LEGISLATION UPDATE: SALE OF LAND AMENDMENT BILL 2016

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Broader consumer protection and greater certainty in contracts for the sale of subdivided lots in off the plan developments were areas of key focus in the Sale of Land Amendment Bill 2016 (Bill)[1] which will introduce a number of amendments to the Sale of Land Act 1970 (WA) (Act).

The Bill’s Purpose  

The purpose of the Bill is to provide better protection to purchasers of lots in subdivision where the land is not yet owned by the developer, support investment in subdivision and to give greater certainty to the rights and obligations of both developer and purchaser in this context.

Section 13 of the Act as it currently stands restricts the sale of subdivided lots to proprietors.  This has been problematic given that it is common practice for developers to start to sell lots in order to finance a development before they have become the registered owner.  The situation was further complicated by the Supreme Court of Appeal’s 2014 decision in Barker v Midstyle Nominees Pty Ltd in which the court held such contracts to be unenforceable by a developer, even after they had become the registered proprietor. The case also cast doubt over the ability of the purchaser to recover their deposit where these kind of contracts fell through.

Lands Minister Terry Redman also stated that this legal uncertainty made banks reluctant to lend money in the circumstances, which in turn has constrained developers and their ability to deliver projects.

Key Changes: the future lot contract

A major amendment introduced by the Bill is to provide for future lot contracts to be entered into between developers and purchasers.  Under the new section 13A, future lot contracts will be an exception to restrictions stated in section 13, provided that certain requirements and conditions are complied with.

What are future lot contracts?

Future lot contracts are defined to be contracts for the sale and purchase of one and more lots to be created by subdivision where the vendor is a person who is not the proprietor of the lots but who will become or will be entitled to become the proprietor.

Contract conditions

In order to comply with the Act, every future lot contract must contain the following:

  • a vendor condition which states that before the close of the “specified period” the vendor will become or will be entitled to become the proprietor (the “specified period” being 6 months from the date of execution of the contract or any other period specified by the parties);
  • a warning that the vendor is not the proprietor of the lot(s) to which the contract relates;
  • a requirement that any deposit or amount payable by the purchaser is paid to a deposit holder (a deposit holder being a real estate agent, settlement agent or a lawyer).

Failure to include all of the above conditions in a future lot contract will render the contract illegal and void, and any deposit or amount paid by the purchaser recoverable.

Obligations of vendor and purchaser

The vendor and purchaser must make all reasonable endeavours to ensure the vendor can satisfy the vendor condition within the specified period.  The vendor must also make all reasonable endeavours to obtain all regulatory approvals for subdivision and must update the purchaser of the progress made in meeting these requirements upon request.

Once the vendor condition is satisfied the vendor must notify the purchaser within 10 working days.  If the vendor condition is not satisfied, the purchaser may terminate by notice in writing and recover from the deposit holder any deposit or amount paid.

Increased penalties

For greater deterrence, penalties for breaches of the provisions under the Act will be increased from $750 to $100,000.

Key takeaway

The amendments introduced by the Bill will be significant in accommodating the current practices of developers in the context of subdivision, which had been made precarious and uncertain following the Court of Appeal’s decision, whilst also more clearly defining the rights and obligations of both developers and purchasers to afford greater consumer protection.

[1] The Bill was introduced to Western Australian Parliament on 23 June 2016.

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