Does a right to purchase an apartment off the plan in an undeveloped site create a caveatable interest?

The Supreme Court recently had to determine whether a person who claimed to have a right to purchase an apartment ‘off the plan’ had a caveatable interest in the undeveloped site. 

In Yuksels Nominees Pty Ltd v Nguyen & Anor [2015] VSC 763, Justice T Forrest concluded that in the circumstances of that case, the purchaser did not have a caveatable interest.

Background

The plaintiff (“Yuksels”) was the registered proprietor of land at Sun Crescent, Sunshine, Victoria, which it was proposing to develop.

The first defendant (“Nguyen”) was suing various parties (including Yuksels, its director and a related company) in the County Court. In that proceeding, she made a number of allegations, including:

(a)              that her former employer (the related company) and the director (of both companies) breached various terms of a contract that she had entered into whilst she worked for them between 2008 and 2014; and

(b)              that Yuksels would (assuming certain preconditions were met) grant to her the right to –

(i)              purchase a penthouse in the Sun Crescent development at cost price; and

(ii)              full listings of the Sun Crescent property upon plans being approved for the development.

On 7 November 2014, Nguyen lodged a caveat on the title to the Sun Crescent property with the grounds of the claim stated to be ‘Oral Agreement with Yuksels and [its director], part performed’.

Yuksels sought the removal of the caveat pursuant to s 90(3) of the Transfer of Land Act 1958 (‘the Act’). Its director swore that Yuksels could not borrow to finance the development unless the caveat was removed.

Nguyen opposed the removal of the caveat, alleging among other things that the proceeding to remove the caveat was an abuse of process as the substantiation of the caveat was a component of the County Court litigation. 

Justice T Forrest had to determine a threshold issue:  If there was already a proceeding on foot to substantiate the caveat, the caveat removal proceeding was prima facie vexatious and would likely be stayed.  T Forrest J analysed the allegations in the County Court proceedings, and concluded that they were not ‘a proceeding in a court to substantiate the claim’ of Nguyen within the meaning of s 89A(3)(b). 

The County Court Writ did not seek declaratory relief that Nguyen had a caveatable interest in the property; there was no reference in the entire 27 page document to the caveat or to s 89(3)(b) of the Act. 

In his analysis, the Honourable Justice T Forrest set out various paragraphs of the Amended Statement of Claim and the prayer for relief. He concluded that in the County Court proceeding, Nguyen did not seek to establish any proprietary interest in the Sun Crescent property, but rather sought to claim damages for breach of an alleged agreement.

As a result, T Forrest J concluded that the s 90(3) proceeding was not prima facie vexatious. Another proceeding was not being maintained in another court in respect of the same subject matter. 

In analysing the merits of the plaintiff’s application, the Honourable Justice T Forrest noted the usual legal principles that are applicable in caveat removal cases. He noted (in paragraph 10) that a “critical and perhaps decisive consideration is whether damages will provide an adequate remedy in the event the caveat is removed". Further, the contractual, equitable or statutory right asserted must attach to the caveated property and not simply lie against the proprietor of that property.

The learned judge concluded that Nguyen did not have a prima facie case to justify the maintenance of the caveat. 

In the caveat case, Nguyen argued that there was a serious issue as to whether the County Court would impose a constructive trust in her favour, or recognise her interest in some other manner.  Nguyen’s counsel, relying on the dicta of Deane J in Muschinski v Dodds, argued that a constructive trust is available in any case where some principle of equity calls for the imposition upon the legal owner of property of the obligation to hold or apply the property for the benefit of another. 

T Forrest J noted that the difficulty he had with this argument was that Nguyen did not seek that the property be held or applied for her benefit; she sought damages. The Honourable Justice T Forrest concluded that it was inappropriate to hypothesise as to whether and how her claim may mutate in the future.

T Forrest J concluded that it was impossible for Nguyen to maintain that damages were an inadequate remedy in the caveat proceeding when the only remedy claimed in the County Court action was damages.

Conclusion and commentary

Whilst the case turns on its unique facts, it is interesting for 2 reasons:

First, it points to the usual practice of the Registrar of Titles to refuse to look behind an allegation that a proceeding is on foot to maintain a caveat, once a lawyer on the record makes a statement to the Registrar to that effect; and

Secondly, it confirms that it is unlikely in the extreme that a right to purchase an apartment off the plan in an undeveloped site will create a caveatable interest.

In my experience, most developers will include a specific clause in ‘off the plan’ sales contracts to the effect that the purchaser has no right to lodge a caveat over the title to the Property before the Plan of Subdivision has been registered on title. The practical reason for such a clause is that the lodgment of a caveat by a purchaser will possibly prohibit and will definitely delay the registration of the Plan of Subdivision. 

Most contracts for sales ‘off the plan’ in Victoria also contain a sunset clause, and if a developer does not register the Plan of Subdivision by a certain date, the purchaser can walk away from the purchase and obtain a full refund of their deposit.

Any prohibition or delay in registering the Plan of Subdivision may impact on the developer’s ability to retain purchasers if the time period for registration of the Plan of Subdivision is running out.

W G Stark
Hayden Starke Chambers