Australia: Amendments to Sale of Land Act – what are the key changes?

Last Updated: 5 March 2019
Article by Natashia Ackroyd

Most Read Contributor in Australia, February 2019

The Sale of Land Amendment Bill 2018 was introduced into the Victorian Legislative Assembly on 21 August 2018. Because of the re-election of the Andrews government it is expected to be passed later this year.

A primary driver behind these amendments is to address ongoing issues in the Victorian property market resulting in consumer detriment.

The key changes to the Sale of Land Act are significant and, property developers should be aware of how these changes may impact their current developments and future investment activities.

The key changes will affect the following arrangements:

  • Sunset clauses: to restrict the use of sunset clauses in certain off-the-plan contracts
  • Terms contracts & rent-to-buy arrangements: to prohibit the use of certain types of terms contracts and rent-to-buy arrangements
  • Options in land banking schemes: to regulate money paid in relation to options to purchase in land banking schemes.

Each of these key changes are discussed below.

Sunset clauses

The Bill sets out a new framework regulating how a vendor may exercise a right of rescission under a sunset clause. It will apply to all residential off-the-plan contracts entered into on or after 23 August 2018. It is not possible to contract out of the new regime.

All residential off-the-plan contracts will be taken to include a provision that a vendor cannot exercise a right of rescission under a sunset clause in an off-the-plan residential contract unless the vendor:

1. gives the purchaser at least 28 days’ notice setting out:

  • the reason why the vendor is proposing to rescind the contract
  • the reason for the delay in registering the plan of subdivision or the issuing of the occupancy permit
  • that the purchaser is not required to consent to rescission.

2. obtains either:

  • the consent of the purchaser; or
  • an order from the Supreme Court permitting the rescission.

By 1 December 2019, all Victorian residential off-the-plan contracts must contain a statement detailing these requirements.

A vendor must be aware that obtaining a court order is not a formality. In fact, in determining whether to make such an order, the Court must have regard to the following matters:

  • whether the vendor has acted unreasonably or in bad faith
  • the reason for the delay in registering the relevant plan of subdivision or in the occupancy permit being issued
  • the likelihood on which these events will take place
  • whether the relevant lot has increased in value
  • the effect of the rescission on each purchaser
  • any other matter the Court considers relevant.

The genesis of these amendments is to legislate against a vendor from terminating a contract under the guise of a sunset clause for a non bona fide reason, including to re-market a property during a market upswing.

It is important to note that the new provision will only apply to sunset clauses. Under the Act, a sunset clause is a provision in a residential off-the-plan contract that allows the rescission of that contract if either the relevant plan of subdivision has not been registered or an occupancy permit has not been issued by the sunset date.

There is currently no proposed framework that restricts a vendor from exercising a right of rescission for any other reason. For example, a vendor may still rescind in circumstances where, if the contract permits, the vendor is unable to secure sufficient pre-sales or construction finance. However, any other termination right must not offend the unfair terms regime.

We recommend a careful review of all existing residential off-the-plan contracts be undertaken in consultation with your lawyer and, for both existing and future developments, an appropriate risk management strategy be developed.

Terms contract/ rent-to-buy arrangements

The new amendments will prohibit certain residential terms contracts. 

There will be a number of new offences in relation to the sale, brokerage, inducement or advertising of the sale of certain residential land (other than residential land that is agricultural land) under a terms contract where the price is less than a prescribed amount. This amount is not yet known.

Specifically excluded from this regime are contracts entered into with the Director of Housing, a registered housing association or a prescribed person or class of person or a rent-to-buy arrangement that complies with the new legislative arrangements.

The Governor in Council will also be empowered to prescribe requirements for rent-to-buy arrangements including the power to make regulations about:

  • money paid for rights or obligations under a rent-to-buy arrangement such as the holding of the money on trust on behalf of purchasers, the holding of the money in interest-bearing accounts and, the application of and dealing with the money where the purchaser’s rights under the arrangement is not exercised
  • the inclusion of certain conditions in the rent-to-buy arrangement and any other requirements about the effect of terms and conditions in the arrangement.

Similar to the new regime affecting terms contracts, there will be a number of new offences in relation to the sale, brokerage, inducement or advertising of the sale of residential land under a rent-to-buy arrangement.

A purchaser under a rent-to-buy arrangement will also be entitled to terminate the contract at any time before settlement and receive all money that the purchaser has paid under that contract.

Options in land banking schemes

Under the new regime a vendor will be prohibited from granting an option to purchase land under a land banking scheme except as required under section 29WH of the Act. These amendments are intended to afford better protection to purchasers paying money under an option agreement but who do not acquire control of the scheme or a proprietary interest in the land.

This section requires that:

  • money paid by the purchaser for the option must be paid to a legal practitioner, conveyancer or licensed estate agent acting for the vendor until a plan of subdivision has been registered or the date by which the option must be exercised, whichever is earlier
  • the money paid by the purchaser for the option be held on trust.

The purchaser may rescind the agreement if the vendor does not comply with this section.

The option exercise period is for a maximum period of five years. It is not possible to contract out of this.

In circumstances where the purchaser rescinds the agreement or the option exercise period expires, the money paid by the purchaser must be returned to the purchaser.

The new provisions do not apply to a land banking scheme administered by a registered managed investment scheme or a financial product issued by the holder of an Australian financial services licence.

This publication does not deal with every important topic or change in law and is not intended to be relied upon as a substitute for legal or other advice that may be relevant to the reader's specific circumstances. If you have found this publication of interest and would like to know more or wish to obtain legal advice relevant to your circumstances please contact one of the named individuals listed.

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