Australia: Buyer beware: Defective vendor statements highlighted in South Australian decision

Property Update - Spring 2013
Last Updated: 3 November 2013
Article by John Kavanagh

Earlier this year, the District Court of South Australia delivered a decision that now means any debenture, fixed and floating charge or security interest over land must be disclosed in a vendor's statement (commonly known as a 'Form 1.') Failing to disclose the interest will result in the Form 1 being defective. Accordingly, a purchaser will retain their statutory 'cooling off' rights, at least until they become aware of the non-disclosure of the security interest.

This means that cooling off periods could last for months or even years depending upon when completion is to occur.

Background facts of the decision

Adelaide Hotel International Pty Ltd ("AHI") was the owner of land in North Adelaide where it operated a hotel. The land and hotel were subject to a mortgage with National Australia Bank (NAB) which also had a fixed and floating charge ("the charge") over all the assets of AHI. Place on Brougham Pty Ltd ("the developer") entered into an option to purchase the land from AHI to develop the land into a community strata apartment building.

On 23 May 2005, Le Cornu and Kurda ("the purchasers") entered into a contract with the developer to purchase one apartment 'off the plan' for $2,999,000 with a deposit of $299,990. At that time, the developer did not own the land. Accordingly, the Form 1 related to a community lot that did not yet exist. Further, the Form 1 made reference to the NAB mortgage but made no mention of the charge.

The purchasers intended to on-sell the apartment for a profit before completion by assigning their interest in the apartment to a third party. They began marketing the apartment almost immediately but were unable to find a buyer.

The purchasers became aware that the Form 1 was defective in July 2007 and their solicitors advised them to stop marketing the property and to rescind the sale contract by exercising their 'cooling off' rights. However, the purchasers continued to market the property. Three months later the purchasers served a 'Cooling Off Notice' on the developer.

The developer disputed the validity of the Notice and responded with a Notice to Complete under the sale contract. The purchasers did not comply with the Notice to Complete and continued to market the property. Subsequently, the developer terminated the sale contract and retained the deposit. The developer eventually resold the apartment after some time for $1,500,000.00.

In the litigation that followed the purchasers claimed they had a right to 'cool off' and for the return of their deposit. The developer disputed the claim and counterclaimed for the difference between the sale contract price and the amount the apartment sold for less the deposit forfeited.

Key findings of the Court

Non-existence of the community lot at the time the Form 1 was produced

The Court found this did not render the Form 1 defective as it only has to be correct at the time of service.

The charge

The charge secured "all moneys, costs, charges and expenses" in connection with "the preparation, stamping, registration, enforcement or release" of the charge in addition to what was secured by the mortgage. In the Court's view the charge should have been disclosed in the Form 1 as it impacted the land given it was a potential liability on the land over and above the liability in the mortgage. The failure to set out the prescribed particulars of the charge meant the Form 1 was defective.

Affirmation of the sale contract

The purchasers failed to exercise their right to "cool off" for three months after they received legal advice of their right to rescind the contract. Further, they continued to attempt to on-sell the apartment and by not rescinding the contract they prevented the developer from being able to sell the apartment at an earlier time in a declining market. The failure by the purchasers to exercise their cooling off rights and their marketing of the apartment after receiving legal advice meant the purchasers elected to affirm the contract.


The purchasers' conduct was unconscionable in that they induced an assumption in the developer that they were intending to complete and they knew or expected the developer to rely on his assumption. Accordingly, the purchasers were estopped from denying the validity of the contract.


The Court dismissed the purchasers' claim for return of the deposit; and found in favour of the developer for the forfeiture of the deposit and payment of the vendor's loss on the resale, plus costs.

What does this mean for the future?

Before preparing a Form 1 for land in South Australia, the vendor's conveyancer or agent must now ensure that every charge the vendor has is reviewed to ascertain whether it impacts the sale property and should therefore be included in the Form 1 particulars.

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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