Australia: Lee V Surfers Paradise Beach Resort Pty Ltd: Obligation On Sellers Of Lots "Off The Plan" To Disclose The Terms Of Authorisation Of The Scheme Letting Agent Under The Body Corporate And Community Management Act 1997
On 27 April 2007 Justice Wilson of the Supreme Court of Queensland delivered an important new judgment regarding the obligation under s.213(2)(c) of the BCCMA for vendors selling lots "off the plan" to disclose the terms of the authorisation proposed to be given to the letting agent for the scheme.
Her Honour held that sellers are obliged "only to disclose the terms on which the body corporate proposed granting an authorisation to a letting agent" to conduct a letting business for the scheme.
Importantly, her Honour declined to follow the approach previously taken by the Court in relation to this issue in the judgment of Celik v Mayes  QSC 224. Contrary to the Court’s finding in Celik, Justice Wilson held that sellers are not required to disclose the agreements entered into between lot owners and the letting agent to let individual lots.
Pursuant to s.213(1) of the BCCMA:
a seller of a lot which is intended to come into existence as a lot in a Community Titles Scheme must provide a First Statement to a buyer before the buyer enters into a contract of sale for the lot; and
the First Statement must comply with the requirements set out in s.213(2) to s.213(4) of the Act.
Section 213(2)(c) requires the First Statement to include:
"…for any authorisation of a person as a letting agent for the scheme proposed to be given after the establishment of the scheme…the terms of the authorisation."
If the seller contravenes s.213(1), the buyer may cancel the contract and have the entire deposit returned to it, if the contract has not already settled. If a First Statement becomes inaccurate, the seller must deliver a Further Statement remedying the inaccuracy pursuant to s.214 of the Act. The buyer may cancel the contract if it would be materially prejudiced if compelled to complete the contract, due to the extent of the inaccuracy.
Both Celik v Mayes and Lee v SPBR Pty Ltd involved the sale of proposed lots in the Q1 Tower. In both cases, to comply with s.213(2)(c) the sellers had disclosed the draft agreement by which the Q1 Body Corporate intended to appoint a letting agent to conduct the Q1 on-site letting business.
Subsequently, the letting agent invited buyers of lots in Q1 to place their lots in Q1’s on-site holiday letting scheme. The letting agent provided buyers with an apartment management agreement and a Product Disclosure Statement. The PDS required buyers to purchase a furniture package if they wished to place their lots in the on-site holiday letting scheme.
In Celik v Mayes the buyer argued in relation to this issue that:
the seller’s First Statement had become inaccurate, as the terms of the agreement between the letting agent and the individual lot owners formed part of the "terms of authorisation of a person as a letting agent for the scheme" and were required to be disclosed pursuant to s.213(2); and
the requirement to purchase a furniture package to participate in the on-site letting scheme materially prejudiced the buyer.
The Court agreed with this view, and held that the buyer was able to cancel the contract of sale and have the deposit returned to it.
In Lee v SPBR the Court declined to follow this approach. The applicant buyer failed to settle the contract of sale on the date for settlement, and the respondent seller terminated the contract of sale for the failure to settle. The applicant argued that the respondent’s termination was of no effect, relying upon Celik to argue that the respondent’s First Statement had become inaccurate and the respondent was obliged to deliver a Further Statement.
However, Justice Wilson held that in order to comply with s.213(2), the respondent was obliged "only to disclose the terms on which the body corporate proposed granting an authorisation to a letting agent", which it had done, and so the respondent’s First Statement had not become inaccurate. The respondent’s termination of the contract was valid. Issues of material prejudice did not arise.
Justice Wilson noted that the result in Celik can be supported on other grounds which are unrelated to this issue, and are not affected by Justice Wilson’s judgment.
Gadens acted for the successful developer who was the Respondent in the action.
Article by Dan Pennicott or Philippa Ahern, Brisbane.
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