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Is “buyer beware” still relevant? Crucial changes to the Sale of Land Act 1962 (Vic) Update: New Regulations and Material Fact Guidelines

Mark McKinley, Shaun Burmester

In this article we cover the new regulations and guidelines and highlight what we think is important for vendors, developers, purchasers, and their agents to be across and to understand how it could impact them.

With a raft of changes to the Sale of Land Act 1962 (Vic) (Act) which came into force 1 March 2020 (summarised here), the new Sale of Land Act (Exemptions) Regulations 2020 (Regulations) (here) and guidelines have followed to complete this round of amendments. 

Material Fact Guidelines

Consumer Affairs Victoria (CAV) has now issued guidelines on what a “material fact” is for vendor disclosure purposes, when to disclose them, and steps vendors and their agents should take. A copy of the guidelines can be found on CAV's websiteKnowingly concealing a material fact is an offence, with fines of up to 120 penalty units (approximately $20,000).

In the guidelines CAV defines a material fact as “a fact that would be important to a potential purchaser in deciding whether or not to buy any land”, and “one that influences a purchaser in deciding whether or not to buy any land at all, or to buy land only at a certain price”. The guidelines go on to describe two categories of facts and how they might be “material”:

“1. Generally: a fact that an average, reasonably informed purchaser with a fair-minded understanding of the property market, including the role of an estate agent, would generally regard as material in their decision to buy land… 

2. Specifically: if a fact about land is known by the vendor (or the vendor’s agent, including an estate agent) to be important to a specific purchaser, it can be material, even if other agents and consumers would not generally consider that fact to be important or of significance to them. This knowledge could arise if (for example) a particular purchaser:

a) asks a specific question about the land of the vendor or the vendor’s agent (including their estate agent), and/or

b) where a purchaser informs the vendor/agent of their intended use of the land.”

In addition to the two main categories, further indications which would be relevant to determining whether something is a material fact include:

  1. whether the fact is only known by the vendor;
  2. the reaction of other potential purchasers to the fact, including whether knowledge of the fact may impact a potential purchaser’s willingness to buy land; and
  3. whether the fact results in the property being in a rare or unusual category or position.

Vendors cannot rely on purchasers becoming aware of material facts through making usual inquiries, or for following the CAV's Due Diligence ChecklistHowever, vendors are not required to actively test or investigate to identify unknown problems.

The guidelines contain some specific examples of what might be a material fact and encourages vendors and their agents to disclose any such facts as early as possible in the selling process to any potential purchasers. Those examples include anything from a prior test disclosing a defect in the structure of a building, through to the property being the subject of a crime or having been used for the manufacture of substances such as methyl amphetamine.

While the guidelines provide some useful guidance, the attempt to define a material fact has left the category very broad, and may capture more than what Parliament intended. For example, are noisy neighbours something to disclose? If so, how noisy or how often would they need to be disruptive before it becomes material? This uncertainty may only be resolved over time through cases going before VCAT and the Courts, rather than further legislative or regulatory clarification. 

Any developers, vendors, or agents looking at marketing or selling any property should carefully review what they know about that property, and if in doubt, disclose.

Prohibited Terms Contract Threshold Value

The Regulations have set the prescribed amount for prohibited terms contracts at $750,000. It is therefore an offence to sell land under a terms contract for less than that amount. While not expressly stated in the Regulations or the Sale of Land Act 1962, the $750,000 amount appears to be inclusive of GST.

Prescribed rent-to-buy arrangements

Changes to the Act imposed new restrictions on certain rent-to-buy arrangements.  However, if a rent-to-buy arrangement complies with the requirements prescribed by the Regulations, those restrictions do not apply.

The Regulations introduce a new definition “sale deed”, which is a contract that provides for rent-to-buy payments to be made by a person and confers on that person a right to purchase residential land. 

The prescribed requirements include:

  1. that any contract relating to a rent-to-buy arrangement must be in writing;
  2. obligations relating to the payment and application of money, how money must be held, timeframes for payment, and entitlement to interest; and
  3. rights for the purchaser to terminate the sale deed before the sale deed becomes unconditional, with flow on effects that on termination the purchaser is relieved of all obligations under the associated contract of sale documentation, and must be repaid all rent-to-buy payments within 60 days.

Closing comments

The material fact guidelines will have the greatest day to day impacts on developers, vendors, and their agents.  Given the breadth and inherent uncertainty as to what may qualify as a material fact under the guidelines, a conservative approach would be to disclose more rather than less until there is greater clarification. 

While the new prohibited terms contracts thresholds and prescribed rent-to-buy arrangements will affect a smaller group of people, anyone dealing with these will need to be careful that they do not inadvertently breach the new restrictions, otherwise they risk facing severe penalties. 

If you would like advice on how these changes may affect you or your development, please contact Principal Mark McKinley or Lawyer Shaun Burmester from our expert Property and Development team.

If you would like to keep in touch with Alerts and Insights from our expert Property team, you can subscribe to our mailing list here.

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