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Client Update: Queensland developers beware!

15 September 2009

In brief: Recent decisions of the Queensland Supreme and District Courts may have significant ramifications for contracting and settlement processes. Partner Tony Davies (view CV) and Senior Associate Annabelle Aland report.

Rectification statements under the Land Sales Act 1984

Two recent Queensland Supreme Court decisions have highlighted the importance of considering the impact of the Land Sales Act 1984 (Cth) (the LSA) on off-the-plan strata contracts.

When selling off-the-plan strata lots, a seller must give the proposed buyer a disclosure statement that complies with both section 213 of the Body Corporate and Community Management Act 1997 (Qld) (the BCCM) and s21 of the LSA. It is standard practice for the s213 BCCM and s21 LSA disclosure statements to be combined into a single disclosure statement.

Both the BCCM and LSA provide that the seller is required to notify the buyer if something contained in a disclosure statement has been changed or becomes inaccurate. The notification is given as a s214 further statement under the BCCM and as a s22 rectification statement under the LSA.

The critical difference between a further statement and a rectification statement is the timing of when the statements must be given. Under the BCCM, the further statement must be given within 14 days of the seller becoming aware of the change. However, under the LSA, the rectification statement is given as soon as reasonably practicable after the proposed lot has become a registered lot. That is, the further statement should be given as and when changes occur, but the rectification statement cannot be given until after the survey plan creating the lot has registered.

The disclosure obligations under the LSA relate to clearly identifying the lot to be purchased. Therefore, if the identity of the lot changes, a seller must issue a rectification statement. For example, if the size of the proposed lot or the proposed lot number changes, a rectification statement may need to be issued.

Another significant difference between a further statement and a rectification statement is that the LSA effectively extends the settlement date until the expiry of a period of 30 days after the buyer receives the rectification statement.

In Hudpac Corporation Pty Ltd v Voros Investments Pty Ltd 1, a buyer successfully avoided a contract, in part, due to the seller's failure to give a rectification statement when it was required to do so. Justice Applegarth found that, because the seller had failed to issue a rectification statement, the obligation to settle had not arisen (that is, the seller could only require settlement after expiration of a 30-day period after the buyer received the rectification statement). As a result, the seller's purported termination of the contract (due to the alleged default of the buyer to settle) was, in fact, a breach of the contract by the seller that entitled the buyer to terminate it.

The importance of issuing a rectification statement was again highlighted in Mirvac Queensland Pty Ltd v Horne & Ors2. Justice Applegarth was, once more, the presiding judge. In Mirvac, Justice Applegarth reiterated that in situations where the identity of the lot has changed, a positive obligation is placed on a seller to issue a rectification statement. Significantly, the change in the area of the lot was only one metre square!

What does this mean for developers?

Failing to give a rectification statement when required to do so could have serious repercussions for developers. Section 22 of the LSA precludes a seller from requiring settlement unless a rectification statement is given (in circumstances where a rectification statement is required to be given). Upon registration of a development, a developer should consider whether it is appropriate to give a rectification statement. In addition, before terminating a contract due to a buyer's failure to settle, consideration should be given to the operation of s22 of the LSA.

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Warning statements and counter offers

The Queensland District Court's decision in Rice v Ray3, currently under appeal, could, if the decision is upheld, have serious ramifications for the contracting process for residential property in Queensland.

The decision relates to the need to comply with the direction requirements under s366B(4) of the Property Agents and Motor Dealers Act 2000 (Qld) and the requirement for buyers to sign the Form 30c Warning Statement before the signing of the contract, as required under s366D(4), in counter-offer situations.

The facts of Rice are, briefly, as follows:

  • A buyer submitted an offer to buy residential property. The selling agent gave the buyer the appropriate direction as required under s366B(4) and the contract was signed in the order required by s366D(4).
  • The offer was not accepted by the seller.
  • The selling agent subsequently met with the buyer, at which time the purchase price was altered and a couple of amendments made to the special conditions. The amendments were initialled by the buyer.
  • The seller accepted the buyer's counter offer and the contract was exchanged.
  • The buyer subsequently sought to withdraw its offer to buy the property and terminated the contract.

In seeking to avoid the contract, the buyer argued that:

  • the seller was obliged to comply with the s366B(4) direction requirements when submitting the contract documents for the counter offer; and
  • the buyer did not sign the warning statement for the counter offer before signing the contract (contrary to s366D(4)).

The buyer's arguments succeeded. The court held that there were clearly two separate contracts (albeit related) and not the one 'evolving offer which morphed into the relevant contract'. As a consequence, the failure to follow the statutory procedures prior to formation meant the buyer was never bound by the counter offer.

The ramifications of this decision, should it be upheld on appeal, are considerable. Offers contained in residential contracts are often subject to counter offers in the manner described in the Rice decision. Until the appeal decision is known, care should be taken when dealing with counter offers. To avoid any doubt, the statutory procedures should be followed each and every time a contract is submitted to a buyer.

We will report again once the appeal decision is known. In the meantime, please do not hesitate to contact any of the people below if you would like further information on the above matters.

Footnotes
  1. [2009] QSC 275.
  2. [2009] QSC 269.
  3. [2009] QDC 275.

For further information, please contact:

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