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Securing presales is a critical aspect of any property development project – but that’s only half the battle. The trick is making sure they settle.

Long construction lead times and project delays mean settlement may not occur until up to several years after a purchaser signs a contract. The occurrence of an economic downturn during that time or a change in the purchaser’s circumstances may cause the purchaser to seek to avoid their contract.

A purchaser has various bases for avoiding their contract. One such basis that is becoming an increasingly common cause for dispute between purchasers and vendors is in respect of variations to the plan of subdivision prior to settlement.

Section 9AC of the Sale of Land Act 1962 (Vic) deals with what happens if the plan of subdivision has to be amended. It provides that the purchaser may rescind their contract at any time prior to settlement where an amendment “materially affects the lot to which the contract relates”.  This section is critical to off the plan sales.

Recent Court decisions have demonstrated the Court’s continuing shift toward protection of “vulnerable purchasers” in property transactions and emphasises the narrow scope for a developer to amend a plan of subdivision prior to settlement without jeopardising existing contracts.

While there is no definitive answer as to what constitutes a ‘material’ change, leading cases in this area have provided some guidance. It is important for developers to be aware of the following:

  • An amendment which does not adversely affect a purchaser, and objectively benefits them, may still be considered a ‘material’ change that gives the purchaser a right to terminate.
  • An amendment does not need to necessarily affect the physical lot in order for it to be considered material. A purchaser’s rights and entitlements associated with ownership of a lot cannot be separated and thus, a change to a purchaser’s lot entitlement and liability, including changes to common property may materially affect the lot.
  • Changes which may be seemingly minor or insignificant may still be considered ‘material’.
  • The Courts have held that in assessing materiality, the whole development and the context of what the purchaser has invested in, including the development scheme and arrangements, must be taken into account. In particular, the Courts consider it artificial to look at each contract on a standalone basis when considering the impact of any amendment

To avoid settlement risk, developers/vendors should ensure plans of subdivision are finalised as much as possible prior to entering into contracts of sale.  Any subsequent changes should be kept to a minimum wherever possible. Additionally, if changes must be made, legal advice should be sought before implementing them to ensure all statutory requirements are complied with.  The contract of sale used to secure presales should be carefully drafted to ensure loopholes that purchasers can exploit are avoided and the vendor has sufficient flexibility to make any necessary amendments, subject to the statutory rights of the purchaser.

Written by:

Ted Vlahos, Director – Pointon Partners Lawyers

Krysten Laletas – Pointon Partners Lawyers

Pointon Partners is a leading provider of property related legal services to the property sector and a proud member of the Property Council of Australia. It is currently handling a broad range of Victorian property development projects.

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