Australia: Off-the-plan contracts – what constitutes a "material" change to a plan of subdivision?

Summary

In Bella Besser v Alma Homes Pty Ltd [2012] VSC 460, the Supreme Court of Victoria considered whether:

• Bella Besser (Purchaser) pursuant to section 9AC of the Sale of Land Act 1962 (Vic) (the Act) validly rescinded a contract of sale with Alma Homes Pty Ltd (Vendor) on the basis that an amendment to the plan of subdivision materially affected the lot she had agreed to purchase
• the Purchaser was entitled to the repayment of the deposit of A$125,000.

Background

• Section 9AC of the Act requires vendors under off-the-plan contracts to advise their purchasers in writing of proposed amendments to the plan of subdivision within 14 days of it occurring. Purchasers will then have 14 days from the date that they were notified to rescind their contracts where an amendment will "materially affect" the lot that has been purchased.
• The Purchaser contracted for the purchase of an "off-the–plan" property described as "Lot 4 on proposed plan of subdivision PS638257D". This property was 1 of 4 residential lots on the proposed plan of subdivision.
• The contract of sale was in the standard form which included the Vendor's Statement and attached the proposed plan of subdivision, as required under section 32 of the Act.
• The plan of subdivision comprised the "Owners Corporation Schedule" which identified lot entitlements and lot liabilities for each of the 4 lots. The proposed plan of subdivision stated that each of the 4 lots had an entitlement and liability of 100 out of 400 (ie 25% each).
• When the plan of subdivision was registered, entitlement and liability was identified differently from the proposed plan of subdivision. The entitlement and liability under the registered plan of subdivision totalled 202 for the 4 lots, with:
• • Lots 1 and 4 each having an entitlement and liability of 1 out of 202 (being approximately 0.5% each)
  • Lots 2 and 3 each having an entitlement of 100 out of 202 (being approximately 49.5% each).
• The registered plan of subdivision also contained on the front page a section in bold with the words "LOTS ON THIS PLAN MAY BE AFFECTED BY ONE OR MORE OWNERS CORPORATIONS" (the Notice). This is required where an owners corporation is created by a plan of subdivision.
• The Purchaser argued that the amendment to entitlement and liability materially affected Lot 4. Accordingly, she should be entitled to:
• • rescind the contract of sale under s9AC of the Act
  • receive the repayment of her deposit from the Vendor.
• The Vendor unsuccessfully argued that:
• • despite the Notice on the front of the plan of subdivision, an amendment to the lot entitlements and liability was not an amendment to the actual plan of subdivision because "the change did not affect the boundaries of the property or its physical features"
  • as the common property in the plan of subdivision was to predominantly serve and benefit the owners of Lot 2 and Lot 3, it is only reasonable that they bear the majority of the liability for the maintenance and upkeep of the common property. Accordingly, the owners of Lot 1 and Lot 4 should not be subject to the same proportion of liability and entitlement as the owners of Lot 2 and Lot 3.

The decision

• In determining whether an amendment has materially affected a lot to which a contract relates, the Court stated that an amendment is not to be judged by reference to the reason it was made, but rather by the objective facts and circumstances. The test for materiality is an objective test and accordingly, the Court rejected both of the Vendor's arguments set out above.
• Anything further to the Notice is incorporated into the plan of subdivision and therefore any "material" amendment to any associated attachment may allow the purchaser to rescind.
• Regard is given to the totality of the arrangement by which a property is subdivided (ie by reference to the whole plan of subdivision) including respective rights and obligations of other lots on the plan.
• A change in entitlement and liability, in these circumstances, did materially affect the lot to which a contract relates.
• The purchaser validly rescinded the contract of sale and was entitled to the return of her deposit.

Lessons from this case

This case highlights the need to ensure that care is taken when making any amendments to the proposed plan of subdivision. Any amendments, including amendments to entitlement and liability may be held to be material enough to allow the purchaser to rescind the contact of sale and recover their deposit.

Developers should therefore ensure that the plan of subdivision attached to their off-the-plan contracts is as finalised as possible and reflects the final development that the developer intends to complete prior to contracts being entered into with purchasers.

Please contact us if you would like further advice regarding your off-the-plan contracts of sale or proposed amendments to your plans of subdivision.

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.