In Lockwood v PSP Investments Pty Ltd [2013] VSC 10, the Victorian Supreme Court recently confirmed that an amendment to the plan of subdivision contained in an off-the-plan contract need not be ‘adverse’ or ‘affect rights deleteriously’ to materially affect a lot and give the purchaser a right to terminate the contract.

This case provides further guidance as to the basis on which a purchaser may rescind an ‘off-the-plan’ contract where the vendor amends the plan of subdivision in a way which will “materially affect the lot to which the contract relates”. It also demonstrates the Court’s continuing shift toward protection of “vulnerable purchasers”.

FACTS

In January 2010, Lockwood (the purchaser) entered into eight separate off-the-plan contracts of sale with PSP Investments Pty Ltd (the vendor) to purchase lots in a development in Windsor called Ecosquare. Four contracts related to apartments and four contracts related to car parks. At the day of sale, the plan of subdivision was unregistered.

After the contracts were signed and the deposits were paid by the purchaser, the proposed plan of subdivision was amended due to Local Council requirements. Consequently, the car parks were converted to common property and other amendments were also made to the plan of subdivision which increased the common property and varied the lot liabilities and entitlements of the apartments in the development.

The vendor did not notify the purchaser of the changes to the plan of subdivision until after the plan of subdivision was registered. The purchaser sought to rescind each of the four apartment contracts on the basis that the amendments to the plan of subdivision would “materially affect the lot to which the contract relates” under section 9AC of the Sale of Land Act 1962 (Vic). The car parks no longer existed and were no longer available for sale. Accordingly, the purchaser demanded a refund of the deposits that it had paid in respect of all eight contracts. When the vendor refused to refund the deposits paid in respect of the apartment lots, the purchaser brought an application to establish that the contracts were validly rescinded pursuant to section 9AC(2) of the Act and for the return of the deposits under section 9AF of the Act.

ISSUE

The issue before the Supreme Court was whether the amendments to the Plan materially affected the lot, and therefore entitled the purchaser to rescind the apartment contracts under section 9AC(2) of the Act.

The defendant argued that the deletion of the car parks did not materially affect the apartment lots. It stated that the ‘substance of what had been contracted for’ had not been altered by the amendments and, therefore, Lockwood had no right to rescind.

The plaintiff argued that the increase in common property and associated owners corporation entitlements materially affected the apartment lots. Moreover, the deletion of the car parks had materially changed the essential elements of the scheme as a whole. Also, the apartment contracts should be considered as connected to the car park contracts.

DECISION

The Supreme Court decided:

  • For an amendment to a plan of subdivision to materially affect a lot, there is no requirement in section 9AC(2) of the Act that the amendment needs to be deleterious, or adversely affect the lot or the rights of the purchaser, in order to give the purchaser the right to rescind.
  • When considering the impact of the amendment, the car park and apartment contracts should be considered together, as both parties would have understood that the car parks were purchased for use with the apartment lots, and that the car park lots enhanced the value to the purchaser of each apartment.
  • In essence, the transaction as a whole was for four packages of an apartment and car park.
  • Even if the contracts were to be considered in isolation, the amendments materially affected the apartment lots both by removing the car park lots and by increasing the common property. Consequently, this lead to a substantial change to the bundle of rights and lot entitlements/liabilities of each apartment lot owner.

 
The Supreme Court ultimately held that the deletion of the car park lots and the defendant’s inability to complete those contracts materially affected the apartment lots. Thus, the court concluded that Lockwood had validly rescinded each apartment contract pursuant to s 9AC(2), and ordered that the apartment deposits be returned to Lockwood pursuant to s 9AF of the Act.

IMPLICATIONS

This decision highlights the importance of timing for developers and the need for plans of subdivision to be finalised as much as possible prior to entering into contracts of sale.

It seems that the Supreme Court of Victoria will support rescinding purchasers when the Plan of Subdivision is altered. Accordingly, amendments to plans, whilst at times unavoidable, should therefore be kept to a minimum, especially in relation to changing lot entitlements and common property, and should be communicated to Purchasers in writing as soon as possible following a proposed amendment and prior to registration of the plan of subdivision.

Developers will need to take care to ensure that they comply with the relevant provisions of the Sale of Land Act 1962 if there are any changes being made to a Plan of Subdivision between a sale off-the-plan and the registration of the relevant Plan.

In order to determine whether a propose amendment will materially affect a lot, developers should:

  • consider the affect of the amendment on the project as a whole and whether it changes the context in which the purchaser entered into the contract;
  • note that changes to common property and lot entitlement/liability can be treated as materially affecting lots; and
  • remember that even changes which are arguably beneficial to purchasers can be found to materially affect lots and create rescission risk.

 
POINTON PARTNERS

Our dedicated property services team can assist with the full spectrum of your property development needs, including:

  • acting in complex negotiations for sales and acquisitions of development sites and sale documentation;
  • preparing off-the-plan contract documentation and managing high volume off-the-plan sales;
  • property joint ventures, development management, project management and consultancy agreements;
  • property syndications and managed investment schemes;
  • finance issues including security and mezzanine debt financing arrangements;
  • assisting with property and contract due diligence investigations;
  • advising on Capital Gains Tax, GST, stamp duty and land tax issues affecting property transactions;
  • assisting with the planning process including permit applications and rezoning;
  • facilitating  subdivision, including liaising with surveyors, planning authorities, financiers and land registry;
  • fixed fee conveyacing & contract administration;
  • security issues; and
  • dispute  resolution.

 
If you have any further queries, please contact our office on 03 9614 7707.
[email_link]