited. It will be an offence to knowingly sell, arrange or broker the sale of, induce someone to enter into a contract of sale for, or advertise for sale, any such prohibited terms contract.

While the regulations have not yet set a prescribed amount, Consumer Affairs Victoria is consulting on amounts between $750,000 and $810,000 (the higher being pegged to median house prices in Melbourne). 

Any breach of these new prohibited terms contracts provisions (other than the restriction on advertising) risks a fine of 240 penalty units (approximately $40,000) for individuals, or imprisonment of up to 2 years, or both. Corporations risk fines of 1,200 penalty units (approximately $200,000).

Breaches of the advertising restrictions by individuals could result in fines of 120 penalty units (approximately $20,000), and corporations risk fines of 500 penalty units (approximately $82,600).

Any purchasers under these prohibited terms contracts can void them by written notice. Unlike other prohibited terms contracts under the Act, vendors cannot obtain court orders to prevent the cancellation.

4. Prohibition on most “rent-to-buy arrangements”

Most “rent-to-buy arrangements”, meaning a right of or obligation on a purchaser to buy residential land after paying rent (or similar) to occupy that land for more than 6 months are prohibited, unless entered into by the Director of Housing, a registered housing association, or as permitted by regulations. Regulations on this topic are yet to be issued.

Penalties on those that breach the rent-to-buy arrangement prohibitions are similar to those who breach the new prohibited terms contracts set out above.

5. Restrictions on options to purchase land under “land banking schemes”

The Amendment Act introduces the concept of “land banking schemes”. These are schemes for the proposed subdivision and development of land in which members contribute money (or money’s worth) to acquire rights to benefits from the scheme, but where members have no day to day control or oversight, and do not have proprietary interests in a material part of the subject land. 

Development of land under off-the-plan contracts, registered managed investment schemes, or options issued by holders of Australian financial services licences are not affected by the new “land banking scheme” restrictions.

Any options to purchase land in an affected land banking scheme must comply with new provisions in the Act. The Act uses the references to vendor and purchaser, even in the context of options. The new provisions include:

  • the requirement for money payable by purchasers for the options to be paid to the vendor’s legal practitioner, conveyancer or estate agent to be held on trust. If not, the purchaser may rescind. If the vendor fails to transfer any money paid by a purchaser for an option in accordance with this requirement, individuals face a fine of 240 penalty units (approximately $40,000), or imprisonment of up to 2 years (or both) and corporations face a fine of 1,200 penalty units (approximately $200,000);
  • a requirement for the option agreement to set out that the option fee is to be held on trust for the purchaser. Again, failure to comply means that the purchaser may rescind the option agreement;
  • a requirement for the vendor to notify the purchaser when a plan of subdivision included in the land banking scheme is registered;
  • the automatic expiry of the option if the right to purchase is not triggered within 5 years from entering into the agreement; and
  • the purchaser’s entitlement to the immediate return of any money paid if money is not held on trust as required by the Act (and the purchaser rescinds the option), the option automatically expires, or the event triggering the purchaser’s right to exercise the option does not otherwise occur.

The above summary is only an extract of these five key changes introduced by the Amendment Act. If you would like advice on how these changes may affect you or your development, please Mark McKinley or Shaun Burmester

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