A decision of the Victorian Supreme Court[1] handed down on 9 August 2021 has highlighted the rights of off-the-plan purchasers to rescind contracts pursuant to s 9AC(2) of the Sale of Land Act 1962 (Act) when changes are made to the proposed plan of subdivision after the contract is signed and which materially affect their lot.
Why is this case important?
It is common-place in the period between signing the contract and settlement for changes to the plan to occur. Such changes can occur for numerous reasons (for example changes required by council, or by structural engineers) and in many cases may seriously impact the amenity and value of a particular lot.
Purchasers should carefully review any amendments to the proposed plan, including seeking professional advice where appropriate, to ensure they identify any changes and understand their options.
Similarly, developers should understand the potential consequences of making amendments to a plan, in order to appropriately manage risk and avoid potentially costly disputes.
Purchasers and developers alike must be aware that special conditions included in off-the-plan contracts, for example those that seek to define what is and is not a material amendment to a proposed plan, are void. Whether a lot is materially affected by a change to the plan is solely for the Court to determine.
Purchasers should not rely on s 9AC(2) without seeking appropriate professional advice as getting it wrong may have serious consequences. Associate Judge Matthews’ judgment makes it clear she would not have exercised her discretion to order return of the purchasers’ deposits had she decided the amendments were immaterial.
The law
A vendor must advise a purchaser under an off-the-plan contract of an amendment to a proposed plan of subdivision within 14 days.
Where the proposed amendment will ‘materially affect’ the purchaser’s lot, a purchaser can rescind the contract within 14 days of being advised of the proposed amendment pursuant to s 9AC(2) of the Act and is entitled to the immediate refund of the deposit pursuant to s 9AF(1) of the Act.
Whether a proposed amendment ‘materially affects’ a lot is determined on a case by case basis and is not ‘black and white’.
Facts
The plaintiffs (purchasers) were purchasers of apartments in a development being undertaken by the defendant (developer) at West Footscray. The apartments were purchased ‘off-the-plan’.
The contracts were signed and deposits paid in early 2018. In 2021 the developer’s solicitors sent the purchasers an amended plan of subdivision (Amended Plan).
The plaintiffs alleged the Amended Plan resulted in, among other things:
- A reduction in size and change in shape of the master bedroom in each lot (which were directly on top of each other on the ground and first floors of the development);
- A reduction in size of a ‘light court’ resulting in a reduction of available natural light in the master bedrooms of lot;
- A reduction in common property available to each of the lots, following a creation of a reserve to be vested in the council;
- The transfer of certain common property from an owners’ corporation the purchasers were members of, to one that they were not; and
- Changes to the car-parking arrangements for the apartments.
After receiving the Amended Plan, the purchasers wrote to the developer’s solicitor rescinding the contracts pursuant to s 9AC(2) of the Act.
The developer refused to accept that the purchasers were entitled to rescind the contracts and refused to return the deposits.
The purchasers then issued proceedings pursuant to s 49(1) of the Property Law Act 1958 (PLA) asking the Court to determine whether the contracts had been validly rescinded.
The outcome
The Court considered each change shown in the Amended Plan individually.
A. Changes to the size and shape of master bedroom
It was common ground that the size of the master bedrooms had been reduced in the Amended Plan. The developer’s evidence was that this was necessary to accommodate a structural wall that was not included in the original plan which had been based on architectural, rather than structural drawings. This reduced the overall size of the lots from approximately 95m2 to 91m2, a reduction of approximately 4.4%.
Each of the contracts included the following, relatively common, special condition (as well as other developer-friendly special conditions permitting amendments to be made to the plan):
7.6 Purchaser’s acknowledgment
The purchaser acknowledges and agrees that an amendment made to the Plan which alters the area of the property by 5% or less will not be regarded as an amendment which materially affects the property.
Prior to the trial, the developer’s solicitor conceded:
- to the extent that SC 7.6 sought to preclude the Court’s consideration of materiality of the changes shown in the Amended Plan, it was void pursuant to s 14 of the Act; and
- the acknowledgment itself was irrelevant as it is for the Court to determine the materiality of any changes the plan.
Nevertheless, the developer maintained that the reduction in size did not materially affect the lot, relying on previous cases[2] and asserting that a reduction in size which did not exceed 5% was ‘tolerable’.
After consideration of all of the evidence (and in particular a comparison of the original and Amended Plans), Her Honour Associate Justice Matthews held:
If the overall reduction in size to the subject property is at least 4 m2, it is also apparent that this size reduction applies exclusively, or at the very least mostly, to the size of the master bedroom. A reduction in size of that amount, to a master bedroom that could hardly be described as palatial prior to the change, is clearly material.
Accordingly, the reduction in size of the master bedroom was sufficient to enable the purchasers to rescind the contracts.
B. ‘Light court’ amendments
The purchasers contended that the size of a ‘light court’ through which natural light would come into the master bedroom had also been reduced in the Amended Plan. Her Honour agreed and found that, combined with the change in shape of the master bedroom, this would result in reduced natural light.
Her Honour again held that these changes materially affected the purchasers and entitled them to rescind the contracts.
C. Council reserve amendments
The Amended Plan showed the creation of a council reserve on land which had been common property in the original plan. The developer’s evidence was that during the construction process, the council had agreed to take over responsibility for the relevant land, which was previously the subject of a drainage easement, with it being excised from the title and vested in council.
Again, the developer did not dispute the plan had been amended, only that changes did not materially affect the purchasers’ lots.
Her Honour disagreed, holding that the ‘lack of exclusivity alone’ resulting from the creation of the Council reserve materially affected the purchasers’ lots and consequently, they could rescind the contracts.
D. OC2 amendments
The Amended Plan showed a newly created and relatively small roof terrace which was shown as ‘Common Property 2’ (Roof Terrace) for the benefit of members of OC2. The purchasers were not members of OC2. In the original plan, the Roof Terrace was shown as ‘Common Property 1’ for the benefit of OC1. The purchasers were members of OC1.
The developer asserted that at the time the contracts were signed the Roof Terrace was intended to be inaccessible, but during the construction process was converted and made accessible to members of OC2 exclusively. The lots having access to the Roof Terrace were occupied by participants in the National Disability Insurance Scheme.
The developer’s position was that because the Roof Terrace was initially going to be inaccessible to any residents, the changes were not material.
The purchasers contended that the purchasers (and other members of OC1) had been materially affected by the loss of use of the Roof Terrace (including the loss of chance of the use of Roof Terrace should it become accessible at some future time).
Her Honour agreed with the purchasers and found the change was material, entitling the purchasers to rescind in accordance with s 9AC(2).
E. Parking amendments
The Amended Plan also varied the parking arrangements for the purchasers’ lots by:
- changing the allocated parking space for one of the lots from the top level of a car-stacker to the bottom level; and
- reducing the size of a standalone allocated parking space by approximately 11%.
Her Honour found that, on the limited evidence led at trial, these amendments were not material and consequently the purchasers were not entitled to rescind the contracts in reliance upon them.
Conclusion
Given the very strict timeframes set out in the Act it is imperative that advice is obtained quickly.
Pointon Partners acts for both purchasers and developers in the off-the-plan space and are well placed to advise in relation to these issues.
Please contact Carl Millington if you have any queries regarding this article.
[1] Burger & Ors v Longboat Holdings Group2 Pty Ltd [2021] VSC 469
[2] Such as the commonly cited Birch v Robek [2014] VCC 68
Authors
