Australia: Caution to developers: Purchasers’ extensive rescission rights arising from amendments to plans of subdivision

Introduction

The decision of the Supreme Court of Victoria in Lockwood v PSP Investments Pty Ltd1, provides further guidance as to the basis on which a purchaser may rescind an 'off-the-plan' contract where the vendor amends the plan of subdivision in a way which will "materially affect the lot to which the contract relates".

Facts

The case concerned several contracts of sale for lots on an unregistered plan of subdivision (defined as "prescribed contracts of sale" in the Sale of Land Act 1962 (Vic), but also known as 'off-the-plan' contracts).

The purchaser (Mr Lockwood) entered into eight 'off-the-plan' contracts with the vendor. Four of the contracts each provided for the purchase of an apartment, and the other four contracts each provided for the purchase of a car space in the same development. A 10% deposit was paid by the purchaser under each contract.

Each apartment and car space was identified in the corresponding contract by reference to a proposed plan of subdivision annexed to the vendor's statement. The proposed plan of subdivision also described other relevant features of the development, such as the location and dimensions of all other apartments, car spaces and common property throughout the development.

The plan of subdivision that was ultimately registered included the following notable changes:

  • the removal and conversion of all car spaces to common property;
  • the removal of a penthouse apartment, originally planned to constitute the entire rooftop area, altogether; and
  • the reconfiguration of several of the apartments (including two contracted to the purchaser).

After discovery of the changes to the plan, the purchaser sought to rescind each of the eight apartment and car space contracts on the basis that the amendments to the plan of subdivision would "materially affect the lot to which the contract relates" under section 9AC of the Sale of Land Act 1962 (Vic). Section 9AC states the following:

If after a prescribed contract has been entered into and before the registration of the relevant plan of subdivision an amendment to the plan is required by the Registrar or requested by the vendor, the vendor shall within 14 days after the receipt of the requirement of the Registrar or the making of the request by the vendor (as the case requires) advise the purchaser in writing of the proposed amendment.

The purchaser may rescind a prescribed contract of sale within 14 days after being advised by the vendor under subsection (1) of an amendment to the plan of subdivision which will materially affect the lot to which the contract relates.

The purchaser also sought a refund of all deposits on the basis of his purported rescission, and did not accept the vendor's offer of a 99-year lease from the owner's corporation of each of the 4 car spaces (now located on the common property).

The vendor accepted that the 4 car space contracts could not be performed, but contended that the purchaser was not entitled to rescind the 4 apartment contracts because the following could not be satisfied:

  • the material effect of the amendments to the plan of subdivision must be adverse or 'affect rights deleteriously';
  • the amendments must involve a change of substance of that contracted for; and
  • the effect of the change on a lot must be determined by an assessment of entitlements and liabilities only in relation to that lot

Decision of Supreme Court

The Supreme Court ultimately declared the purchaser's rescission to be valid and ordered the return of each apartment contract deposit by the vendor. In so determining, the Court:

  • cited Besser v Alma Homes2 (see our Footprint article of May 2013, in reaffirming that whether "an amendment will materially affect the lot to which the contract relates is something to be determined objectively. A change in entitlement and liability is something which may materially affect the lot to which a contract relates";
  • viewed the eight contracts as four separate packages, each comprising an apartment and car space;
  • emphasised the significance of the change to the development from a project which included 10 privately owned car parks with a rooftop penthouse to a development in which the ground floor and rooftop comprised common property only;
  • found that, while an increase in the common property may be beneficial in the sense that each owner attains a greater share in the common property (and a greater lot entitlement), it highlights "a substantial change in the bundle of rights comprising each apartment lot" (particularly in light of the contractual conditions in the contracts in question permitting the vendor extensive royalty-free signage rights to the common property on the rooftop of the building); and
  • held that a material amendment to a plan of subdivision need not be detrimental, and that "the purpose of the statute may be undermined if a purchaser were to be required to establish detriment in additional to a material effect".

Lessons to be learned

The decision in this case signifies the extent to which a purchaser's rights, particularly under off-the-plan contracts, may be interpreted in a broad manner.

Developers should remain mindful of the risks associated with amending their plans of subdivision during the course of development, even if those changes may be perceived to be for the benefit of purchasers (say, by increasing the size of lots).

As previously recommended, developers may mitigate such risks by ensuring that that the proposed plans of subdivision attached to their 'off-the-plan' contracts are as close to their final form as possible.

1[2013] VSC 10
2[2012] VSC 460

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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