Australia: Further Significant Changes For Property Developers - Added Security Or A Financing Nightmare For Off-The-Plan Sales?

Last Updated: 11 August 2010
Article by Justin Lethlean and Rohan Ingleton

Off-the-plan sales under further scrutiny from the consumer laws

Following our recent eAlert!, a series of further legislative amendments have been introduced into the Victorian Parliament that affect the way property developers contract with purchasers. The Consumer Affairs Legislation Amendment (Reform) Bill 2010 (Vic) (the Bill) is the latest instalment in a series of consumer laws that directly affect the way property developers do business. The Bill proposes to make several amendments to the Owners Corporation Act 2006 (Vic), the Estate Agents Act 1980 (Vic), Conveyancers Act 2006 (Vic) and, critically, the Sale of Land Act 1962 (Vic).

Sale of Land Act 1962 (Vic)

The Bill proposes to make significant changes to the terms of sale for off-the-plan sales. Some of the changes include:

  • increasing the maximum deposit for off-the-plan sales of land from 10% to 20%
  • removing the ability of vendors to invest deposit monies into a special purpose account in the joint names of the vendor and purchaser. This will complicate a vendor's right to the interest on the deposit as well as a purchasers taxation position
  • requiring certain matters to be disclosed to purchasers on the front page of the contact for sale, including that:
    • the amount of the deposit is negotiable
    • a substantial period of time may elapse between when the contract is signed and when the purchaser becomes the registered proprietor
    • the value of the lot may change in the period between when the contract is signed and when the purchaser becomes the registered proprietor.
  • removing the exception to the purchaser's right to cool-off if the purchaser has sought legal advice before signing the contract. This means purchasers may now seek legal advice before entering into a contract without sacrificing their rights to cool off under the contract.

The potential impact of a 20% deposit

It is the first time in almost 25 years that developers have been allowed to hold more than a 10% deposit for off-the-plan sales and if passed the ramifications of this change could be potentially highly damaging for property developers.

The 20% deposit would be a maximum deposit amount and developers could require and accept a smaller deposit. However, financiers may require all deposits to be 20% to qualify for construction finance. If this occurs, there will undoubtedly be an impact on the number of sales that will qualify as presales, as many purchasers will not be able to afford a 20% deposit. The ability of property developers to obtain construction finance will therefore be severely restrained. Prescribing a 20% deposit is also likely to have an adverse effect on sales. Developers should discuss these proposed changes with their financiers prior to commencing marketing of a project.

Requiring a 20% deposit may also breach the established legal principal that a deposit must not be a penalty. Currently a deposit of 10% is considered by the courts to be a genuine pre-estimate of a vendor's loss and therefore not a penalty. Indeed a 10% deposit is prescribed under the general conditions under the Estate Agents (Contracts) Regulations 2008 (Vic) which are used as the industry-standard terms and conditions for a contract of sale. Given that penalties cannot be enforced or retained by the vendor, a purchaser may be entitled to claim back half of their 20% deposit if in default.

The good news though, is that if developers can obtain 20% deposits from most purchasers, it could decrease the number of required pre-sales from the current level of around 75% - 80%. This could mean, for example, that developers only have to obtain 60% pre sales in order to obtain construction funding.

Owners Corporation Act 2006 (Vic)

Importantly for developers with their own in-house or related company owners corporation managers, the Bill proposes to:

  • give authorised officers (including police officers) the power to serve infringement notices for certain prescribed offences, consistent with other areas covered by the consumer laws
  • allow delegations to the committee to occur by resolution or instrument:
    • the instrument or resolution must be made at a general meeting
    • the delegation only lasts until the next annual general meeting.
  • require an owners corporation certificate to be affixed with the owners corporation seal
  • simplify witnessing requirements for affixing the owners corporation seal by allowing an owners corporation certificate to be sealed and witnessed by the registered manager or the chairperson of the owners corporation.

The proposed amendments bring the Owners Corporation Act 2006 (Vic) into line with other consumer laws and aims to increase credibility to owners corporation certificates by requiring them to be sealed rather than simply being signed by the owners corporation manager. The proposed amendments also highlight the importance of general meetings to an owners corporation and reinforce that the owners corporation committee must be accountable to the lot owners.

Estate Agents Act 1980 (Vic) and Conveyancers Act 2006 (Vic)

The Bill also proposes amendments to the Estate Agents Act 1980 (Vic) with several smaller "house-keeping" matters. It increases penalties for unlicensed trading as an estate agent and also for breaches of the auditing requirements for estate agents' trust accounts.

Critically for developers with in-house sales teams, the Bill:

  • appoints the Director of Consumer Affairs Victoria (CAV) to approve education and training organisations for the education of licensees and agents' representatives, and courses of education required for approved auditors
  • more than doubles the penalty for an unlicensed person pretending to be licensed as an agent
  • removes the requirements for:
    • estate agents to display their name and the licensed estate agent's details on places of business
    • the directors of an estate agency to provide their name on their letterhead
    • estate agents to list an address in advertisements for their businesses.
  • removes the continuing professional development provisions and the obligation to record salary, wages and commissions paid to agents each month
  • removes the obligation of an estate agent to obtain prior approval from CAV if they wish to purchase a property that the estate agent has been commissioned to sell. If the vendors and their legal practitioner, accountant or conveyancer consent in writing, and CAV is notified, then the estate agent may purchase the property
  • increases the penalty for a failure to comply with the annual audit requirements by five times.

Similar amendments have been made to the Conveyancers Act 2006 (Vic).

Considering the increased penalties, these changes reinforce that it is imperative all salespeople are adequately qualified and financial records are kept up to date.


Although some of the above proposed amendments are simply a matter of house-keeping, the changes to the Sale of Land Act in relation to deposits for off-the-plan sales are critical for developers whose market is based on affordability, particularly for first home buyers and investors. The Bill has not been passed and will be debated in Parliament shortly. Whether the Bill is passed or not, it seems the surge of consumer laws relating to off-the-plan sales is far from finished and developers should be preparing for further imminent changes.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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