Vendors in real estate transactions are motivated to have their deposits released as early as possible. This motivation is particularly strong in relation to sales of high-value development sites, which are often sold on terms where settlement may be scheduled many years into the future.
A recent decision of the Victorian Supreme Court[1] has confirmed a special condition seeking to modify the operation of the deposit release rules set out in section 27 of the Sale of Land Act 1962 (Vic) (the Act), and which required the purchaser to automatically consent to the early release of the deposit within 5 business days of receipt of the vendor’s request was void.
Facts
The plaintiff (the purchaser) and the defendant (the vendor) entered into a contract of sale (the contract), pursuant to which the plaintiff agreed to purchase a development site from the vendor for $176,000,000. The purchaser paid a deposit of $17,600,000.
Under the contract, settlement was to occur on the earlier of the rezoning of the land, or 13 September 2028.
The contract included the following special condition:
- The Purchaser must, within 5 Business Days of receipt, sign, date and return any statement given under section 27 of the Sale of Land Act which complies with General Condition 12(a).
On 25 July 2022, the vendor sent the purchaser a section 27 statement (the s 27 statement) which contained the particulars required by s 27(3) of the Act.
On 1 August 2022, the purchaser sent the vendor a notice under s 27(6) of the Act stating it was not satisfied with the particulars in the s 27 statement and would not authorize the release of the deposit.
On 19 August 2022, the vendor sent a rescission notice (the rescission notice) relying on the purchaser’s failure to sign, date and return the s 27 statement as required by special condition 4.8.
Upon receipt of the rescission notice, the purchaser commenced the proceeding seeking declarations that the rescission notice was void, and further, that it was not in default of special condition 4.8.
The Decision
A. Did the purchaser breach special condition 4.8?
His Honour Justice Riordan held:
- special condition 4.8 required the plaintiff to sign and return the s 27 statement providing the statement complied with general condition 12;
- general condition 12.1(a) contemplated the release of the deposit on the provision of stipulated particulars ‘to the satisfaction of the purchaser’;
- the obligations under special condition 4.8 on the purchaser to sign, date and return the s 27 statement only arose if the particulars were to the satisfaction of the purchaser; and
- because the purchaser had notified the vendor that it was not satisfied with the particulars in the s 27 statement, the obligation in special condition 4.8 to sign, date and return the statement did not arise.
B. Is there an implied requirement of ‘reasonableness’ in s 27(6) of the Act?
His Honour rejected the vendor’s submission that that the purchaser’s lack of satisfaction with the particulars specified in the s 27 notice was subject to an implied requirement of reasonableness, citing McEwan v Theologegis & Anor[2], where it was held:
Section 27(4) concerns itself with whether “the purchaser is satisfied”, not whether “a reasonable purchaser would be satisfied” or “the purchaser is satisfied on reasonable grounds”. Subsection (6) is likewise concerned with the situation where “the purchaser is not satisfied”. It does not matter that the purchaser may be proceeding on erroneous facts or assumptions; only that he or she be satisfied or not satisfied of the relevant matters.
C. Was the special condition void under s 28 of the Act?
Section 28 of the Act provides:
- Where any contract for the sale of land contains provisions in contravention of this Division –
- those provisions shall be void and of no effect; and
- the contract shall be voidable by the purchaser at any time before completion and any person who had paid under the contract shall be entitled to recover it.
Riordan J found that by conferring on the vendor additional rights for the release of the deposit which diluted the protection provided by s 27, the clause was in contravention of the Division, and therefore void under section 28(1).
In reaching that conclusion, His Honour had reference to the fact that:
- under s 27, the only consequence of a failure to respond to a notice issued under s 27(3) is a deemed authorization for the release of the deposit;
- under special condition 4.8, failure to respond was a breach of contract entitling the vendor to exercise rights under the contract’s default provisions; and
- the contract could have been terminated by the vendor under special condition 4.8 prior to the expiry of the ordinary 28 day response period, effectively permitting the vendor to circumvent the scheme.
Key takeaways
This decision serves as a useful reminder for vendors, purchasers and professional advisers in the property space. Creative drafting that modifies the operation of the statutory deposit scheme will likely be void.
Purchasers should ensure they understand:
- their rights under ss 27 and 28 of the Act, as well as any potential risks, so that an informed decision regarding whether to release the deposit can be made;
- that a failure to respond to a notice given under section 27(3) within the 28 day time period will allow the deposit to be released; and
- there is no requirement that a notice issued under s 27(6) be made on reasonable grounds, only that the reasons given for the lack of satisfaction be referable to the matters listed in s 27(4).
While it was not an issue in this case, there are potentially disastrous consequences for vendors under s 28(1)(b) of the Act, which permits a purchaser to walk away and recover all moneys paid under a contract in circumstances where a contract contains provisions in contravention of Division 3 of the Act, which concerns treatment of deposits.
Please contact Pointon Partners’ disputes or property lawyers with any query in relation to this article.
[1] GLP Batesford Holdings Pty Ltd v 68 Bridge Road Land Pty Ltd [2022] VSC 614.
[2] [2004] VSC 244 at [27].
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