- Contract processes for residential property sales will be simpler and compliance will be easier.
- Termination rights for breach of process will be limited.
- There will be more certainty about how to comply with contract disclosure requirements - attachment of the statutory Warning Statement and Body Corporate Information Sheet.
- Contract negotiations will not necessitate re-issuing of the documents.
- Compliance costs should be reduced.
Following consultation with industry bodies, the Queensland Government has put before Parliament the Property Agents and Motor Dealers and Other Legislation Amendment Bill 2010 (Bill) which significantly alters the provisions of PAMDA relating to residential property sales and contract processes.
The amendments (if the Bill is passed) will commence on 1 October 2010.
This Bill represents the most significant change to PAMDA since the introduction of the regime governing contracts for residential sales. Developers, agents and individuals selling or buying residential property will welcome the simplification of process and the additional certainty these changes will bring to transactions.
For developers and financiers, the changes will have a positive impact for the integrity of presales commitments on projects. Compliance and contract auditing will be less onerous and costs to industry will be reduced as a result.
Existing and Changed Concepts
The concepts of a proposed relevant contract and relevant contract are retained and the Bill continues the categorisation of contracts by reference to who prepares them. Only contracts prepared by the seller are regulated as proposed relevant contracts and relevant contracts. Contracts prepared by the buyer and submitted to a seller for execution will still not be considered proposed relevant contracts or relevant contracts.
The Bill also retains the concept of attachment of the statutory Warning Statement and, where a unit is involved, the Body Corporate Information Sheet, to the contract.
However, the concept of attachment, particularly in relation to electronic communications, is simplified. There is no longer a requirement that the Warning Statement be attached as the first or top sheet of the contract. Nor is there a prescription that the Warning Statement and Body Corporate Information Sheet be attached in any particular order or position.
Instead, the requirements for attachment are now:
- If the documents are given other than by electronic communication (for example the contract is delivered personally or under the cover of a letter), the Warning Statement and any Body Corporate Information Sheet are to be attached to the proposed relevant contract or relevant contract, as the case requires, in a secure way so that the Warning Statement, any Information Sheet and the proposed relevant contract or relevant contract appear to be a single document.
- If the documents are given by electronic communication, (email or by fax), the relevant documents (the Warning Statement, the Body Corporate Information Sheet and the proposed relevant contract or relevant contract) need only be "given" by electronic communication at the same time, or if by fax, as near as possible to the same time, having regard to the operation of fax machines.
These changes remove from the contracting process potential grounds for termination based on prescriptive specifications for the order in which documents are to be given and the way they are delivered. For documents that are hand delivered or delivered under cover of a letter, attachment will still require some form of secure attachment such as binding or stapling of the document.
In relation to electronic communications, the emphasis is on the time at which the documents are given rather than the order in which they are given or how they are to be delivered. The current delivery methods have been intensively criticised by the Courts as unwarranted intrusions of form over substance.
It will now be possible for parties to simply fax documentation comprising the Warning Statement, Body Corporate Information Sheet and contract documents under the same fax transmission or separate but contemporaneous transmissions. Similarly, parties will be able to simply attach the documents to a single email (even as separate documents) and send them to another party.
This should close down a number of potential challenges to enforceability of contracts based on mere technicalities that have no real impact upon the position of either party under the contract.
Warning Statement and Direction Requirements
The legislation will retain a requirement for attachment of the Warning Statement to a proposed relevant contract at the point where the seller gives the proposed relevant contract to the proposed buyer.
New section 368A will require attachment and the provision of a clear statement directing the proposed buyer's attention to both the Warning Statement and proposed relevant contract and, where the sale is a sale of a unit, the Body Corporate Information Sheet (required to be attached under the Body Corporate and Community Management Act 1997 which is also to be amended by the Bill).
A party will contravene the requirement to deliver a clear direction if at the time the direction is given, the Warning Statement or Information Sheet is not attached to the proposed relevant contract.
It will no longer be the case that the Warning Statement and Information Sheet must be attached in any particular order or that they form the first or top sheet of the contract.
While cover sheets may be added to contracts and indeed the Warning Statement and Information Sheet could be relocated and not necessarily appear as the first parts of the contract documentation, there are good reasons to ensure the Warning Statement and Information Sheet are conspicuous to any buyer . One of the exceptions to termination rights for failing to give a clear direction to the Warning Statement (for example, if the Warning Statement was not attached when the direction is given) is if the buyer signed the Warning Statement attached to the proposed relevant contract before the buyer signed the proposed relevant contract. It may be easier to prove that a buyer did in fact sign the Warning Statement before it signed the proposed relevant contract if the Warning Statement was the first or top sheet that the buyer sees.
Under new section 368A, a party commits an offence if the Warning Statement or Body Corporate Information Sheet are not attached to the proposed relevant contract or a clear statement is not given directing the proposed buyer's attention to those documents. The penalty is 200 points which is significant.
However, termination rights only flow now under proposed section 370 where the seller personally, or a seller's agent, fails to give a clear statement directing the proposed buyer's attention to the Warning Statement and relevant contract. Note that the failure to give the direction can be triggered by a failure to attach the Warning Statement. So attachment is still critical to compliance.
Similar termination rights are to be included in the Body Corporate and Community Management Act for a failure to give a clear statement directing a proposed buyer's attention to the Body Corporate Information Sheet.
The legislation will now focus on a simplified attachment requirement and the direction of the buyer's attention to the Warning Statement and Body Corporate Information Sheet. This is more consistent with the policy objectives that buyers be given adequate pre-contractual disclosure as to the consequences of entering into a transaction.
There are significant changes to termination rights under the legislation.
Firstly, termination rights only apply in respect of the requirements for a direction to the proposed relevant contract.
PAMDA currently involves a two step process relating to the giving of a proposed relevant contract, together with relevant directions to the Warning Statement, etc, and then a second step to give a further direction once a contract is signed and becomes a relevant contract. The second phase has now been removed.
Secondly, even if a clear statement directing the proposed buyer's attention to the Warning Statement and, where applicable, the Body Corporate Information Sheet is not given, if the buyer nonetheless signs the Warning Statement before it signs the proposed relevant contract (and the Warning Statement is attached), the buyer's right to terminate for failure to give the direction will not apply. This is consistent with the notion that if the buyer in fact acknowledges having seen and read the Warning Statement before it signed the contract (which is the general form of acknowledgement on the Warning Statement) then the absence of a direction to it should not allow termination.
Termination rights that apply for a failure to give a clear statement directing the buyer's attention to the relevant documents must be exercised no later than 90 days after the day the buyer receives a copy of the relevant contract from the seller. Imposing a time limit on termination rights will assist in bringing additional certainty to transactions. Under the current regime, termination rights may be exercised at any time up to settlement. Time limitations will significantly limit the ability for arguments to be developed as to the waiver of statutory rights which have been a feature of some case decisions on PAMDA.
If rights to terminate for non-compliance are not exercised within the 90 day period then the contract will remain binding upon the parties.
Elimination of the Second Round
The existing requirements of PAMDA in section 365 of the current legislation governing when parties are bound to a contract will be removed. This will eliminate considerable uncertainty and conflicts between principles at common law offer and acceptance and the statutory provisions. PAMDA will no longer try and prescribe when parties are bound to a contract as a matter of law.
There will no longer be a requirement to give a second direction to the Warning Statement and Body Corporation Information Sheet when fully signed documents are returned to the buyer. This means that an entire class of potential termination rights that exist under the current legislation will disappear when the Bill is passed (for future contracts).
Under proposed new section 368C, the only requirements in relation to relevant contracts (contracts signed by both parties) is that the seller must have the Warning Statement attached to the relevant contract and, where the sale relates to a unit, have the Body Corporate Information Sheet attached to the relevant contract, both in accordance with the principles for attachment. The sanction for a failure to attach those documents to a relevant contract is a penalty provision as opposed to a termination right.
The Bill retains a five day cooling-off period in proposed section 369 which will run from the first business day after the buyer receives a copy of the relevant contract from the seller.
The Bill also seeks to address the impact of negotiations on contract terms that occur after the seller has submitted a proposed relevant contract to a buyer. Recent cases have allowed termination where documents were not re-issued where the parties negotiated terms.
Under proposed new sections 368A(4) and (5), the Bill attempts to make clear that negotiations on the terms and conditions of a proposed relevant contract do not make that "another proposed relevant contract" where the property concerned and the parties remain the same.
In practice, a proposed relevant contract issued by a seller could be amended by the making of handwritten notations and it would remain a proposed relevant contract or the parties could agree to reissue the proposed relevant contract to include amendments without having to re-comply with the requirement to give the proposed buyer another direction. Arguably, it would also follow that the original attachment of the Warning Statement and Body Corporate Information Sheet (if applicable) would be sufficient even if when amending the documents or resubmitting revised documents the Warning Statement and/or Body Corporate Information Sheet were not in fact attached.
The legislation incorporates transitional provisions to deal with the status of contracts and consequential rights that have been issued under the existing regime. After 1 October 2010 an existing relevant contract cannot be terminated under the previous provisions of Chapter 11 of PAMDA. A termination under the existing PAMDA regime made before 1 October 2010 will continue to have effect.
For existing relevant contracts where a buyer could have withdrawn its offer under existing section 365(3) because the buyer and seller were not bound by the relevant contract, any such withdrawal cannot be made after 1 October 2010.
This means that if there has been, for example, delivery of a signed contract to a buyer without the second direction currently required under section 365, the right to end the contract for that non-compliance will cease to apply if not exercised before 1 October 2010.
There are specific transitional provisions dealing with the situation where contracts are issued now and there are deficiencies that might found a termination under the current regime but where termination rights are not exercised before 1 October 2010. In this situation, if a proposed relevant contract is given to a proposed buyer before 1 October 2010 and that contract becomes a relevant contract before, on or after 1 October 2010, then that contract will be able to be terminated only under new section 370 if it has not been terminated before 1 October 2010.
Termination rights will only exist if the seller failed to give the proposed buyer a clear statement directing the proposed buyer's attention to the Warning Statement and the relevant contract at that time. Further, a buyer under such a contract will not be able to terminate if the Warning Statement was attached to the proposed relevant contract and the buyer nonetheless signed the Warning Statement.
In assessing these requirements, regard will still have to be had to the Warning Statement as required under the current PAMDA regime but attachment will be determined by reference to the new definition of attachment.
The 90 day time limitation in proposed section 370(4) will also still apply - so for example, if a contract becomes a relevant contract on 1 September 2010, the latest time any carried over termination right could be exercised will still be 90 days after the buyer received a copy of the relevant contract from the seller. This may need further consideration as the 90 day period could expire before the commencement of the new sections under which the termination rights arise - it may be that the 90 day termination period should run from commencement or apply only in respect of relevant contracts where the 90 day period that runs from the date the relevant contract is given to the buyer has not expired as at commencement, in which case the termination right may end when the balance of that period ends.
While it might look like documentation could be issued in compliance with the requirements of the Bill pending commencement and, assuming the Bill were to be passed, that would then be sufficient compliance, any failure to meet the current PAMDA requirements for attachment and delivery of documents before commencement could still found a valid termination right exercisable by the buyer before commencement of the Bill. So, it will still be necessary to maintain compliance with the current regime until commencement.
There are also transitional arrangements for the termination of contracts during cooling-off periods that have commenced before the Bill is passed but not expired at that time.
Amendments to the Body Corporate and Community Management Act
Comparable amendments are made to the Body Corporate and Community Management Act 1997 relating to the Information Sheet requirements. The same 90 day termination period is imported such that termination for a non-compliance with giving of a direction to the Body Corporate Information Sheet cannot occur later than 90 days from the day the buyer receives a copy of the contract from the seller. However, the buyer can terminate the contract at any time before it settles. So for example, if a contract were to settle earlier than 90 days from the date it was given to the buyer then termination rights would be extinguished by that earlier settlement if not exercised.
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.