In brief
Further amendments to existing property legislation that aims to streamline the sale of property, particularly in respect of the sale of 'off-the-plan' lots have been introduced into the Queensland Parliament. These amendments will be of substantial benefit to developers. Partner Alister Fitzgerald , Senior Associate Annabelle Aland and Lawyer Lucy Woodruff report on the major changes.
Background
The Queensland Government has been reviewing the Land Sales Act (the LSA) since 2010. In general terms, the Act regulates the sale and purchase of land that does not have its own title (both strata and non-strata). The Act was introduced in 1984 to protect buyers. The Land Sales & Other Legislation Amendment Bill 2014 (Qld) (the Bill), introduced into the Queensland Parliament on 3 June 2014, is the result of a substantial review by a committee established by the Queensland Government and takes account of responses to a consultation paper issued in 2012.*
In addition to amending the LSA, the Bill also makes significant amendments to the Body Corporate and Community Management Act 1997 (the BCCM) and the instalment contract provisions of the Property Law Act 1974. The later amendment allows for an increase in 'off-the-plan' deposits to 20 per cent without triggering the instalment contract provisions.
Key amendments
Amendments to Property Law Act 1974
The danger of an 'off-the-plan' contract becoming an instalment contract has long been a real concern for developers. This issue arises when the 'deposit' exceeds 10 per cent of the purchase price. The Act has now been amended, in respect of 'off-the-plan' contracts, so that a deposit can be up to 20 per cent of the purchase price without making the contract an instalment contract. Where that deposit is forfeited due to a termination of the contract based on the buyer's breach, the seller can retain a deposit of up to 20 per cent. Under the common law (case law), sellers could generally only retain 10 per cent of the purchase price without having to prove damage above that 10 per cent amount.
The change to 20 per cent does not apply to contracts entered into before the Bill commences.
Amendments to the BCCM
All disclosure requirements relating to the sale of proposed strata lots, which were previously in the LSA, have now been transferred to the BCCM. In particular:
- The need to give a disclosure plan (prepared by a surveyor effectively a draft survey plan) including prescribed information applicable to standard format lots and building or volumetric format lots. Some details for building/volumetric lots that must be included are lot number, total lot area, the floor level of the lot and the proposed orientation of the lot by reference to north.
- Any further statement which rectifies inaccuracies in a building/volumetric or standard format lot plan must be certified as correct by a surveyor. This means the former procedure relating to 'rectification statements', which could only be given after the strata plan was registered, no longer applies. Developers will particularly welcome this change.
- The obligation to hold money in an appropriate trust account is now dealt with in the BCCM. They significantly provide that any amount paid under any instrument (whether legally binding or not) relating to the sale or purchase of a proposed lot must be paid directly to either a law practice, real estate agent or the Public Trustee. A specific example is given of such instruments as an option to purchase and an expression of interest (EOI). Importantly monies paid under an EOI must be paid as mentioned above. That is, it would not seem sufficient to allow the seller to initially receive the EOI holding deposit and then transfer it to an agent or law practice.
Further statements must now be given at least 21 days before the contract is settled. There is no longer the requirement that they be given within 14 days after a seller becomes aware of any inaccuracies.
A new section 212B clarifies that the disclosure requirements of s213 (disclosure statement) need only be complied with once in respect of an option (ie not when a contract is entered into upon the exercise of an option), provided the buyer under the contract is the buyer under the option. Where a nominee buyer is the buyer under the contract entered into upon exercise of the option, the nominee must be given a new disclosure statement. This clarifies the existing law and must be taken into account when drafting options that allow for a new buyer to be nominated.
Section 217B effectively allows sellers to nominate a five-and-a-half year sunset date for settlement. If they fail to do that, settlement must occur within three-and-a-half years after the contract is entered into. This change removes the cumbersome process to have a statutory regulation passed to extend the three-and-a-half year sunset date.
For the first time a provision (s218E) has been included which specifically deals with bank guarantees and similar securities. In essence the provision requires the relevant 'instrument' to be returned in exchange for the amount it secures and otherwise be held by the deposit holder.
Under the transitional arrangements, termination rights under s218 of the unamended BCCM will continue to apply to contracts entered into before the amendments commenced. The new s218 will only apply to contracts entered into after the commencement of the amendments.
Amendments to the Building Units and Group Titles Act 1980
Essentially the amendments to the BCCM have, where possible, been duplicated in the above Act.
Amendments to the LSA
- The amendments remove the provisions dealing with the sale of proposed strata lots to the BCCM.
- Definitions have been updated to provide greater clarity. In particular, the definition of buyer and seller is now used consistently throughout the amended Act.
- The requirement for disclosure in regard to contracts entered into arising from the exercise of an option have been repeated in this Act.
- The requirements for disclosure plans are now consistent with those in the amended BCCM. In particular, a further statement correcting differences must be given at least 21 days before the contract is settled. In addition there is an obligation to include a plain English explanation of the general effect of the differences (s13(2)(b)). An example is given of the need to refer to a change of depth of fill from that originally disclosed.
- The 18-month period in which settlement must occur continues to apply (s14).
- The way in which monies paid relating to a sale transaction are dealt with, including bank guarantees, is duplicated in this Act based on the BCCM amendments.
Legal Profession Act 2007
Amendments to this Act relating to money held in respect of the sale of a lot or proposed lot are now in the new Division 2A. Under the unamended law, where a buyer merely raised a dispute in regard to deposit monies held, this effectively prevented the deposit holder from releasing the deposit. This forced developers to litigate to obtain deposits. The effect of the amended provisions is that, where deposit monies are disputed, if a law practice reasonably believes one of the parties is entitled to the deposit, it can give a 60-day notice to the parties stating how it intends to disburse the money. Unless proceedings are issued, or the parties agree to a disbursement of the money within that 60-day period, the money can be disbursed as indicated in the notice. This will be an important amendment.
Significantly under s262D(4), if the law practice distributes the money after having followed the above procedure, it will not be liable to a party for inappropriate disbursement of the money. However the disbursement of the money does not prevent a party pursuing a claim against the recipient of the payment.
Similar amendments are proposed to apply to real estate agents (see Agents Financial Administration Act 2014 amendments).
What does it mean for developers
- Deposits of up to 20 per cent can be requested for 'off-the-plan' contracts. This may allow scope to negotiate rebates on settlement if a deposit exceeding 10 per cent is paid. The raising of the limit will, hopefully, allow financiers to increase the number of qualifying foreign contracts for funding purposes.
- Strata lot disclosure requirements are now all contained in the BCCM. Importantly, further statements can be given promptly after lot details change (rather than waiting to give a rectification statement after the strata plan is registered).
- EOI holding deposits must be paid directly into the trust account of an agent or law practice.
- An automatic sunset date for settlement of strata lot sales of five-and-a-half years after the contract date applies (if the contract provides for that) without the need to obtain a regulation to that effect.
- The requirements for disclosure plans (strata and non-strata) have been clarified.
Conclusion
The Bill continues the Queensland Government's program to streamline and improve the property sale process. Once again these changes (especially the 20 per cent deposit provisions) will be welcomed by developers. At this stage it is estimated that it will be some months before the Bill is passed and commences as it must be referred to the Legal Affairs and Community Safety Committee for review and may be the subject of a public consultation process.
* Allens Partner Tony Davies is a member of the committee overseeing the legislative amendments.