Focus: PPSA sparks amendments to Victoria's prescribed form of contract of sale of real estate
28 March 2012
In brief: Individuals and businesses buying and selling real estate in Victoria must be aware of amendments to the prescribed form of the contract of sale for real estate in Victoria brought about by the introduction of personal property securities legislation. Partner Michael Graves (view CV), Senior Associate Alanah Barham and Lawyer Tim Chislett look at the changes.
- Key changes to the prescribed contract of sale
- Release of the property from security interests (General Condition 7)
How does it affect you?
- Parties currently negotiating contracts of sale using the prescribed contract of sale should amend the draft contract to be in line with the new prescribed form.
- Parties intending to buy or sell land in Victoria should ensure that the new form of prescribed contract of sale is used.
- At, or prior to, settlement, purchasers should require the vendor to provide a release of the property from a secured party of any security interest, including those registered on the Personal Property Security Register (PPSR).
The prescribed form of contract of sale of real estate, set out in the Estate Agents (Contracts) Regulations 2008 (Vic), has been amended with effect from 1 March 2012 as a consequence of the introduction of the Personal Property Securities Act 2009 (Cth) (PPSA) and in order to comply with amendments made to the Sale of Land Act 1962 (Vic).
While use of the prescribed form of contract of sale is not compulsory (except for estate agents), it is widely used in Victoria.
The key amendment to the prescribed contract of sale is to General Condition 7, dealing with the release of the property from security interests to which the PPSA applies. This is discussed in more detail below. Other key amendments to the prescribed contract of sale include the following:
- The cover page cooling-off period warning this has been amended to be in accordance with the amended Sale of Land Act, which now provides that the three-day cooling-off period applies even if a purchaser has obtained independent legal advice.
- General Condition 1.3 deleted this General Condition has been deleted. It dealt with a situation where a mortgage was to be taken over by the purchaser, which now rarely occurs. If this situation arises, it will now need to be dealt with by the insertion of a Special Condition.
- General Condition 8 the vendor's obligation to provide details of current builder warranty insurance at settlement is now limited to such insurance that is in the vendor's possession.
- General Condition 11.2(b)(ii) deposits can no longer be held in a joint account of the vendor and purchaser for sale of a lot in an unregistered plan of subdivision. For sales of these lots, deposits must now be held by the vendor's estate agent, lawyer or conveyancer on trust for the purchaser.
- General Condition 12.1 this general condition, relating to the early release of deposits to the vendor, has been amended to adopt the language contained in section 27 of the Sale of Land Act.
The General Conditions in the prescribed contract of sale contain a warranty from the vendor that the General Conditions are identical to those set out in the Estate Agents (Contacts) Regulations 2008. As a result of the amendments to the General Conditions, it is important that all contracts of sale use the amended General Conditions, so as to not be in breach of this warranty.
Under the old General Condition 7, at settlement, vendors were required to provide a release of the property from any registered charge lodged under the Corporations Act 2001 (Cth), usually in the form of an ASIC Form 312. Following the introduction of the PPSA, the use of the ASIC Form 312 is redundant and is no longer required.
Under the new General Condition 7, where the property (or part of it) is subject to a security interest to which the PPSA applies and the security interest is registered in the PPSR, at settlement vendors will now be expected to provide the purchaser with either:
- a release from the secured party, releasing the security interest in respect of the property;
- a statement setting out that the amount or obligation that is secured is nil at the date for settlement; or
- a written approval or correction indicating that the personal property included in the contract is not, or will not be, property in which the security interest is granted.
General Condition 7.8 provides that it is the purchaser's obligation to notify the vendor of any security interests it requires to be released at least 21 days before settlement. As such, it is important that purchasers carry out searches of the PPSR as part of their due diligence for the acquisition of a property.
The new General Condition 7 only contemplates the release of security interests that are registered on the PPSR. However, a prudent purchaser should require that a release from a secured party of any security interest (eg mortgage, charge, pledge or lien), including those registered on the PPSR, is provided by the vendor at, or prior to, settlement. If such a release is not provided, there is a risk that during the period between settlement and registration (which can be months in some cases) a secured party could enforce its rights under a security interest. This is also important for the vendor, as the vendor provides a warranty in General Condition 2.3 that it will, at settlement, be the holder of an unencumbered estate in the land and will be the unencumbered owner of any improvements, fixtures, fittings and goods sold with that land.
In addition to ensuring a release is provided, in circumstances where:
- the property includes goods described by serial number in the PPSR; or
- following settlement, the registration relating to the vendor in the PPSR will incorrectly show that a security interest subsists over the property,
purchasers should require the vendor to procure that the secured party undertakes to register a financial change statement updating the PPSR.
A purchaser should also require the Contract of Sale to provide for any security interests in favour of the vendor which relate to the property being sold (such as in relation to landlord fitout) to be transferred to the purchaser at settlement.
For more information regarding the impact of the PPSA on real estate transactions generally, please see our Client Update, The PPSA and real estate transactions.
- Michael GravesPartner,
Ph: +61 3 9613 8814
- David McLeishPartner,
Ph: +61 3 9613 8954
- Chris SchulzPartner,
Ph: +61 3 9613 8772
- Mark StubbingsPartner, Sector Leader - Real Estate,
Ph: +61 2 9230 4257
- Victoria HolthousePartner,
Ph: +61 2 9230 4303
- Nicholas CowiePartner,
Ph: +61 2 9230 4025
- Tony DaviesPartner,
Ph: +61 7 3334 3250
- John BeckinsalePartner,
Ph: +61 7 3334 3520
- Paul NewmanPartner,
Ph: +61 7 3334 3514