Is your contract for the sale of land a terms contract? It might
be, if proposed changes to the Sale of Land Act 1962 currently
before the Victorian Parliament pass.
The amendments in the Consumer Affairs Legislation Further
Amendment Bill 2014 (Vic) seek to clarify when a contract for the
sale of land in Victoria is a terms contract. A terms contract has
a number of consequences for the parties including, in certain
circumstances, an obligation on the vendor to discharge any
mortgage within 90 days of the date of the contract and, more
generally, a right for the purchaser to call for an early transfer,
subject to granting a mortgage back to the vendor (or to any other
person the vendor requires). As a result, these proposed changes
will have practical and important implications for vendors and
purchasers of land in Victoria.
The current position
The Sale of Land Act 1962 (Vic) currently provides that a terms
contract is a contract that either:
obliges the purchaser to make two or more payments to the
vendor (other than the deposit or final payment) after the date
that the contract is signed but before the purchaser is entitled to
take a transfer of land (section 29A(1)(a) of the Act); or
entitles the purchaser to possession or occupation of the land
before the purchaser is entitled to take a transfer of land
(section 29A(1)(b) of the Act).
Problems with the current definition
The current definition of "deposit" in section 29A(2)
of the Act was introduced in 2008. It has caused confusion as
includes any payment made by the purchaser to the vendor before
the purchaser becomes entitled to possession or to the receipt of
rents and profits under the contract;
is not limited to what parties traditionally consider to be a
can include instalments of the purchase price.
The practical implication of this broad definition is that
payment of a purchase price by instalments alone (without an
entitlement to possession or occupation for the purchaser before
the purchaser is entitled to take a transfer) cannot currently
create a terms contract, thereby rendering section 29A(1)(a) of the
Act effectively redundant.
What are the proposed changes?
The proposed changes to the Act set out in the Consumer Affairs
Legislation Further Amendment Bill can be summarised as
the definition of "deposit" will be confined to the
amount stipulated in the contract as the deposit, provided that
amount is paid no more than 60 days after execution of the
payments made by a purchaser to a vendor following an
anticipated or actual default by the purchaser (such as default
interest) will not be considered an instalment of the price;
the reference to "possession or occupation of the
land" will be replaced with a reference to "possession of
the land or receipt of rents and profits" so that a terms
contract will also arise where the purchaser is entitled to receipt
of rents and profits (not just possession ) before settlement.
Timing and practical implications of the proposed changes
Debate will resume on the Bill in the Legislative Council on 3
September 2014. If passed, the Bill will then be introduced into
the Legislative Assembly.
If the proposed changes are passed by Parliament, on the date
the Bill receives Royal Assent:
a terms contract may again arise where the purchase price is
paid by instalments;
default payments will not constitute instalments when
determining if a terms contract exists; and
terms contracts will arise if a purchaser receives rents and
profits before settlement.
Vendors and purchasers of land need to bear the proposed changes
in mind when negotiating contracts for the sale of land in
Victoria, including any variations to contracts of sale.
Further, as no transitional provisions have been proposed, a
review of all existing contracts of sale should be conducted now to
if they will constitute terms contracts; and
what implications this may have; and
the actions that should be taken,
if the proposed changes take effect.
Clayton Utz communications are intended to provide
commentary and general information. They should not be relied upon
as legal advice. Formal legal advice should be sought in particular
transactions or on matters of interest arising from this bulletin.
Persons listed may not be admitted in all states and
To print this article, all you need is to be registered on Mondaq.com.
Click to Login as an existing user or Register so you can print this article.
The Council announced planning policies to encourage more inner suburban retirement village and aged care development.
Some comments from our readers… “The articles are extremely timely and highly applicable” “I often find critical information not available elsewhere” “As in-house counsel, Mondaq’s service is of great value”
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).