In the last edition of Footprint, we highlighted the difficulties developers face in securing "off the plan" pre-commitments for projects in the face of consumer protection legislation in Queensland and other jurisdictions.
The compliance and risk management requirements for pre-sales are a key cost component of developing, on top of the infrastructure and other charges that are steadily eroding affordability.
Recent decisions in Queensland have reinforced the significance of technical requirements for contracts in the selling process, and the introduction at the Federal level of the Unfair Contracts amendments to the Trade Practices Act 1974 due to commence in January 2010 means there is likely to be little let up for developers.
PAMDA & Land Sales Act
In our last article, we looked at the pitfalls and complications faced by sellers, buyers, agents and practitioners under the Property Agents and Motor Dealer's Act (PAMDA) which regulates transactions based on the characterisation of property rather than the nature of the parties to transactions and catches acquisitions and sales of residential sites as well as end product sales.
A number of cases over the last 5 years have confirmed that PAMDA is a minefield for anyone selling residential property in Queensland, whether off the plan or as an existing product. The Queensland Government has instigated a further review of PAMDA with a view to streamlining the 2 phase process we reviewed in our last article on PAMDA. This is a positive step but until the legislation is changed those same ambiguities will sit as traps for the unwary.
The need for reform is illustrated by recent decisions.
Hedley's Case
The much anticipated Court of Appeal decision of Hedley Commercial Property Services Pty Ltd v BRCP Oasis Land Pty Ltd 1 has been delivered since our last article.
As noted previously, Hedley's case related to a transaction involving a put and call option deed between 2 commercially sophisticated parties. The parcel of land in central Cairns was suitable for high-rise development. Before the time for exercising its option expired, Hedley claimed that it was entitled to withdraw from the Deed under PAMDA for technical non-compliances with the legisaltion. BRCP denied that Hedley could escape the Deed and purported to exercise its option under the Deed.
The case ultimately turned on whether the property was residential property or not. The Court found it was not, based on the exclusions in the definition of residential property in PAMDA and this decision was not overturned on appeal. PAMDA did not apply and Hedley's withdrawal was defective.
Importantly the Court of Appeal did not retreat from the detailed analysis of the site's planning history and approvals status that the Judge at first instance found PAMDA required to determine whether the legislation regulates a specific site or not. The need for such an analysis is hardly consistent with legislation that is inteded to facilitate the expeditious production of sales contracts by sellers and agents; instead it arguably requires a pre-contractual assessment of a site's status under the relevant planning scheme and any applicable approvals just to determine whether compliance is necessary.
APM Property Case
This point was subsequently taken up in the very recent decision of APM Property 3 Pty Ltd v Blondeau & Ors2 (APM), handed down on 8 October 2009 where the Court recognised the difficulties such an approach could cause in practice when it refused to find that a CBD site on which a strata office development was built could nonetheless be classified as residential property – the site was also able to be developed for residential purposes under the planning scheme.
The decision on this point was very much a decision made on policy grounds and still leaves open the possibility that a non-residential development could be regulated as residiential property if the planning scheme is clear about the ability to develop the site for more than one use, one of which is residential in nature.
Rice v Ray
In the recent case of Rice v Ray3, the buyer signed a contract to purchase a property at 11.45am. This contract was issued and signed in accordance with the requirements of PAMDA but the contract was rejected by the seller. At 5.00pm on the same day, the seller's agent presented the buyer with the same contract that the buyer had signed earlier that day, amended with a new purchase price and special condition. The new pages were initialled by the buyer, with the remainder of the original contract unchanged. The buyer did not re-sign the contract or the warning statement attached to it, nor did the agent re-direct the buyer's attention to the warning statement.
The buyer terminated the contract on the basis that the PAMDA process had not been repeated when the contract was changed. The court upheld the buyer's termination on the basis that there were two separate contractual situations, and the seller and his agent were required to comply with PAMDA in respect of each offer. Even though the buyer acknowledged and accepted the changes to the contract it signed (which from a contractual perspective would have been effective) the requirements of form and process still afforded an escape route.
The common practice of negotiating by making counter offers using already executed documents with agreed variations cannot be used with safety – instead documents will need to be reissued each time the seller makes a revised offer to a buyer.
Disclosure Statement
These decisions find bedfellows in recent decisions on disclosure requirements under the Land Sales Act 1984 (Qld) (LSA) and the Body Corporate and Community Management Act 1997 (Qld) (BCCMA). Both the LSA and the BCCMA apply to selling of land "off the plan". Both impose pre-contractual dislcosure obligations. The LSA requirements can be included in a disclosure statement given under the BCCMA.
In Hudpac Corporation Pty Ltd v Voros Investments Pty Ltd4the Court considered the requirement to give further disclosure statements under the LSA as a precondition to forcing settlement. The case concerned the sale of a proposed lot under the LSA (being a proposed lot that was to be part of a community titles scheme). The vendor gave the initial disclosure statement under both the BCCMA and LSA, and then gave a further statement under BCCMA (before the plan was registered). The further disclosure was given as a result of changes to the size of the lot and balcony from what was originally dislcosed. No further statement was given at this time under the LSA as under the LSA the further statement cannot be given until the lot is created.
The vendor later terminated the contract for the purchaser's failure to settle and sought a declaration it had validly terminated the contract and was entitled to forfeit deposit.
The vendor argued that it wasn't required to give a further LSA statement as it had given a further BCCMA statement and that this satisfied its obligations under the LSA. The Court rejected that argument. The vendor was obliged to give a further statement under the LSA when title to the lot was created and could not satisfy that obligation by making further disclosure under the BCCMA.
The Court held that the vendor couldn't terminate the contract for the buyer's failure to settle as it couldn't compel settlement until 30 days after the further LSA disclosure was given. As that had not happened, the vendor wasn't in a position to compel settlement and the buyer wasn't in breach when the vendor purported to terminate.
The judgement did not examine whether the change of size of the lot, which was minor, was enough to be an inaccuracy in the identity of the lot in the original statement – the trigger for the need to give the further disclosure under the LSA.
Accordingly, not only is it clear that further dislcosure must be made under 2 separate pieces of legislation but there is considerable ambiguity as to what sort of changes to a project constitute changes to the "identity" of the lot as originally disclosed – it is difficult to see why a small change in area without any other change to the description of the lot should amount to a change to its identity.
In Pazcuff Pty Ltd v Farmilo & Ors[2009] QSC 230 the BCCMA disclosure statement was not signed by the seller or their solicitors before the contracts were signed by the buyer. The seller argued that it was sufficient that its solicitors had signed the letter enclosing the disclosure statement. The Court held that under the BCCMA the disclosure statement had to be signed by the vendor or someone specifically authorised by the vendor.
The signing of the letter enclosing the disclosure statement was not sufficient and, in any event, the solicitors did not have specific authority to sign the disclosure statement for the vendor.
Issuing an unsigned disclosure statement does not constitute substantial compliance with the requirements of the BCCMA and as a result the buyer had lawfully terminated the contracts.
Comment
In the APM case referred to above, buyers successfully challenged the enforceability of put and call option agreements they had entered into. In APM, the buyers argued 4 separate grounds for termination, under 4 different pieces of legislation, emphasising the extent of regulation that potentially applies to pre-sales contracts. The Court accepted that the buyers were entitled to terminate because of a failure on the part of the seller to comply with the disclosure requirements of the BCCMA.
The seller argued that the disclosure requirements of the BCCMA were not applicable to options, but the Court held that options were contracts for the purposes of the legislation and that as the disclosure given was not signed and not completed the buyers were entitled to terminate.
Any agreement that puts a buyer in a position where it can be compelled to acquire the property (whether described as an option or a contract) will usually trigger the full range of requirements under consumer protection legislation.
In the face of these types of issues and judicial decisions the Queensland Government has taken steps to prevent buyers from taking unfair advantage of technical breaches of legislation to escape contracts.
Immediately following the Court of Appeal decision in the case of Bossichix Pty Ltd v Martinek Holdings5, the Government passed amending legislation that secured pre-sales contracts with retrospective effect. The consequences of existing pre-sales contracts falling over on a technicality that had nothing to do with the decision to enter into those contracts was too drastic and potentially too damaging to the economy for the Government not to act.
Unfair Contracts and further comment
The economic environment has focused attention on the impact of consumer protection legislation for project pre-commitments and in many cases highlighted that the complexity of much of the legislation defeats the consumer protection objectives of such legislation. At a State level there are numerous pieces of legislation that duplicate or contradict each other.
At a Federal level the Government is about to introduce overriding legislation regulating unfair contracts. Much attention has been focused on these changes in the context of pro-forma consumer supply and service contracts but a key impact will be on the use of off the plan sales contracts for property developments which will in many instances satisfy the requirements for standard contract forms and their terms will be subject to the legislative tests for fairness and avoidance of unfair terms.
It is unlikely that the compliance burden is going to lessen for developers nationally or at State levels in the near future.
Footnotes
1 [2009] QCA 231
2 [2009] QSC 326
3 [2009] QDC 275
4 [2009] QSC 275
5 [2009] QCA 154
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.
