Friday, 24 May 2013

Sales off-the-plan: Another decision of the Victorian Court of Appeal about the Sale of Land Act, 1962

Further to my blog of 11 September 2012, the Victorian Court of Appeal has now handed down its decision relating to an appeal by the developer, Harofam Pty Ltd.

In Harofam Pty Ltd v Scherman [2013] VSCA 104, the Court of Appeal (Nettle AP, Neave JA and Garde AJA) unanimously dismissed the developer's appeal from the decision I wrote about earlier. 

As a result of the Court of Appeal's decision, as I noted earlier, it is clear that the courts will be reluctant to allow a vendor/developer the opportunity to extend the date for registration of a plan of subdivision beyond the 'fixed, definite and certain' date that is specified in the original off-the-plan contract of sale.

In an article published today by Allens (see:, the authors argue:

any mechanism in the contract [for a sale of land off the plan] that allows the date [for registration of the plan of subdivision] to be extended is likely to be invalid.

The conlcusion reached by Allens (with which I respectfully agree) is that: 
When negotiating off-the-plan contracts of sale, parties often seek to reserve some flexibility for themselves by including a right to extend critical dates. Following this case, it appears that a clause giving a party the ability to extend the date by which a plan of subdivision is registered under an off-the-plan contract of sale will likely be invalid. Parties should keep this in mind when negotiating off-the-plan contracts. The date by which the plan of subdivision must be registered should be fixed at the date the contract of sale is entered into. That date should include an allowance for potential delays in obtaining any approvals and carrying out any works necessary to enable the plan of subdivision to be registered.

It seems that off-the-plan sales of land in Victoria will continue to generate litigation for the foreseeable future. This is especially so due to the current state of the market and as the City of Melbourne will be flooded with thousands of new apartments over the next 2 to 4 years as many current and proposed developments reach finalisation. 

W G Stark 
Hayden Starke Chambers

Wednesday, 8 May 2013

How can I obtain leave to appeal from VCAT on a question of law?

Associate Justice Zammit of the Supreme Court of Victoria today determined an application for leave to appeal from VCAT on a question of law under section 148 of the VCAT Act.

The application for leave to appeal arose from a hearing at VCAT at which the landlords of retail premises in Glen Waverley sought to set aside terms of settlement of a retail leasing dispute on the basis of undue influence, duress and a breach of the rules of natural justice. 

In Wong v Hook Line and Sinker Fish and Chips Pty Ltd, Her Honour dismissed the application on the basis that the only matters about which a review was sought were questions of fact. Relying on S v Crimes Compensation Tribunal [1998] 1 VR 83, Her Honour noted (at paragraph 21):
Whether a Tribunal arrived at a conclusion that was not open to it is a question of law. A question of law can arise if a decision was based on no evidence or was so contrary to the evidence that it was perverse.
 Her Honour concluded that (although the proposed draft notice of appeal was unclear) the proposed grounds of appeal could be distilled to raise this as the proposed basis of the application for leave to appeal.

After analysing the written reasons for decision of Senior Member Riegler at VCAT, Her Honour concluded that no error was shown, as each finding of fact made by the Senior Member was based upon evidence.

As well as complaining about the findings of fact, the applicants also complained that the Senior Member had not warned them that he had concerns about the medical evidence being relied on by the applicants at the trial before VCAT. Her Honour concluded (at paragraph 25):
It is a matter for each party to assess how they will present their evidence and to understand the burden of proof they have.
In her written reasons for dismissing the application for leave to appeal, Her Honour accepted my submission that a fundamental problem with the landlords' claim was that the evidence before VCAT showed that the tenants were completely unaware of Mrs Wong's alleged medical condition. Accordingly, even if VCAT was to accept the existence of the medical condition, the tenants could not have taken unconscientious advantage of a condition they were unaware of at the time.

Her Honour concluded that:
I do not consider that a proper question of law is raised in the proposed Notice of Appeal.
This is not a situation of simply poor drafting, but rather there is no substance to the questions of law or the grounds of appeal raised in the proposed Notice of Appeal. Each ground seeks to directly challenge the Member's factual findings, in circumstances where there was evidence before the Member on each and every issue.
Seeking leave to appeal from a decision of VCAT is an onerous task, that requires careful analysis of the proposed questions of law that will be raised in the appeal (if leave is granted). By dressing up questions of fact as questions of law, you will not escape the onus that is cast to establish that in fact VCAT has made an error of law.

W G Stark
Hayden Starke Chambers  

Off the plan sales: when does an amendment to a plan of subdivision materially affect a lot? Comments

Upon reading my earlier post, Stuart Monotti of Harwood Andrews has raised the following question: 

Do you have any comment regarding 9AC(1) dealing with changes before registration and the fact that in this case the request was not made until after registration?

My own view is that after registration of the plan, the purchaser's rights to rescind are probably more limited, and this may be a defect in the legislation. 

Stuart Monotti says that for practitioners it is common not to be told of changes until the certified plan is received from the surveyor.  A trap can be to send this to a purchaser, and if the change is detrimental, unwittingly give the purchaser an out under s10(1), even though it may be possible to reverse the change before registration. 

However, Mitch McKenzie, counsel for Lockwood in the case disagrees with my view:
His comments are: 

I cannot see why the right to withdraw because of a material change would be lost on registration.

Au contraire....
1. Most developers do not bother to tell a purchaser of changes ... as Lockwood found out.
2. If the right to avoid lapsed on registration a purchaser gets no notice and the vendor gives a purchaser whatever they want.
3. The clear contrast with 9AA or 9AB in the 9AE regime supports the notion it ought be open under 9AC until settlement ... which is my view.
4. I am currently wrestling with a situation where some passing comment was made when the registered plan was sent ... saying the council reserves are now common property and do not now vest in the council....
5.The question is if the purchaser has 14 days to much does the vendor need to disclose....??

It seems to me that there is room for argument either way, creating more work for lawyers! 

W G Stark
Hayden Starke Chambers

Friday, 3 May 2013

Off the plan sales: when does an amendment to a plan of subdivision materially affect a lot?

Justice Judd of the Supreme Court of Victoria this week handed down a decision about whether an amendment to a plan of subdivision materially affected a lot, entitling the purchaser to rescind the contract and have the deposit repaid from the vendor (see Lockwood v PSP Investments P/L [2013] VSC 10). 


In January 2010 the plaintiff (“Lockwood”), entered into eight contracts of sale of real estate with the defendant, PSP Investments Pty Ltd. Four contracts related to apartments, and four contracts related to car parks to be constructed on the Ecosquare site. Each contract was for the sale of land ‘off the plan’ and as a result section 9AA of the Sale of Land Act 1962 applied.

The price of each apartment was $215,000. A deposit of $21,500 was paid on each. The price of each car park was $45,000. A deposit of $4,500 was paid on each. There were to be only 10 car parks, but 86 apartments.

The proposed development was for seven levels of apartments constructed over a ground floor providing car and bicycle parking.

In early 2012, the City of Port Phillip required the deletion of the car park lots from the Plan of Subdivision. As a consequence, they would merge into ‘common property’.

The amendment was first disclosed to Lockwood after the plan had been registered.

As a result of these changes, Lockwood rescinded each of the contracts for sale for lots 609, 611, 709 and 711 pursuant to section 9AC(2) of the Sale of Land Act and asked for the deposit monies paid for each of the eight lots to be refunded immediately.

The developer’s lawyers argued that Lockwood signed eight separate contracts and each contract stands alone.

The issue between the parties was whether the deletion of the car park lots and the consequential failure of those contracts, permitted Lockwood to rescind the apartment contracts under s 9AC(2) of the Sale of Land Act.

Lockwood also contended that there were other amendments to the Plan of Subdivision that permitted rescission of the apartment contracts, even if not permitted to do so by reason alone of the deletion of the car park lots and the consequential failure of those contracts. There were changes to the configuration of the apartments; that lot 800 had been deleted; and that common property had increased. He also alleged a change to each lot entitlement.

Justice Judd concluded (At paragraph 10) that:

1.     Under Section 9AC(1), the defendant developer was required to notify Lockwood of the ‘proposed amendment’ following its request for amendment and before registration.

2.     Lockwood’s right to rescind was only available if the amendment to the Plan of Subdivision, once made, would materially affect the lot to which the contract relates.

The defendant contended that:

(a) The material effect must be adverse or ‘affect rights deleteriously’ that it must involve a change of substance of that contracted for and that the effect of the change on a lot must be determined by an assessment of entitlements and liabilities only in relation to that lot;

(b) The deletion of the car park lots, and the consequential failure of those contracts, did not have any material effect upon the apartment contracts and resulted in an insignificant adjustment to lot entitlements; 

(c) The contracts were not conditional one upon the other; 

(d) There was no basis to contend that the bundle of eight contracts should be considered as a whole, or that an apartment lot and car park lot should be considered as connected or interdependent; and 

(e) S 9AC(2) of the Transfer of Land Act should be construed to limit the material effect to one prejudicial or deleterious to the purchaser’s rights. 

Lockwood contended that even if an amendment had the effect of improving rights, it would nonetheless materially affect the lot to which the contract related. He argued that whether or not a purchaser elected to rescind was beside the point.

Judd J referred to the decision in Besser v Alma Homes Pty Ltd, [2012] VSC 460 where Pagone J considered that question. His Honour held:

Whether an amendment will materially affect the lot to which the contract relates is something to be determined objectively. A change in entitlement and liability is something which may materially affect the lot to which a contract relates.

Whether an amendment will materially affect the lot is not to be judged by reference to the reason the amendment is made but by objective facts and circumstances. Nor is it to be judged by reference to whether a person in the position of the party affected by the amendment might not, or that some might think the party affected should not, elect to rescind. The amendment of the entitlements and liabilities of the lot owners affects them in various ways. The rights of the owners in this subdivision are governed by the Owners Corporation Act 2006 (Vic). Section 74 provides that a lot owner with more than 25% lot entitlements has the right to call a special general meeting and, by s 83, the right to call a ballot. One of the ways to obtain a quorum under that Act for the purposes of decision-making by owner corporations can be by “at least 50% of the total lot entitlement”. A special resolution can be placed by ballot or poll passed by “75% of the total lot entitlements of all of the lots affected by the owners corporation”. Lot entitlement also affects votes at a standard meeting. It is not possible to forsee the issues that may arise in relation to the property in the subdivision and, in particular, to the common property. However the change does have an effect upon Lot 4 by reducing the entitlements and liabilities attaching to the lot.

Judd J agreed with the conclusion of Pagone J that the amendment need not be detrimental.

As section 9AA does not expressly require proof of detriment, His Honour concluded (at paragraph 27) that:

… there is no occasion to impose upon a vulnerable purchaser the additional burden of proving detriment if the purchaser, seeking to rescind, is able to establish that the amendment will ‘materially affect the lot’ to which his contract relates. I am of the opinion that it is unnecessary for the plaintiff to establish that the amendment of the plan was detrimental, deleterious or otherwise prejudicial in addition to establishing that it will materially affect the lot to which the contract relates. Of course, an objectively defined deleterious effect on the rights of a purchaser under a contract may more readily establish materiality.

Judd J accepted that Lockwood had purchased eight lots that were part of a development scheme, the essential elements of which changed with the amendment. There were three relevant elements. The existence of 10 car park lots and lot 800; and the common property. The change had the effect of enlarging the common property, thus changing the corresponding rights and obligations of the owner of each apartment lot. Whether or not the eight contracts, or each pair of contracts (apartment and car park lot), could be considered together when assessing the material effect on an apartment lot, the project or scheme had undergone such a change with the elimination of the car park lots and lot 800 as to materially affect each apartment lot. The subject matter of the apartment contracts had changed, not only because the defendant could not perform the car park contracts, but because the scheme, plan, or project under which the apartment contracts had been made had changed in material respects.

Lockwood also argued that each contract for an apartment lot precluded the defendant from reducing ‘the actual size area of any car park sold to the Purchaser without the consent of the Purchaser’. The point of this argument was to establish the interdependency of each contract for the sale of an apartment lot and a contract for the sale of a car park.

However, Judd J concluded (at paragraph 37) that:

The attempt by the defendant to drive a wedge between each contract, and in particular the apartment and car park contracts, overlooked that which must have been apparent to any reasonable bystander. There was a symmetry to the transaction. Ordinary common experience compels the conclusion that both parties would have understood that the acquisition of a car park, in short supply, would enhance the value to [Lockwood] of each apartment. The transaction, viewed as a whole, was in substance the acquisition of four packages, each of which consisted of an apartment and a car park. It is entirely artificial to look only at each individual contract, on a standalone basis, when considering the impact of an amendment to the plan on a particular lot and contract.

And at paragraph 38:

I find that the deletion of all car park lots, and the inability of the defendant to complete those contracts, materially and adversely affected each apartment lot.

At paragraph 40, His Honour decided:

 … an analysis of the proportional entitlement and liability is not determinative. Such an analysis overlooks the various elements of the project in which [Lockwood] invested, the obvious connection between the apartments and car park lots, and the consequential change to the project from one in which there would be 10 privately owned car park lots to a project in which the ground floor and the whole of the rooftop became common property.

At paragraphs 42 and 43, His Honour decided:

Even if the Court were to consider each apartment lot and contract in isolation, as the defendant would have it, the amendment will materially affect each lot to which an apartment contract related. The amendment brought about a substantial change by increasing the common property. On one view, the change might be thought to be beneficial to an apartment lot. The plaintiff contended that, beneficial or not, the increase in the common area had a material effect on each apartment lot because of the operation of s 30(1) of the Owners Corporation Act. That provision vests in the apartment owners, as tenants in common, a substantially greater proportion of common property, than would have been the case under the plan annexed to the contracts. While that contention was focused upon the position of the owners, rather than the effect on the lot as such, it highlights a substantial change in the bundle of rights comprising each apartment lot. Following the amendment, the entitlement of each owner of an apartment lot would be different to their entitlement prior to the amendment.

Such a change in entitlement, even though it might be regarded by some as beneficial would, in my view, materially affect each apartment lot. The effect is significant, and may not be as beneficial some might first think. The change resulted in the conversion of 10 privately owned car parks and lot 800 into common property.


As a result of this decision and Besser, it seems that developers will need to take care to ensure that they comply with the relevant provisions of the Sale of Land Act, 1962 if there are any changes being made to a Plan of Subdivision between a sale off the plan and the registration of the relevant Plan.

It seems also that the Supreme Court of Victoria will support rescinding purchasers when the Plan of Subdivision is altered. Whilst some changes to plans are almost inevitable due to planning issues, they should be kept to a minimum, especially in relation to changing lot entitlements and common property.

W G Stark
Hayden Starke Chambers