Review of section 32 of the Sale of Land Act 1962

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Introduction

Section 32 of the Sale of Land Act 1962 (‘the Sale of Land Act’) requires those who sell land in Victoria to disclose certain information through the provision of a vendor statement to a purchaser.

Consumer Affairs Victoria is reviewing section 32. The impetus for the review is the Government’s commitment to reduce the burden of ‘red tape’ on businesses and the community.

Consultation

Public consultation closed on Thursday, 20 December 2012. If you have any queires please email cav.consultations@justice.vic.gov.au.

1. Background to this review

Section 32 of the Sale of Land Act was introduced in 1982, and sets out the requirements for vendor disclosure in contracts for the sale of land in Victoria. The original impetus for the vendor statement as stated in the Second Reading Speech at the time was to vary the conveyancing practice ‘to place upon the vendor the onus of providing sufficient information to disclose any defects in title, any mortgages, charges or encumbrances and any restrictions upon the use of the land in question’.1

The introduction of the vendor statement was complemented by rights of rescission; these enable a purchaser to rescind a contract for sale if the information supplied to the purchaser is false or incomplete and the purchaser has entered into the contract on the basis of that information. Importantly, a purchaser cannot use these rights if a court finds that the vendor acted honestly and reasonably and the purchaser is substantially in as good a position despite the vendor’s non-compliance.

In the last 30 years, section 32 has been subject to numerous amendments increasing the level of vendor disclosure required and, in turn, the size of the vendor statement. In addition, there are always ongoing discussions about the merits of more extensive disclosure prior to sale.

This review will examine the current level of disclosure provided by vendor statements with a focus on ways to decrease costs for those who are in the business of buying and selling land. The review will include an examination of the administrative burden for those who undertake real estate transactions and whether this burden could be decreased through streamlined requirements.

In addition, the cumulative impacts on vendors of current disclosure requirements will be examined, including the impacts of rescission rights which attach to section 32. Noting that vendor statements are usually prepared by solicitors and conveyancers, the review will examine the costs to vendors of engaging solicitors and conveyancers for this purpose.

The benefits and costs to purchasers of the current level of disclosure will be examined, as will the impacts on purchasers of rescission rights, including whether these rights are successfully used in practice. The effects on vendors where purchasers have successfully rescinded a contract are also of interest to the review.

It should be noted that recent amendments made to section 32 in response to recommendations of the Victorian Bushfire Royal Commission are not within the scope of this review. The Government has made an amendment to the Sale of Land Act to require the vendor statement for land for sale in a bushfire-prone area, to include a statement to that effect. The Government is committed to implementing its response to the Royal Commission, and therefore, these amendments are not being considered any further at this stage.

Finally, the focus of the review is solely on section 32 of the Sale of Land Act. Issues raised in relation to other parts of the Sale of Land Act will not be considered as part of this review.

2. Context for the review: the Government’s commitment to reduce red tape

This review of section 32 of the Sale of Land Act forms part of the Government’s overall comprehensive program to deliver ‘red tape’ reductions of 25 per cent by July 2014. The Government’s red tape reduction program will reduce costs for businesses, not-for-profit organisations, and the economic activities of individuals and government services. The program takes a broad approach and includes the burdens imposed by administrative requirements (such as filling in a required form), compliance requirements (such as engaging someone to undertake a required activity on your behalf) and the costs of delays.

3. The need for disclosure

While a prospective purchaser can gather a great deal of relevant information by undertaking a physical inspection of the property, such an inspection may not necessarily yield all the information the purchaser may wish to know and rely upon in making a decision to purchase.

The introduction of vendor disclosure in 1982 acknowledged that there is an information imbalance between the vendor and the purchaser, which favours the vendor.

Vendor disclosure aims to improve the position of the potential purchaser by increasing the amount of information available to assist them in bargaining. It is assumed there is certain information that is known to the vendor that is difficult for a purchaser to discover, even after undertaking due diligence. This information gap puts the buyer at a disadvantage in deciding whether to buy a property and what price to pay.

However, this review is also interested in whether:

  • the information required to be disclosed is appropriate;
  • the information is actually influencing the decisions made by purchasers; and
  • the benefits derived by purchasers in obtaining the information is not outweighed by the costs incurred by vendors in providing the information.

Currently, section 32 requires disclosure of information relating to both defects in title and defects in quality. This means that a vendor statement will include information that is specific to the particular title (e.g. an easement over the land) as well as information that is not specific to the particular property for sale, but may affect the use and value of the land and, as such, may be of interest to potential purchasers.

This review is interested in whether the current mix of matters required to be disclosed in the vendor statement is appropriate, and whether the vendor statement contains too much information or the information is too complex to be useful.

Also of interest to this review is the extent to which potential purchasers undertake their own inquiries to verify the information disclosed by a vendor. This is of particular interest in the context of red tape reduction due to the additional costs for vendors and potentially multiple purchasers to search for information in relation to the same property. The value placed on the disclosed information by potential purchasers is arguably less if purchasers do not feel they can rely on the information disclosed but must undertake their own independent inquiries.

Questions for consultation:

  • Has the current vendor statement led to purchasers being more effectively informed about issues affecting the land for sale?
  • Do potential purchasers read, understand and use all aspects of the vendor statement to assist them in making a decision to purchase a property?
  • Is it common for purchasers to undertake a high level of due diligence in considering a property?
  • Do potential purchasers verify the information disclosed by a vendor to ensure its accuracy?
  • Does disclosure of any or all of the vendor statement information affect a prospective purchaser’s decision as to whether to purchase a particular property?
  • Do the red tape and compliance costs of all point of sale disclosures outweigh the benefits?
  • Can the presence of the vendor statement (and associated rights of rescission) lead potential purchasers to take a complacent approach on the assumption that they are ‘protected’ by the vendor statement?
  • Is the right balance being achieved between the interests of buyers to be informed and the financial costs of disclosure to the seller?

4. The timing of disclosure

Section 32(1) requires a vendor statement to be provided to a purchaser prior to signing the contract for the sale of land. The vendor statement must also be included in the contract of sale for signature. The legislation does not specify a timeframe for the provision of the vendor statement so the vendor statement could be circulated at any point during the marketing of a property, including after the commencement of negotiations.

Section 32(1A) requires an additional statement to be provided before the purchaser signs the contract in circumstances where the sale of land includes a residence.  There is no requirement to provide this additional statement as part of the contract of sale.

The information provided in the vendor statement should inform the purchaser of matters that could affect the purchaser’s ultimate decision whether or not to purchase the property; it may also influence the amount the purchaser is willing to spend on the property. Therefore, the point at which the information is disclosed is crucial to its effectiveness.

Requiring information disclosure at an early stage in the negotiations provides potential purchasers with more time to digest the information and make additional inquiries. However, early disclosure raises cost implications as the vendor statement may require updating to maintain accuracy. If negotiations do not proceed to a sale, some of the information may lose currency and additional costs may be incurred in updating the information.  The preparation of this information may also delay the marketing of the property and affect the timing of a sale.

Questions for consultation:

  • What are the costs and benefits in attaching the vendor statement to the contract of sale?
  • In practice, are potential purchasers given sufficient time to assess the details of a vendor statement before committing to a purchase?
  • Is it general practice for properties to be placed on the market before the vendor statement is completed?
  • What would be the impacts (in particular the likely costs to vendors) of mandating that the vendor statement be prepared before a property is placed on the market?
  • What would be the benefits for buyers of requiring information disclosure when a property is being marketed for sale?
  • Could vendor statements be provided in alternative forms (e.g. web accessible)?
  • Does the vendor statement impose any delay to the completion of the purchase transaction, and if yes, how long are such delays and who is impacted by the delay?

5. A closer look at current disclosure requirements

This section looks at the matters currently required to be disclosed by vendors under section 32. In doing so, many of the matters to be disclosed have been grouped together in categories for the purposes of consideration and comment.

5.1 Disclosure of financial information

Section 32(2) requires vendors to disclose certain debts that have been incurred against the property to be sold or charges that may be incurred by a potential purchaser should they proceed with the sale. Vendors are also required to disclose particulars of insurance policies in certain circumstances.

These matters have been grouped under a general heading of ‘financial disclosure’ for the purposes of this discussion paper. In examining the current requirements, it is important to ascertain whether there is a continuing need for financial disclosure to occur and whether the disclosure currently required is necessary.

Question for consultation:

Is any of the financial information required to be disclosed by a vendor easily obtainable by a potential purchaser?

Undischarged mortgages

Section 32(2)(a) requires disclosure of the particulars of any mortgage (whether registered or not) which is not to be discharged before the purchaser becomes entitled to possession of the land or to the receipt of rents and profits. The particulars to be disclosed include:

  • the amount secured by the mortgage;
  • whether the mortgage provides for further advances by the mortgagee;
  • the rate of interest payable under the mortgage;
  • the date by which the mortgage is to be repaid;
  • details of any instalments under the mortgage;
  • a statement that the vendor is not in default under the mortgage, or if the vendor is in default, details of that default;
  • the amount required to discharge the mortgage;
  • the mortgagee’s name and address; and
  • if the contract is a terms contract and the consideration is to be satisfied in part by the purchaser assuming the obligations of the mortgagor – whether or not the mortgagee has consented to the purchaser assuming those obligations.

Questions for consultation:

  • Is the level of information required under section 32(2)(a) appropriate?
  • Are there alternatives for disclosing this information?

Rates, taxes and charges

Section 32(2)(d) requires a vendor to specify the amount of any rates, taxes, charges or other similar outgoings affecting the land, including any unpaid interest. Any rates, taxes, charges or outgoings for which the purchaser may be liable following the sale that the vendor might reasonably be expected to have knowledge of must also be provided. Alternatively, the vendor can submit a statement stating that the total amount of rates, taxes, charges or other similar outgoings and interest does not exceed a specified sum.

In 1989, section 32(2)(aa) was specifically added to the Sale of Land Act to require the particulars of any charge (whether registered or not) over the land imposed by or under an Act to secure an amount due under that Act, including the amount owed by the charge.

Questions for consultation:

  • Is the information required under section 32(2)(d) useful to potential purchasers?
  • What are the benefits for purchasers if the vendor provides a statement attesting that the level of financial outgoings affecting the land does not exceed a particular amount?
  • Are there alternative ways for potential purchasers to access this information and what are the cost implications?

Insurance policies

The Sale of Land Act provides certain rights to purchasers in the event of damage or destruction of land prior to the completion of a contract for the sale of land.

Section 34 of the Sale of Land Act enables a purchaser to rescind a contract for the sale of land in the event that a dwelling house sitting on the land is destroyed or damaged to such an extent that it is unfit for occupation before settlement.

In addition, section 35 of the Sale of Land Act operates to extend the benefit of a vendor’s insurance policy to a purchaser in certain circumstances. As a result, the purchaser may be indemnified for damage and destruction of the land in the period between the making of a contract and the purchaser taking possession or receipt of rents and profits. The level of protection provided by section 35 is largely dependent on the nature and extent of the insurance coverage taken out by the vendor. Consequently, it may be important for the purchaser to know details of the vendor’s insurance prior to signing a contract.

Therefore, section 32(2)(g) of the Sale of Land Act provides for such disclosure by requiring the vendor to provide details of any insurance policy covering damage or destruction of the land if the contract does not provide for the land to remain at the vendor’s risk until possession of the land or the receipt of rents and profits.

However, it should be noted that the standard form contract for the sale of real estate prescribed under the Estate Agents Act 1980 (‘the Estate Agents Act’) states that the vendor carries the risk of loss or damage to the property until settlement. On this basis, it may be uncommon for the risk to transfer to a potential purchaser, if the majority of contracts for the sale of land use the standard form contract.

Questions for consultation:

  • Is it general practice for the vendor to retain the risk of loss or damage to the property prior to settlement?
  • Is the standard form contract commonly used for the sale of land?

Additional financial disclosure for terms contracts

Under the Sale of Land Act, a terms contract is a contract where the purchaser is required to make two or more payments to the vendor after the execution of the contract and before the purchaser is entitled to a conveyance or transfer of the land. Section 32(2)(f) of the Sale of Land Act states that where the contract of sale is a terms contract, the vendor statement must include the information set out in Schedule 2 to the Sale of Land Act.

Schedule 2 details the cost of vendor finance, including:

  • details about the final purchase price; and
  • the number of repayments and the amount of each repayment and the final payment when periodical payments are completed.

Questions for consultation:

  • Are terms contracts commonly offered?
  • What is the value of disclosing this information as part of the vendor statement?

5.2 Land use disclosure

Easements, covenants and restrictions affecting the land

Section 32(2)(b) of the Sale of Land Act states that the vendor must contain a description of any easement, covenant or other similar restriction affecting the land (whether registered or unregistered) and particulars of any existing failure to comply with the terms of that easement, covenant or restriction.

Question for consultation:

Is it easy for a potential purchaser to access information about easements, covenants and restrictions affecting the land?

Planning controls

Section 32(2)(c) of the Sale of Land Act originally required disclosure of a statement outlining the name of any planning instrument applying to the land, the name of the responsible authority and the zoning of the land under the planning instrument.

Additional disclosure requirements for planning were added in 1989 on the basis that ‘the existing disclosure provisions do little to inform a purchaser who does not have the benefit of professional legal advice about permitted use of land’.2

The addition of section 32(2)(c)(iv) meant that all vendors of rural land had an additional requirement to inform any prospective purchasers if the planning scheme prohibited the construction of a dwelling house.

The 1989 amendments responded to the actions of some rural developers who had exploited purchasers by selling properties that did not allow residential occupation or certain other forms of land use. Many of the purchasers had not sought legal advice before purchasing the properties and did not understand the implications (in particular the limitations) of the planning policies on the properties they were buying.

The review is interested in whether these issues still exist today, or whether the potential for purchasers to obtain this information independently means that disclosure of planning information could be removed or eased.

Questions for consultation:

  • Is there still a need for vendors to disclose planning and land use information?
  • Are the issues that led to the expansion of land use disclosure in 1989 still relevant today?
  • Should a failure to disclose certain planning details that may be readily available provide a purchaser with rights to rescind the contract?
  • Are there circumstances in which vendors need to inform prospective purchasers when a non-metropolitan planning scheme prohibits the construction of a dwelling house?
  • Do these existing requirements cover all the relevant information that should be disclosed?

5.3 Notices, orders, declarations, reports and recommendations

Section 32(2)(e) of the Sale of Land Act states that the vendor statement must contain details of any notice, order, declaration, report or recommendation of a public authority or government department or approved proposal affecting the land of which the vendor might reasonably be expected to have knowledge.

This includes any notice of intention to acquire land that has been served under section 6 of the Land Acquisition and Compensation Act 1986 (‘the Land Acquisition and Compensation Act’).

This requirement is quite general and requires vendors to think carefully about government proposals that may affect the land they plan to sell.

Questions for consultation:

  • Is section 32(2)(e) too general in its application?
  • What is the phrase ‘affecting the land’ taken to mean in practice? Should this be stronger and related to land use or title?
  • Can vendors be reasonably expected to have knowledge of reports and recommendations?
  • Should the test be stronger and relate to notices, orders and declarations of which the vendor has notice or has been served?

Land acquisition

The Land Acquisition and Compensation Act enables government authorities to acquire land for public purposes. This may involve acquisition of the title to all or a portion of the land.

Section 32(5A) of the Sale of Land Act gives a purchaser a right of rescission where:

  • a notice of intention to acquire land has been served under section 6 of the Land Acquisition and Compensation Act; and
  • the land is subject to a contract of sale.

The purchaser may rescind the contract at any time before the purchaser accepts title and becomes entitled to possession or to the receipt of rents and profits.

The right of rescission arises irrespective of whether or not the vendor has provided information in the vendor statement about the existence of a notice of intention to acquire land.

Therefore, despite the vendor having disclosed the existence of a notice of intention to acquire land in the vendor statement, the purchaser can still rescind the contract at any time before accepting title.

Section 12 of the Land Acquisition and Compensation Act prevents the sale of any land that is subject to a notice of intention to acquire without the consent of the government authority that is planning to acquire the land.

Questions for consultation:

  • A purchaser can rescind any contract for land that is subject to compulsory acquisition – should this continue?
  • Given the strong rescission rights that apply irrespective of whether there has been disclosure, is there a need to disclose the notice under section 6?

Agricultural and veterinary chemicals contamination

Section 32(2)(i) of the Sale of Land Act requires vendors to provide details of any current land use restriction notice given in relation to the land under the Agricultural and Veterinary Chemicals (Control of Use) Act 1992 (‘the Agricultural and Veterinary Chemicals (Control of Use) Act’) due to contamination.

The Agricultural and Veterinary Chemicals (Control of Use) Act enables land use restriction notices to be issued that regulate the growing of plants or keeping of stock on land, in circumstances where it is likely the resulting plants or stock could be contaminated. Such notices may prohibit the growing of plants or keeping of stock on the land completely or permit it subject to certain conditions.3

Section 51 of the Agricultural and Veterinary Chemicals (Control of Use) Act enables details of land use restriction notices to be disclosed on application. However, this can only occur with the consent of the landowner. There are no other disclosure requirements under that Act in relation to land use restriction notices.

Questions for consultation:

  • Is such specific disclosure of contaminated agricultural land still required?
  • Are these notices easy for a potential purchaser to obtain?
  • Could land use restriction notices form part of a general disclosure of notices affecting the land?

5.4 Warnings to prospective purchasers

Warnings in the vendor statement to potential purchasers were first introduced in 1989 with a warning about planning and building controls. Since then, the number of warnings has grown to include commercial agricultural production, the growth area infrastructure contribution (‘GAIC’) and the availability of essential services. More detail about the agricultural, GAIC and planning warnings are provided below while the essential services warning is discussed at section 5.6.

All these warnings are designed to prompt prospective purchasers to consider carefully whether the land they plan to purchase is suitable for their needs and the nature of the surrounding area. None of the warnings requires the vendor to disclose any information that is particular to the title of the land being sold. Rather these warnings are generic in nature, and aim to put responsibility back on to the purchaser to undertake investigations prior to purchase.

Each warning states that it is in the purchaser’s interest to undertake an investigation or obtain advice before committing to the purchase. The warnings must be included in all vendor statements, irrespective of whether the warning is applicable to the land being sold.

Questions for consultation:

  • Given that these warnings do not disclose information specific to title:
    • is the vendor statement an appropriate place for the placement of these warnings?
    • should these warnings form part of the contract of sale?
    • should the absence of one of these warnings from a vendor statement lead to rights of rescission?
  • Are these warnings effective in raising awareness in potential purchasers about issues they should be considering before purchasing land in a particular area?
  • Are there other ways in which a potential purchaser could be warned to make their own inquiries before purchasing a property?

Planning and building controls warning

As a result of section 32(2)(ca) of the Sale of Land Act, the following warning must be inserted in all vendor statements:

‘Important notice to purchasers:

The use to which you propose to put the property may be prohibited by planning or building controls applying to the locality or may require the consent or permit of the municipal council or other responsible authority. It is in your interest to undertake a proper investigation of permitted land use before you commit yourself to buy.’

This generic warning applies in addition to specific requirements to disclose information about planning instruments that directly affect the land being sold.

Questions for consultation:

  • Are inquiries commonly undertaken by potential purchasers about land use controls that apply to a particular property?
  • Is this warning necessary or do requirements to disclose planning information specific to the property provide sufficient disclosure?

Commercial agricultural production activities warning

Under section 32(2)(cb) of the Sale of Land Act the following warning must be included in all vendor statements:

‘Important notice to purchasers:

The property may be located in an area where commercial agricultural production activity may affect your enjoyment of the property. It is therefore in your interest to undertake an investigation of the possible amenity and other impacts from nearby properties and the agricultural practices and processes conducted there.’

The effect of this warning is to raise awareness in people who are considering moving into an agricultural area that such areas may be affected by noise and smells. The rationale is that purchasers who are aware of the amenity impacts before buying a property are less likely to lodge noise and odour complaints once they have bought into the area.

However, the warning is generic and does not provide any specific information for a particular property about nearby agricultural practices. In addition, there is no requirement placed on potential purchasers to acknowledge that they are moving into an area with agricultural land uses.

Questions for consultation:

  • Is this warning effective?
  • Do potential purchasers of agricultural land commonly undertake investigations of the nearby agricultural practices and processes when deciding whether to buy a particular property?
  • Are there alternative options for increasing awareness in potential purchasers of agricultural land of the amenity and other impacts from commercial agriculture?

Growth areas infrastructure contribution warning

Under section 32(2)(da) of the Sale of Land Act the following warning must be included in all vendor statements:

‘Important notice to purchasers:

You may be liable to pay a growth areas infrastructure contribution when you purchase this property. The instrument of transfer cannot be lodged for registration with the Registrar of Titles until the contribution is paid in full or an exemption from, or reduction of, the whole or part of the liability to pay the contribution is granted and any remainder of the contribution is paid or there has been a deferral of the whole or part of the liability to pay the contribution or an approval has been given for a staged payment of the contribution. The transfer may also be exempted from a growth areas infrastructure contribution in certain situations. It is in your interest to obtain advice as to any potential liability before you commit yourself to buy.’

A GAIC applies to land in Melbourne’s Urban Growth Boundary (‘UGB’), which is zoned for urban development, and is levied to raise funds to contribute to the cost of State infrastructure required for the development of land in growth areas. A GAIC is only imposed once and can apply when a piece of land is sold or transferred; or is subdivided; or if a building permit is applied for.

Questions for consultation:

  • Should this warning be limited to land being sold in the UGB only?
  • Are potential purchasers buying in the UGB aware that a GAIC may be levied?
  • Do potential purchasers regularly obtain advice about GAIC liability before purchasing land?

5.5 Other GAIC disclosure - work-in-kind agreements

In 2011, the Government introduced the work-in-kind (‘WIK’) agreement system to provide greater flexibility for payment of a GAIC. A WIK agreement enables a person to meet part or all of their GAIC by transferring land to the Government or carrying out works in lieu of making a cash payment.

Under section 201SLD of the Planning and Environment Act 1987 (‘the Planning and Environment Act’), a term can be included in a WIK agreement that restricts the land from being sold without the consent of the Minister for Planning.

Section 201SLH of the Planning and Environment Act requires the Minister for Planning to apply to the Registrar of Titles to record a WIK agreement on any folios in the Register relating to the land affected by the WIK agreement. On making the recording on title, the burden of any covenant in the agreement runs with the affected land.

The existence and nature of a WIK agreement is recorded on the title of the property to which the GAIC payment relates, and on the title of land that the agreed works will be carried out (even if that land does not have a GAIC liability).

This ensures that performance on the agreement can be secured from the subsequent landowner. Recording the WIK agreement on title also ensures that public disclosure obligations are satisfied by ensuring that any person considering purchasing the land is aware of the WIK agreement and its obligations.

Section 32(db) of the Sale of Land Act requires a vendor to disclose whether the land for sale is to be transferred under a WIK agreement, or is land on which works are to carried out under a WIK agreement or is land in respect of which a GAIC is imposed.

At the time the Sale of Land Act was amended it was stated that this would provide better public disclosure around the existence of staged payment approvals and WIK agreements affecting the land being sold.

If land or works committed to in a WIK agreement are not delivered in accordance with agreed standards and timelines, the outstanding GAIC liability becomes a charge on the land.

It will therefore be possible for any prospective purchaser to determine what liability is outstanding under the agreement and to take this into account in determining how much they are willing to pay for the property. Where a WIK agreement proposes the transfer of another parcel of land, the existence and nature of the WIK agreement will also be noted on the title of that land.

As these disclosure requirements have been in place since mid-2011, it may be difficult for stakeholders to make comments at this stage.

However, Consumer Affairs Victoria still encouraged comments on this aspect of the vendor statement.

5.6 Essential services

There are three separate requirements on vendors to disclose information about essential services connected to the land for sale.

Firstly, vendors are required to disclose whether or not the land for sale is connected to electricity, gas and water supply, as well as sewerage and telephone services. The vendor must provide details of the authorities supplying connected services.

Secondly, vendors must provide further information if connected water supply or sewerage services are not of the standard level available in the locality. Section 32(2)(eaa) of the Sale of Land Act provides that in such cases, particulars of the level of service provided must be included in the vendor statement.

Finally, under section 32(2)(eb) of the Sale of Land Act, a vendor must also provide a general warning to purchasers to investigate the availability and costs of providing any essential services that are not currently connected to the land.

These elements work together to provide a potential purchaser with disclosure about essential services that are connected including particular essential services that are connected but not up to standard.  While vendors must also disclose essential services that are not connected, they are only required to warn purchasers to investigate the costs of connecting additional essential services.

Questions for consultation:

  • Is this information easily obtainable by potential purchasers through other means?
  • Should disclosure about essential services be limited to services that are not connected to the land?
  • Is the warning effective in prompting potential purchasers to seek out further information about the cost and availability of unconnected essential services?

5.7 Road access

Section 32(2)(ec) of the Sale of Land Act states that if there is no access to the property by road, this must be disclosed in the vendor statement. This is one of a raft of amendments introduced in 1989 following disreputable practices by some rural developers, including selling blocks of land with no road access.

Questions for consultation:

  • Is road access an issue that still requires a level of mandatory disclosure?
  • Are there ways for potential purchasers to view blocks of land (e.g. satellite imagery, maps and terrain) without the need for specific disclosure?
  • Should this requirement be limited to rural areas only?

5.8 Additional matters to be disclosed for land with a residence

Currently there are additional requirements on vendors to disclose information if they are selling land with a residence. These requirements have been in place since 1987, when section 32 was amended to require a separate vendor statement to be prepared for a contract for the sale of land on which there is a residence.

Each of these particulars is discussed in further detail below.

Particulars of building permits

Originally, vendors were required to provide purchasers with a signed statement giving particulars of any building approval granted in the preceding seven years in relation to a building on the land.  Additional amendments were made in 1997 to include the giving of particulars of any building permit under the Building Act 1993 (‘the Building Act’) in the preceding seven years in relation to a building on the land.

While this requirement may be used to assist prospective purchasers to identify illegal structures on the property, there is no specific requirement placed on vendors to disclose illegal structures on the property. In addition, the obligation to disclose permits does not extend to an obligation on the vendor to disclose if the building works have been completed in accordance with the permit requirements.

Questions for consultation:

  • Should vendors disclose the particulars of building approvals and permits?
  • Are there alternative ways to access this information?

Residences constructed by owner-builders

Section 32(1A)(b) and (1A)(c) of the Sale of Land Act place additional disclosure requirements on a vendor if a contract for the sale of land contains a residence that has been constructed by an owner-builder. These requirements differ depending on whether the residence falls under the requirements of the House Contracts Guarantee Act 1987 (‘the House Contracts Guarantee Act’) or the Building Act.

Requirements under the House Contracts Guarantee Act 1987

The House Contracts Guarantee Act contains provisions to ensure that dwelling-houses are not sold without the appropriate guarantees being in place.

Under section 5(1A) of the House Contracts Guarantee Act it is an offence for a person to enter into a contract to sell a dwelling-house without having a guarantee or conditional certificate of guarantee in place before the end of the applicable guarantee period.4

Section 5(2) of the House Contracts Guarantee Act states that a contract entered into in contravention of section 5(1A) is not void by reason only of the contravention but it is voidable at the option of the purchaser at any time before completion of the contract or within 60 days after entering into the contract, whichever is the earlier.

Requirements under the Building Act 1993

Section 137B of the Building Act requires a person who constructs a building, and then seeks to sell it, to be covered by sufficient insurance and to provide a certificate evidencing the existence of that insurance to potential purchasers prior to signing a contract for sale.

Section 137B(2) of the Building Act states that it is an offence for an owner-builder to enter into a contract to sell a building they have constructed unless the owner-builder has the required insurance and has provided the purchaser with a certificate evidencing the existence of that insurance. It should be noted that section 137B(3) of the Building Act states that a contract entered into in contravention of section 137B(2) is not void by reason only of the contravention but is voidable at the option of the purchaser at any time before completion of the contract.

Questions for consultation:

  • What benefits do purchasers receive from the current level of disclosure?
  • Do these requirements duplicate requirements under the Building Act and the House Contracts Guarantee Act to provide certain information to potential purchasers prior to sale?
  • Given that the House Contracts Guarantee Act and the Building Act provide purchasers with the option to void a contract of sale, is there a need for separate rescission rights to attach to non-disclosure of particulars of guarantees and insurance?

6. Certificates and documents

Under sections 32(3) and (3A) of the Sale of Land Act, a vendor must attach certain certificates and other documents to both the vendor statement and contract of sale.  These documents include:

  • evidence of the vendor’s title to the land and in some cases, evidence of the vendor’s power to sell the land on behalf of the registered proprietor or owner of the estate in fee simple;
  • copies of relevant subdivision plans if the land for sale is the subject of a subdivision;
  • copies of relevant GAIC certificates and notices including certificates outlining deferrals, exemptions and release from liability to pay a GAIC; and
  • a copy of the current owners corporation certificate and a copy of the owners corporation rules; advice and information to prospective purchasers and lot owners; a copy of all resolutions made at the last annual general meeting; and a statement advising that further information can be obtained by inspecting the owners corporation register.

As outlined in section 3 of this discussion paper, the review is interested in the extent to which these certificates are readily obtained by potential purchasers, and the associated transaction costs arising from any duplication of certificates. As one of the key policy rationales for vendor disclosure is the difficulty of a potential purchaser’s access to information, the review is also interested in information relating to the ease with which such certificates can be obtained through online searches by potential purchasers, and the extent to which potential purchasers already obtain that information on their own behalf

It should be noted that section 32(4) of the Sale of Land Act states that it is sufficient compliance with certain requirements of the vendor statement to attach a certificate containing that information, which has been issued by the relevant authority, to the vendor statement or to the contract. This requirement only applies to planning instruments, rates, taxes, charges and outgoings and notices, orders, declarations and reports issued by government.

Questions for consultation:

  • Does the supply of these certificates afford particular benefits to potential purchasers and costs to vendors and their representatives?
  • Are any of these certificates and documents easily obtainable by a prospective purchaser, and what are the cost implications for the purchaser?
  • Do any of these documents duplicate other information required in the vendor statement?
  • Do potential purchasers benefit from receiving additional owners corporation documents such as a copy of the rules, and recent resolutions in addition to the owners corporation certificate?
  • Do conveyancers or solicitors acting for potential purchasers tend to obtain separate copies of these certificates or do they rely solely on certificates supplied by the vendor?
  • Would there be benefit in directing potential purchasers to websites where some of these certificates could be viewed online?
  • What are the likely cost implications for purchasers if vendors were no longer required to disclose certificates under section 32 (i.e. would this result in the costs being transferred from the vendor to the purchaser)?
  • Is section 32(4) relied upon often in the preparation of vendor statements?
  • Would there be benefit in extending the operation of section 32(4) to other matters required for a vendor statement?

7. Rights of rescission

If a vendor supplies false or incomplete information in a vendor statement, the purchaser may be able to rescind the contract in certain circumstances. A purchaser’s capacity to rescind is impaired if the vendor demonstrates that he or she acted honestly and reasonably and that the purchaser is substantially in as good a position as if the information had been correctly supplied or was complete.

Where a vendor knowingly or recklessly supplies false information or fails to supply all the required information for a vendor statement, the vendor may also be prosecuted, and liable for a penalty of up to 50 penalty units (currently a maximum of $7,042).

Under section 32(5) of the Sale of Land Act, where a vendor:

  • supplies false information to the purchaser in the statements or certificates required to be provided; or
  • fails to supply all the information required to be supplied in the statements or certificates required to be given;

the purchaser may rescind any contract for the sale of the land that has been entered into on the basis of that information at any time before he or she accepts title and becomes entitled to possession or to the receipt of rents and profits.

Rights of rescission apply to false or incomplete information provided in both the vendor statement and any certificates required to be given by the vendor.

In addition, section 32(5A) of the Sale of Land Act allows a purchaser to rescind a contract of sale where a notice of intention to acquire land has been served under the Land Acquisition and Compensation Act. As discussed in section 5.3, a purchaser can exercise this right of rescission irrespective of whether the vendor has disclosed the notice as part of the vendor statement.

This review is interested in the costs vendors may incur as a result of the presence of rescission rights, and whether these costs are mitigated by the test under section 32(7) of the Sale of Land Act. This test prevents the purchaser from rescinding a contract of sale if the vendor satisfies the court that he or she has acted honestly and reasonably and ought to be excused for the contravention, and the purchaser is substantially in as good a position.

Questions for consultation:

  • In practice, have purchasers been successful in rescinding contracts of sale because of incomplete disclosure or where false information was provided?
  • Should the rights of rescission be expanded or limited?
  • Are there matters currently required to be disclosed by vendors that would be better dealt with through additional rights to compensation rather than rescission?
  • Are there matters for which non-disclosure should trigger an automatic right of rescission without the test under section 32(7) applying?
  • Is the test under section 32(7) working to reduce the number of technical or immaterial claims by purchasers?
  • Does the current offence and maximum penalty act as a deterrent to the provision of false information or failing to supply all relevant information?

8. Alternative approaches

The review will also explore alternative approaches to vendor disclosure, to ascertain whether an alternative approach could lead to reductions in costs while improving disclosure.

Potential alternative approaches put forward for early consideration and comment:

  • relying on vendor warranties established as part of the contract of sale, and requiring only the exceptions to those general warranties to be disclosed as part of a vendor statement as is the case in New South Wales. The standard form contract already provides vendor warranties5, which replace the purchaser’s right to make requisitions on title. These warranties are subject to any contrary provisions in the contract and disclosures in the vendor statement;
  • requiring warnings about the nature of particular land areas or land uses to be included with information when a property is first advertised for sale;
  • prescribing details of vendor disclosure through the Sale of Land Regulations 2005 rather than in the Sale of Land Act to enable regular consideration of the effectiveness of such disclosure and the associated costs and benefits.

Questions for consultation:

  • Do you have any views on alternative approaches that could be used to improve the effectiveness of vendor disclosure while reducing the costs to vendors?

Footnotes:

  1. Sale of Land (Amendment) Bill, 14 September 1982, Hansard, page: 223.
  2. Sale of Land (Amendment) Bill, 24 May 1989, Hansard, page: 1949.
  3. See section 50 of the Agricultural and Veterinary Chemicals (Control of Use) Act 1992
  4. The applicable guarantee period in relation to domestic building work, means the period of 7 years from the time when the contract for the performance or the management or supervision of the performance of that work was entered into or building approval was granted for that work, whichever occurred first.
  5. Under the standard form contract, the vendor warrants that he or she has the right to sell the land; is not under a legal disability; is in possession of the land, personally or through a tenant; has not created a proprietary interest in the land that has priority over the purchaser’s interest; at settlement will be the holder of an unencumbered estate in fee simple in the land and the unencumbered owner of any improvements, fixtures, fittings and goods; and has no knowledge of any public rights of way over the land, easements, leases or other possessory agreements affecting the land, or notices or orders affecting the land or legal proceedings which would render the sale void or voidable or capable of being set aside.

Survey

Consumer Affairs Victoria released a survey as part of the review of section 32. This survey closed on 20 December 2012.

Submissions

Last updated: 23/01/2014

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