Pitfalls for developers making ‘Off-the-plan’ sales
Authors: Chris Camillin, Partner & Jeremy Quah, Associate
10 August 2012
Snapshot of JOSEPH STREET PTY LTD and others - v - KHAY TEK TAN and others [2012] VSCA 113.
Issues regarding extension of time for completing subdivisions have become more common in a falling property market, where developers want to keep buyers locked-in.
A different type of issue arose in this case where the Court said the developer wanted to rescind to take advantage of price increases during a delayed building project. The Victorian Court of Appeal provided the following helpful summary of the issue that they were called upon to decide in this case:
“This appeal relates to a contract for the sale of a home unit ‘off the plan’. There were numerous issues at the trial but the only real issue remaining is whether the respondent vendors, who were also the developers, complied with their obligation to the purchaser under the contract to use their ‘best endeavours’ to procure the registration of the relevant plan of subdivision in a timely way. The critical question is whether the vendors breached the contract of sale by not seeking to enter into a certain kind of statutory agreement with the local council with a view to expediting the registration of the plan. If so, they were not entitled to rescind the contract as they purported to do, and they were liable to the purchaser for specific performance or alternative relief. In our view, the vendors were in breach of the contract in that way, and this appeal should be allowed accordingly.”
The issue in fact turned upon whether the developer (being in dispute with his builder) should have accelerated the registration of the subdivision by seeking to enter into an agreement under s.173 of the Planning and Environment Act 1987 (VIC) with the local council, who would then have issued a statement of compliance. It appears that the local council routinely accept such a promise to build in accordance with the permit in lieu of actual performance in order to issue their statement of compliance (a necessary prerequisite to registration of the plan) sooner than would otherwise be possible.
It is a moot point whether the purchasers (who advanced this failure as evidence of breach by the developer) would have been happy if the vendor had entered into such an agreement. The vendor’s submission to the Court of Appeal that the building works were unfinished fell on deaf ears. It was inferred instead that the vendor wished to rescind to claim increased prices.
It does not seem to have been considered that S. 173 agreements are registered against the title to the whole property within the permit and it seems unlikely that a purchaser of one lot would happily accept obligations relating to other lots being registered on their title. Rather it seems a recipe for ensuring that settlement would be deferred until council could be persuaded to release the registration of the s.173 agreement – or at least assure purchasers that there was no further performance outstanding for the whole development.
With hindsight it can be seen that if the lot sale contract had been drawn more carefully it might have provided specifically when the plan was intended to be registered (i.e. on conclusion of the works) and should, as usual, have exonerated the developer from responsibility for delay caused by the builder.
For advice on drafting lot sale agreements in Victoria and all relevant property arrangements please contact Chris Camillin or Jeremy Quah at our Melbourne Office for assistance.
Chris Camillin
Partner
T: +61 3 9691 1202
E: chris.camillin@holmanwebb.com.au
Jeremy Quah
Associate
T: +61 3 9691 1205
E: jeremy.quah@holmanwebb.com.au