Section 32 statements should disclose leases

Please note for members of the public or practitioners in the legal profession where English is your second language a translation key in all languages of the world is available on this blog to assist you. The plain English blog without translation facilities is located at http://roberthaypropertybarrister.wordpress.com

It has long been a vexed question whether a vendor of land needs to include details of a lease affecting the land in the vendor statement provided to a purchaser pursuant to s.32 of the Sale of Land Act 1962.  Section 32 requires the disclosure of, among other things,  mortgages and charges affecting the land but does not expressly require disclosure of a lease. The vendor is required to include in the statement  a “a description of any easement, covenant or other similar restriction affecting the land (whether registered or unregistered) and particulars of any existing failure to comply with the terms of that easement, covenant or restriction”. See: s.32(2)(b). It is established that s.32 should not be given a “narrow, restrictive construction having regard to the evident reformatory object of the leglislation”. See: for example, Vouzas v Bleake House Pty Ltd [2013] VSC 534 at [49].  In Krakowski v Eurolynx Properties Ltd (1992) V ConvR 54-436 ( BC9200732) O’Bryan J did not consider that s.32(2)(b) required a vendor to disclose the existence of a lease affecting the land. However, in IGA Distribution Pty Ltd v King [2002] VSC 440 at [252] Nettle J (as he then was) doubted that O’Bryan J was correct but did not specifically decide the issue. In Vouzas the vendor had disclosed the existence of the lease but had not disclosed that the tenant had entered into a conditional agreement to assign the lease. Macaulay J had to decide whether s.32(2)(b) required the vendor to disclose  that the tenant of the land being sold had entered into the conditional agreement to assign the lease.   The vendor knew about the conditional agreement to assign the lease. Macaulay J expressed the view that “the doubts expressed by Nettle J in the IGA case" concerning whether a lease need be disclosed were "well founded". However,  his Honour held that the vendor had not breached s.32(2)(b)  because that section did not oblige a vendor to disclose a conditional agreement to assign a lease. His Honour also said that “he was not convinced that an assignment of lease would need to be disclosed under s.32(2)(b").

My clerk can be contacted via this link http://www.greenslist.com.au if you wish to retain my services for any legal matter which is within the gamut of my legal experience. 

Author: Robert Hays Barrister subject to copyright under DMCA.

Meaning of "terms contract" examined

Please note for members of the public or practitioners in the legal profession where English is your second language a translation key in all languages of the world is available on this blog to assist you. The plain English blog without translation facilities is located at http://roberthaypropertybarrister.wordpress.com

Any practitioner who acts for vendors and purchasers of land should have a good understanding of what is and what is not a “terms contract” for the purpose of the Sale of Land Act 1962. The Act prohibits certain types of “terms contracts” and a purchaser can avoid contracts entered into in contravention of the Act. In an important decision, Dixon J in Ottedin Investments Pty Ltd v Portbury Developments Co Pty Ltd [2011] VSC 222  considered the definition of “terms contract” that has applied since 31 October 2008. Section 29A provides:

“(1) For the purposes of this Act a contract is a terms contract if it is an executory contract for           the sale and purchase of any land under which the purchaser is -

(a) obliged to make 2 or more payments (other than a deposit or final payment) to the                     vendor after the execution of the contract and before the purchaser is entitled to a                     conveyance or transfer of the land; or

(b)entitled to possession or occupation of the land before the purchaser becomes entitled to a        conveyance or transfer of the land.

  (2) In subsection (1)- deposit means a payment made to the vendor or to a person on               behalf of the vendor before the purchaser becomes entitled to possession or to the             receipt of rents and profits under the contract; final payment means a payment on the                 making of which the purchaser becomes entitled to a conveyance or transfer of the                   land.” (italics added)

Before 31 October 2008 a “terms contract” was an executory contract under which the purchaser is;

 (a) obliged to make two or more payments to the vendor after execution of the contract and before the                purchaser was entitled to a conveyance or

(b) entitled to possession or occupation of the land before becoming entitled to a conveyance or transfer.             The definition of “deposit” and “final payment” in s29A have a much wider meaning.

In Ottedin the purchaser, in December 2008 contracted to purchase land for $6.5 million and paid a deposit of $325,000 with settlement due in December 2009 upon which the purchaser became entitled to transfer and vacant possession of the land. The purchaser was unable to settle.

 By deed the parties deleted the particulars of sale and substituted new particulars under which the price remained the same but the settlement date was changed to December 2010, the deposit became $1,325,000 with $325,00 due on the day of sale and $1,000,000 due in January 2010 (increased deposit).

There was also a provision for a contingent interim payment of $3,675,000 with a final payment of $1,500,000 due at settlement.

Ottedin defaulted and sought to avoid the contract under s29O(2) of the Act on the ground that the contract was a “terms contract” that did not comply with the Act’s requirements concerning terms contracts.

The contention was that apart from the initial deposit of $325,000 and the final payment, the contract (as varied) was a terms contract because it obliged the purchaser to pay two or payments after the execution of the contract, being the balance of the deposit ($1,000,000) due in January 2010 and the interim payment of $3,675,000.

Dixon J rejected the purchaser’s contention. His Honour held that both the initial $325,000 and the increased deposit were each obligations to pay the “deposit” within the meaning of s29A.

His Honour held that the contingent interim payment of $3,675,00 (which was not paid) was either a deposit or became part of the final payment but its characterisation did not matter because even if it was an interim payment before settlement, there was still only one payment.

My clerk can be contacted via this link http://www.greenslist.com.au/ if you wish to retain my services for any legal matter which is within the gamut of my legal experience.

Author: Robert Hays Barrister subject to copyright under DMCA.