Thursday, 2 May 2019
Bills
Sale of Land Amendment Bill 2019
Sale of Land Amendment Bill 2019
Introduction and first reading
The PRESIDENT: I have received a further message from the Legislative Assembly:
The Legislative Assembly presents for the agreement of the Legislative Council ‘A Bill for an Act to make various amendments to the Sale of Land Act 1962 in relation to off-the-plan contracts, terms contracts, rent-to-buy arrangements and options to purchase land under land banking schemes, to amend the ANZAC Day Act 1958 to impose restrictions on public auctions, and to amend the Estate Agents Act 1980 in respect of payments that may be made from the Victorian Property Fund and for other purposes’.
That the bill be now read a first time.
Motion agreed to.
Read first time.
Mr SOMYUREK: I move, by leave:
That the bill be read a second time forthwith.
Motion agreed to.
Statement of compatibility
Mr SOMYUREK (South Eastern Metropolitan—Minister for Local Government, Minister for Small Business) (17:44): I lay on the table a statement of compatibility with the Charter of Human Rights and Responsibilities Act 2006:
In accordance with section 28 of the Charter of Human Rights and Responsibilities Act 2006 (Charter), I make this Statement of Compatibility with respect to the Sale of Land Amendment Bill 2019 (the Bill).
In my opinion, the Bill, as introduced to the Legislative Council, is compatible with human rights as set out in the Charter. I base my opinion on the reasons outlined in this Statement.
Overview
The Bill makes a number of amendments to the Sale of Land Act 1962 (the Act), as well as amending the ANZAC Day Act 1958 (AD Act) and the Estate Agents Act 1980. Relevant to this Statement of Compatibility, the Bill amends the Act to: provide for restrictions on the use of sunset clauses in certain off-the-plan contracts; prohibit the use of certain terms contracts and rent-to-buy arrangements; regulate moneys paid in respect of options to purchase land under land banking schemes; and provide for related matters. The Bill amends the AD Act to restrict the conduct of public auctions on ANZAC Day.
Human Rights Issues
Several aspects of the Bill raise human rights issues, which I address in this Statement as follows.
Right to property
Section 20 of the Charter provides that a person must not be deprived of their property other than in accordance with law. The right requires that powers which authorise the deprivation of property are conferred by legislation or common law, are confined and structured rather than unclear, are accessible to the public, and are formulated precisely.
Prohibition on terms contracts
Terms contracts are presently regulated by the Act. A terms contract for the sale of land includes (broadly) a contract under which the purchaser is obliged to make two or more payments (other than a deposit or final payment) to the vendor after the execution of the contract and before the purchaser is entitled to a conveyance or transfer of the land, or under which the purchaser is entitled to possession of the land or receipt of rents and profits before the purchaser becomes entitled to a conveyance or transfer of the land. The right to property may be relevant to certain provisions of the Bill which amend the existing regulation of terms contracts under the Act.
Clause 20 of the Bill creates new offences with respect to terms contracts. New section 29EA prohibits a person from knowingly selling residential land (other than residential land that is agricultural land) under a terms contract where the sale price of the land is less than the monetary amount to be prescribed in the regulations. New section 29EB prohibits a person from knowingly arranging or brokering such a sale, or knowingly inducing a person to enter into such a sale. The Bill creates penalties for contraventions of sections 29EA and 29EB. New section 55(2), as inserted by clause 28, provides that these provisions do not apply to a contract entered before the commencement of section 20 of the Sale of Land Amendment Act 2019.
In addition, through the operation of current section 29F of the Act, a terms contract entered into in contravention of the Act entitles a purchaser to avoid the contract at any time before completion of the contract, unless certain circumstances apply.
These provisions may be relevant to property rights under section 20 of the Charter, as they restrict a person’s capacity to dispose of property under a terms contract in certain circumstances. However, in my opinion, any restrictions are in accordance with law and therefore do not limit the right. The situations in which the disposal of property is restricted are clearly formulated and confined to specific circumstances.
They also serve the important purpose of protecting consumers, where terms contracts for lower-value residential property sales are typically brokered between financially stressed vendors and purchasers, and where the arrangements are typically unaffordable and can lead to significant financial detriment.
Prohibition on rent-to-buy arrangements
The Bill amends the Act to prohibit certain types of rent-to-buy arrangements and to make related amendments regarding rent-to-buy arrangements. A rent-to-buy arrangement is defined as an arrangement that involves a person entering into one or more contracts that provide for a right of, or obligation on, that person to purchase residential land and for payment of rent or any other amount by that person in respect of a period of occupation of the residential land for more than 6 months before the right to purchase that land may be exercised or the purchase of the land is completed. The amendments contained in the Bill do not apply to a rent-to-buy arrangement that involves a contract entered into by the Director of Housing, a registered housing association (as defined), a prescribed person or class of persons, or a rent-to-buy arrangement that complies with certain prescribed requirements.
Clause 22 of the Bill creates new sections 29WC and 29WD. New section 29WC prohibits a person from knowingly selling residential land under a prohibited rent-to-buy arrangement. New section 29WD prohibits a person from knowingly arranging or brokering such a sale, or knowingly inducing a person to enter into such a sale. The Bill creates penalties for contraventions of sections 29WC and 29WD.
In addition, new section 29WF provides that a purchaser of residential land under a prohibited rent-to-buy arrangement may avoid any contract that is part of the rent-to-buy arrangement by giving written notice to the vendor, at any time before completion of the contract. If a prohibited rent-to-buy arrangement involves two or more contracts and a purchaser avoids a contract that is part of the arrangement, all of the contracts that are part of the arrangement are void.
These provisions may be relevant to property rights under section 20 of the Charter, as they prevent a person from disposing of property under a prohibited rent-to-buy arrangement. In my opinion, the provisions do not limit the right. The situations in which the disposal of property is restricted are clearly formulated and confined to specific circumstances. New section 56(2) provides that these provisions do not apply to arrangements entered before the commencement of section 22 of the Sale of Land Amendment Act 2019. Further, the provisions serve the important purpose of protecting consumers. Rent-to-buy arrangements are typically brokered between vulnerable parties, and purchasers under these contracts are often unable to afford the high ongoing rental and options payments, with the result that they are forced to move out of the property or are evicted, and forfeit their payments towards the property.
New section 29WG provides that a purchaser who avoids any contract can recover any money paid under that arrangement (other than a sum which represents fair market rent for any period for which the purchaser occupied the land). This is relevant to the right to property, as it can require property (money paid to the vendor) to be forfeited in certain circumstances. However, I do not consider that these amendments limit the right to property. The situations in which money paid is to be returned to the purchaser are clearly formulated and confined to specific circumstances. As noted, new section 56(2) provides that these provisions do not apply to an arrangement entered before the commencement of section 22 of the Sale of Land Amendment Act 2019.
Terms contract—removal of restriction on avoidance of contract
Section 29F(1) of the Act currently provides that where a terms contract is entered into in contravention of the Act, the purchaser may avoid the contract at any time before completion of the contract. Section 29F(2) currently restricts this termination right by providing that the contract cannot be avoided if a court is satisfied that certain conditions are established.
Clause 21 creates new section 29F(2A) which limits the application of the restriction on termination in section 29F(2), so that section 29F(2) does not restrict a purchaser from avoiding a terms contract, where the contract was for the sale of residential land (other than residential land that is agricultural land) under the prescribed threshold.
This may be relevant to property rights under section 20 of the Charter, as it restricts a person’s capacity to dispose of property under a terms contract, as a purchaser is able to avoid the contract in certain circumstances, without exception. However, in my opinion, the amendments do not limit the right. The situations in which the disposal of property is restricted are clearly formulated and confined to specific circumstances. The purpose of the provision is to prevent a person from circumventing the proposed prohibition on entering into a terms contract for the sale of residential land (other than agricultural land) under the prescribed amount, which serves the important purpose of protecting consumers. New section 55(2) provides that new section 29F(2A) will not apply to a contract entered into before the commencement of section 21 of the Sale of Land Amendment Act 2019.
Applications to terminate terms contracts and rent-to-buy arrangements
Clause 28 also inserts new sections 55(3) and 56(3) into the Act, which allow a purchaser under a residential terms contract or a rent-to-buy arrangement entered before the commencement of sections 20 and 22 of the Sale of Land Amendment Act 2019 (and which would have been a contract to which section 29EA to section 29EC apply, or an arrangement to which Division 5 of Part 1 applies) to apply to a court or to VCAT to terminate the terms contract or a contract under the rent-to-buy arrangement. New sections 55(4) and 56(4) empower the court or VCAT to terminate such a contract.
These amendments may be relevant to property rights under section 20 of the Charter, as they restrict a person’s capacity to dispose of property under a terms contract and rent-to-buy arrangement, as a purchaser is able to terminate the contract or arrangement in certain circumstances. In my opinion, these amendments do not limit the right. The situations in which the disposal of property is restricted are clearly formulated and confined to specific circumstances. The court or VCAT’s power to terminate the contract is clearly circumscribed by new sections 55(5) and 56(5) as the order cannot be made unless, at the time the contract was entered into, there was a reasonable prospect that the purchaser would not be able to make or continue to make payments required or to obtain, on reasonable terms, the finance needed to complete the contract, or the purchaser no longer occupies the land purchased under the contract because they could not afford payments required, and it is just and equitable for the contract to be terminated. It is appropriate to allow for the termination of the contract where payments cannot be made and where it is just and equitable for the contract to be terminated, having regard to the fact that rent-to-buy arrangements, and residential terms contracts can carry significant risks, particularly for purchasers.
New sections 55(7) and 56(7) also empower the court or VCAT, in an application for termination of a contract under new sections 55 or 56, to make an order providing that the purchaser is relieved of any liability under the contract (including for breach of any condition or contractual term) and that the vendor must repay to the purchaser all or any specified payments made by the purchaser under the contract, except for a sum that represents fair market rent for any period which the purchaser was in actual possession of the land (in the case of residential terms contracts and rent-to-buy arrangements) or entitled to the receipts of rents and profits of the land (in the case of rent-to-buy arrangements).
New sections 55(7) and 56(7) may be relevant to property rights under section 20 of the Charter, as they can require property (money paid to the vendor) to be forfeited in certain circumstances. However, I do not consider that these amendments limit the right to property. The situations in which money paid is to be returned to the purchaser are clearly formulated and confined to specific circumstances. The court or VCAT’s power to make the orders is clearly circumscribed by the threshold requirements imposed by new sections 55(8) and 56(8). These sections provide that the order cannot be made if it would result in undue financial hardship for the vendor or it would otherwise not be just and equitable taking into account all the circumstances and the nature and extent of any other person’s interest in the land.
Options to purchase under land banking schemes
The Bill inserts new sections 29WH and 29WI into the Act, which regulate the circumstances in which a vendor may sell an option to purchase land under certain land banking schemes (as defined). These sections may be relevant to the right to property as discussed below.
New section 29WH(1) provides that a vendor must not sell to a purchaser an option to purchase land under a land banking scheme except as provided for in section 29WH.
New section 29WH(3) requires that any money paid by the purchaser for the option must be held on trust by the vendor’s lawyer, conveyancer, or licensed estate agent, until a plan of subdivision is registered in respect of the land or lot or the expiry date for the exercise of the option (whichever occurs earlier). Section 29WH(4) requires an agreement for an option to purchase land under a land banking scheme to provide for the money paid for the option to be held on trust in accordance with section 29WH(3). New section 29WH(5) provides that the purchaser may rescind an agreement if the requirements of section 29WH(3) and (4) are not satisfied.
Relevantly, new section 29WI creates an offence and penalties for a vendor who fails to comply with the section 29WH(3) obligation relating to money paid by a purchaser for an option under an agreement.
The treatment of money under new sections 29WH and 29WI may be relevant to the right to property, as the requirement that the money must be held in trust restricts the use of property (the money). However, I do not consider that these amendments limit the right to property. The situations in which moneys are to be paid and held on trust are clearly formulated and confined to specific circumstances. In addition, options to purchase agreements can carry significant financial risks for purchasers, and it is appropriate that money paid under the agreement be held on trust until a plan of subdivision is registered or the date by which the option must be exercised has expired.
New section 29WH(7) provides that, despite anything to the contrary in the agreement in respect of the option to purchase, the agreement will automatically expire if the event triggering the purchaser’s right to exercise the option does not occur within 5 years of the entering into of the agreement. Further, as noted, new section 29WH(5) provides that the purchaser may rescind an agreement if the requirements of section 29WH(3) or 29WH(4) are not satisfied. This may be relevant to the right to property, as it restricts a vendor’s ability to dispose of their property in certain circumstances. However, I do not consider that these amendments limit the right to property. The situations in which the automatic expiration occurs or rescission is permitted are clearly formulated and confined to specific circumstances. Further, limiting the duration of an option agreement is intended to provide greater clarity over the risk profile of the investment for both parties to the agreement, which is appropriate.
New section 29WH(8) provides that the purchaser is entitled to the immediate return of moneys paid under the agreement between the vendor and purchaser on the occurrence of specified events, these being that the purchaser has rescinded the agreement under section 29WH(5) or otherwise, or the agreement for the option has expired under section 29WH(7) or otherwise, or the event triggering the purchaser’s right to exercise the option does not otherwise occur. This may be relevant to the right to property, as it can require property (money paid by the purchaser to be held on trust by the vendor’s lawyer or agent) to be returned to the purchaser.
However, in my opinion, these amendments do not limit the right to property. The situations in which money paid is to be returned to the purchaser are clearly formulated and confined to specific circumstances. In addition, the provisions serve an important purpose of protecting investors with respect to certain land banking schemes, which are forms of speculative real estate investment that carry risks for investors. The provisions seek to ensure that property developers in certain types of schemes bear the financial risk of their land banking schemes, and that investors’ money is returned if the scheme does not proceed. The provision also provides increased protection for purchasers by preventing their money from being tied up for lengthy periods of time.
Sunset clauses
New sections 10A–10F of the Act regulate the manner in which a residential off-the-plan contract can be rescinded by a vendor under a sunset clause. It is noted that most vendors affected by the amendments are likely to be corporations and therefore do not enjoy human rights, as the Charter only protects individuals. A sunset clause is defined as a provision of a residential off-the-plan contract that provides for the contract to be rescinded if the relevant plan of subdivision has not been registered by the specified sunset date or if an occupancy permit under the Building Act 1993 has not been issued by the sunset date.
New section 10A makes the rescission of a contract under a sunset clause (that purports to automatically rescind the contract on the part of the vendor) subject to Division 1 of Part 1 of the Act, which includes new sections 10A to 10F. New section 10B provides that a vendor must not rescind a residential off-the-plan contract under a sunset clause unless the vendor gives written notice to each purchaser (containing information prescribed by the section) and each purchaser consents in writing to the rescission. Alternatively, section 10E provides that a vendor may apply to the Supreme Court for an order permitting the rescission pursuant to the sunset clause. New section 10C provides that a provision of a residential off-the-plan contract has no effect to the extent that it is inconsistent with sections 10A and 10B. New section 10D provides that the purported rescission of a residential off-the-plan contract in contravention of Division 1 of Part 1 of the Act is taken to be a breach of that contract. New section 10F(1) provides that a sunset clause in a residential off-the-plan contract must include a statement specifying (in summary) that the vendor is required to give notice of a proposed rescission of the residential off the plan contract, the purchaser has the right (but is not obliged) to give written consent to the proposed rescission of the contract and the vendor has the right to apply to the Supreme Court for an order permitting rescission by the vendor. Penalties are created for contravention of section 10F(1).
New section 54(1) (inserted by clause 26) and clause 2(2) provide that new sections 10A–10D are taken to have come into operation on 23 August 2018 and will apply to residential off-the-plan contracts entered into, and in force immediately before 23 August 2018. However, new section 54(2) provides that the amendments will not apply to any proceeding concerning the effect or operation of a sunset clause in a residential off-the-plan contract commenced before 23 August 2018. New section 54(3) (inserted by clause 27) and clause 2(3) provide that new section 10E will commence on the day after the Bill receives Royal Assent and will apply to residential off-the-plan contracts entered into, and in force immediately before, that date. However, new section 54(3) provides that new section 10E will not apply to any proceeding concerning the effect or operation of a sunset clause in a residential off-the-plan contract commenced before the day after the Bill receives Royal Assent. New section 10F(2) provides that section 10F(1) does not apply to a residential contract entered into before the date on which this section comes into operation.
These amendments may restrict a vendor’s right to property and ability to deal with their property, by restricting the vendor’s ability to rescind an off-the-plan sale of land under a sunset clause. However, in my view the right is not limited, as the situations in which the ability to deal with property is limited are clearly formulated and confined to specific circumstances. The requirements to be included in the vendor’s written notice under new section 10B, and the requirement that a purchaser’s consent be written, are clearly set out in the provisions. The power of the Supreme Court to permit rescission is clearly set out in new section 10E, and new section 10E clearly sets out the test to be applied by the Court and the factors the Court must consider in making its order. The purpose of these amendments is to protect purchasers. New sections 10A–10F of the Act seek to regulate and prevent the misuse of sunset clauses, in response to evidence that suggests that some developers are delaying progress of their developments and rescinding off-the-plan contracts under such clauses, in order to capitalise on increased property values since the contracts were signed, to the detriment of purchasers under those contracts. These issues were identified in the course of a public review of the operation of the Act undertaken between 2016 and 2017, and the amendments are based on a similar New South Wales legislative reform contained in section 66ZL of the Conveyancing Act 1919 (NSW).
To the extent that the amendments are taken to come into operation on 23 August 2018 and apply to contracts in force immediately before that date, they have potential to affect the rights which may have accrued under those contracts and therefore have a retrospective operation. An accrued right may in some cases be considered a property right in and of itself. Any deprivation of a property right effected by the retrospective operation has been done according to law, and while there was no legislation in force from 23 August 2018, vendors were on notice of the Government’s intention. A similar Bill to the present Bill was introduced into the previous Parliament, which included provisions equivalent to new sections 10A–10C and 10E. That Bill was read for a second time in the Legislative Assembly on 22 August 2018. The retrospective operation is designed to ensure that vendors taken to be on notice of the proposal cannot take advantage of relevant sunset clauses in the period between the original Second Reading speech and the date when this Bill comes into operation. To the extent that the retrospective operation might be considered to limit property rights, in my view it is justified because the provisions operate to protect purchasers, in circumstances where vendors may misuse sunset clauses and have done so in the past. Further, as noted, most vendors are likely to be corporations and therefore do not enjoy human rights.
New section 10D was not included in the original Bill; however, I also consider its retrospective commencement and application to be appropriate. The retrospective application of new section 10D provides potential contractual remedies for purchasers where vendors have sought to take advantage of relevant sunset clauses to rescind an existing contract before the passage of the other amendments. In my view, any limitations on the property right of vendors are reasonable and justified in the circumstances for the reasons noted above.
Freedom of expression
Section 15(2) of the Charter provides that every person has the right to freedom of expression which includes the freedom to seek, receive and impart information and ideas of all kinds. This is qualified by section 15(3) of the Charter, which provides that special duties and responsibilities are attached to the right of freedom of expression and that the right may be subject to lawful restrictions reasonably necessary to respect the rights and reputation of other persons, or for the protection of national security, public order, public health or public morality.
Advertising sales under terms contracts and rent-to-buy arrangements
New section 29EC (as created by clause 20 of the Bill) prohibits a person from knowingly advertising the sale of residential land (other than agricultural land) under a terms contract where the sale price is less than the prescribed monetary amount. The Bill creates penalties for contravention of section 29EC.
Clause 22 inserts new section 29WE into the Act, which prohibits a person from knowingly advertising the sale of a residential land under a prohibited rent-to-buy arrangement. The Bill creates penalties for contravention of section 29WE.
These provisions do not apply retrospectively. The prohibitions relate to advertising the sale of land under contracts and arrangements that are unlawful. In my view, the right in section 15(2) of the Charter either does not extend to protecting expression that is unlawful or promotes unlawfulness, or if it does, is qualified by section 15(3) of the Charter. To the extent that these prohibitions may be relevant to the right to freedom of expression, in my view the provisions do not limit the right. The provisions aim to protect consumers with respect to terms contracts for low-value residential property and rent-to-buy arrangements which can carry significant risks of financial detriment, and where entering into such contracts is unlawful, and can be characterised as reasonably necessary to protect the rights of other persons.
Further, the prohibition is not a general restriction on advertising and is restricted to advertising of sales that are prohibited by the Act. As such, the provision is limited to the extent necessary to achieve the objectives of the Bill, and functions to achieve the important purpose of protecting consumers with respect to terms contracts and prohibited rent-to-buy arrangements.
AD Act amendments
The AD Act prohibits certain activities on ANZAC Day, including certain sporting and entertainment activities, without a permit from the Minister.
Clause 29 of the Bill inserts new section 5AB into the AD Act to provide that, despite anything in any other Act or a statutory rule, a person must not conduct a public auction of land or a business before 1pm on ANZAC Day. The Bill creates penalties for contravention of new section 5AB.
Unlike the approach taken in sections 5 and 5A of the AD Act, it is not possible for a person to apply to the Minister for an exemption from the prohibition on conducting a public auction before 1pm on ANZAC Day.
The right to freedom of expression may be relevant to clause 29 as it prohibits the holding of public auctions. However, in my view, the right is not limited, as it falls within the exceptions to the right in section 15(3) of the Charter. The provision is consistent with community values that certain activities such as sporting events and public auctions should be restricted on ANZAC day, and the restriction is therefore reasonably necessary for the protection of public morality. In any event, I consider that the limitation is reasonable and justified. The restriction only applies for the specified time on the prescribed day, concluding at 1pm. Further, new section 5AB(2) provides the prohibition of a public auction does not apply to an online public auction that has commenced but has not been completed before 1:00pm on ANZAC Day. I therefore consider that any interference with the right is limited, and that a reasonable time is afforded for the holding of public auctions on ANZAC Day following 1pm.
This provision may also be relevant to property rights under section 20 of the Charter, as it restricts a person’s capacity to dispose of property during the regulated period. However, in my opinion, the provision does not limit the right. The situations in which the disposal of property is limited are clearly formulated and confined to specific circumstances, and the provision only operates for the specified time on the prescribed day, concluding at 1pm. Further, the provision will not apply to an auction that has commenced but has not been completed before 1:00pm on ANZAC Day.
Fair hearing
Section 24 of the Charter provides that a person charged with a criminal offence or a party to a civil proceeding has the right to have the charge or proceeding decided by a competent, independent and impartial court or tribunal after a fair and public hearing.
As noted above, clause 21 creates new section 29F(2A), which removes the restriction on a purchaser’s ability to avoid a terms contract entered into in contravention of the Act in relation to certain residential land, where a court is satisfied that certain conditions are established.
While the removal of the power of the court to consider and allow such a contract to be entered into may appear to engage the fair hearing right, in my view it does not do so. Both parties retain the right to have any relevant proceedings determined by a court. The provision merely alters the substantive law to be applied.
Hon Adem Somyurek MP
Minister for Local Government
Minister for Small Business
Second reading
That the second-reading speech be incorporated into Hansard.
Motion agreed to.
Mr SOMYUREK: I move:
That the bill be now read a second time.
Incorporated speech as follows:
The Sale of Land Act 1962 (“the Act”) was originally enacted in 1962, with the purpose of protecting purchasers under terms contracts and contracts for the sale of land off-the-plan. Subsequently, the Act was amended to protect the interests of property purchasers more generally, and it now regulates the treatment of deposit moneys, provides for mandatory pre-contractual vendor disclosure and regulates public auctions, among other things. It is recognised as a critical piece of consumer protection legislation underpinning Victorian property law.
During 2016 and 2017, the Act’s operation was examined as part of the Andrews Labor Government’s broader Consumer Property Law Review (“the review”).
The bill I am introducing today is substantively the same as the Sale of Land Amendment Bill 2018 that passed the Legislative Assembly on 20 September 2018 but was not debated by the Legislative Council before the expiry of Parliament on 30 October 2018 and therefore lapsed.
The bill continues to support the Act’s role in providing critical consumer protection by introducing a number of key reforms to address substantive consumer detriment in the Victorian property market identified during the course of the review, and to address other issues attracting community concern.
One of the most significant reforms to be introduced by the bill relates to the use of ‘sunset clauses’ to rescind residential off-the-plan contracts.
Under the Act, a purchaser under an off-the-plan contract has the statutory right to rescind the contract if the plan of subdivision relevant to the lot they have bought is not registered within 18 months of the contract being entered, or another period specified in the contract.
This statutory right to end an off-the-plan contract if it is not completed within a certain time reflects the conditional nature of off-the-plan projects, which involve some risk to a purchaser that the project will not be completed or that completion will be delayed.
The Act does not expressly give vendors (including developers) a similar right to end off-the-plan contracts of sale in this event. However, it does not preclude contracts from including such a right, and it is very common for off-the-plan contracts to include a clause enabling the vendor to end the contract if the plan of subdivision has not been registered by a specified date.
Contractual clauses of this type are known as ‘sunset clauses’.
The Government has become aware of a number of instances in which developers have used (or propose to use) sunset clauses to rescind residential off-the-plan contracts, apparently with the intention of re-selling the relevant lots at a higher price, and in circumstances where it is alleged that completion of the project was deliberately delayed.
Although the number of developers who may seek to take advantage of rescission rights in this way may generally be low, the risk of this occurring increases when prices increase faster than expected. Termination under a ‘sunset clause’ in an attempt to capture this value is therefore always entirely opportunistic.
The consequence for the purchaser in this scenario is that despite having paid a significant deposit and having waited a period of time for their property to be developed, upon rescission of the contract, they are denied the benefit of any increase in the value of the property, are repaid only their deposit (without interest) and must then find an alternative property to buy, which also may have significantly increased in price over that period of time. Some purchasers in this situation may have to continue to rent, long past the time which they expected to be paying off a mortgage on their own home.
Members will appreciate the disappointment and distress experienced by purchasers to whom this occurs, and their loss of confidence in the integrity of the off-the-plan industry, where it seems that vendors have not used best endeavours to complete the project.
Therefore, in order to address the misuse of sunset clauses by vendors, the bill provides that a vendor may not rescind a residential off-the-plan contract pursuant to a sunset clause without the agreement of the purchasers, or alternatively the express permission of the Supreme Court. The bill provides that a purported rescission under a sunset clause contrary to Part I, Division 1 of the Act constitutes a breach of contract, enabling affected purchasers to claim damages or other appropriate remedies from the vendor.
The bill provides that the provisions restricting the circumstances in which a vendor can exercise a right to rescind a residential off-the-plan contract under a sunset clause are taken to have come into operation on 23 August 2018. This is the day after the day on which the Sale of Land Amendment Bill 2018 was second read.
This is designed to protect purchasers under existing residential off the-plan contracts from vendors who may have sought to rescind a residential off-the-plan contract under a sunset clause in the period between the Sale of Land Amendment Bill 2018 being second read and this Bill achieving passage through Parliament.
The term ‘sunset clause’ is defined in the bill to mean a clause that enables rescission of an off-the-plan contract if either the relevant plan of subdivision is not registered by a specific date, or an occupancy permit has not been issued in respect of the lot by a specific date.
The Supreme Court may make an order allowing the rescission of the off-the-plan contract if it is just and equitable in all the circumstances.
In making such an order, the Supreme Court is required to have regard to factors including whether the vendor has acted unreasonably or in bad faith, the reason for the delay in registering the relevant plan of subdivision or the issuing of an occupancy certificate, and whether the relevant lot has increased in value.
Vendors will be responsible for their own costs in making such an application to the Court, and will also be responsible for a purchaser’s costs, unless the purchaser has acted unreasonably in withholding consent.
The bill also addresses predatory conduct in the alternative housing finance sector that has led to vulnerable consumers entering into unaffordable and high-risk ‘terms contracts’ or rent-to-buy arrangements for the purchase of residential property.
The bill amends the Act to prohibit the use of terms contracts for residential land sales (other than sales of agricultural land) under a monetary threshold to be prescribed in regulations made under the Act.
Terms contracts are contracts for the sale of land where the vendor and purchaser agree that the purchaser will pay the purchase price of the property in instalments, prior to the vendor completing a transfer of land in the purchaser’s favour. The purchaser may be entitled to occupy the property during this period.
During the review it was suggested that market changes over the last 50 years, in particular, the contemporary competitive mortgage market has meant that there is less of a need to use terms contracts as a way of purchasing a home, and that they are now used mainly to take advantage of vulnerable people who cannot access conventional mortgage finance to purchase a home.
Indeed, the review received evidence about an increasing trend for terms contracts for lower-value residential property sales to be brokered between financially stressed vendors and purchasers, often in regional or outer-metropolitan areas. Such arrangements are almost always unaffordable for the purchaser, and are of little benefit to the vendor. It was further noted that parties generally cannot afford to obtain independent legal and financial advice prior to entering such contracts, or (in the case of purchasers) use provisions existing in the Act designed to protect their interests.
The Government acknowledges, however, that terms contracts can be a useful and appropriate arrangement for the sale of commercial, high-value residential and agricultural property, where the parties are more likely to have equal bargaining power and have involved independent financial and legal advice. Accordingly, the amendments introduced by the bill will not impede the continued use of this form of contract in these circumstances.
The bill will also amend the Act to prohibit the sale of land through rent-to-buy arrangements.
A rent-to-buy arrangement typically involves a residential tenancy agreement, allowing a person to occupy a residential property for a fee, and a sale option (or sale deed), which gives that person a right or option to buy the residential property at a specified–usually inflated–price, at a future point.
Rent-to-buy arrangements present significant risks to consumers. For example, if during the rental period, a person defaults on the residential tenancy agreement (for example, does not pay their rent for a month), the landlord can potentially exercise their rights under the Residential Tenancies Act 1997 to terminate the lease, and as a result the rent-to-buy arrangement. Upon termination of the lease, the person will lose both their option to purchase and any fees paid under the sale option.
During the review no evidence was provided of the successful use of rent-to-buy arrangements as a means of achieving home ownership. Rather, the review received substantial feedback that this type of arrangement is of no discernible benefit to consumers and causes significant financial and personal distress.
However, the Government recognises that future models of rent-to-buy arrangements may be legitimate, and that these should not be prevented.
Therefore, the bill includes a number of exemptions from the general prohibition on rent-to-buy arrangements directed at arrangements which are likely to lead to home ownership, for example, where one of the parties is the Director of Housing or a registered housing association. Provision is also made for other prescribed persons and classes of persons, and arrangements that comply with prescribed requirements, to be exempt from the prohibition on selling residential land under a rent-to-buy arrangement.
The bill also closes a regulatory gap that has enabled developers associated with unregulated and problematic land banking schemes to spend the money they have raised selling options to unsophisticated investors without regard to their interests.
‘Land banking’ is a type of speculative real estate investment where property developers buy large blocks of undeveloped land with a view to dividing it into smaller lots.
Before any formal subdivision or development has occurred, small-scale domestic investors are offered the opportunity to either buy a lot ‘off-the-plan’ or pay money to purchase an option to buy a lot at some point in the future. The value of the option is tied to the likelihood of the land being approved for development by the relevant council, enabling the investor to purchase the land at a profit.
While monies paid by purchasers under off-the-plan contracts are protected under the Act, purchasers of an option to buy land are at considerable financial risk, because the land which is the subject of the option may be unsuitable for re-zoning or development, and moneys paid for the option are not required to be held trust and are therefore at risk of being dissipated.
Previous land banking schemes that have involved the sale of options have collapsed, with investors unable to recover their option fees. Such investors have typically been persons with limited funds and limited investment experience.
The bill puts in place similar protections for persons who pay money for options to purchase land in a land banking schemes as are in place for purchasers under off-the-plan contracts by requiring option moneys to be held on trust by a legal practitioner, conveyancer or licensed estate agent acting for the vendor of the option until a plan of subdivision has been registered, or until the time by which the option must be exercised has expired. If the option expires, moneys paid for the option must be returned to the purchaser.
In addition, the bill provides for the expiry of options to purchase land as part of a land banking scheme after five years so that investors can regain access to their money (which will have been held on trust) should the development not have progressed within this time period.
The bill specifically exempts options sold in respect of land banking schemes that are registered managed investment schemes under the Corporations Act 2001, and options that are financial products issued by the holder of an Australian Financial Services Licence (“AFS”), from the amendments to be made to the Act. This recognises that registered managed investment schemes and AFSL holders are already subject to Commonwealth oversight.
The bill also includes amendments to address some issues which, while infrequent, are of concern to the community when they arise.
One such issue relates to the disclosure of certain facts regarding a property for sale, for example, its history as the site of a homicide, or its past use as a site on which illicit drugs were manufactured.
The bill will amend the Act to strengthen an existing requirement not to fraudulently conceal ‘material facts’ about a property, with the intention of inducing another to buy that property. Additionally, amendments will be made to enable the Director of Consumer Affairs Victoria to publish guidelines designed to assist vendors and estate agents to understand what is meant by the term ‘material fact’.
Another issue of concern to the community is the holding of public auctions on ANZAC Day.
There are currently no restrictions on this practice, however public auctions that are held on ANZAC Day are considered to be disrespectful by many members of the community.
The Andrews Labor Government has listened to the concerns raised by the community on this issue. The bill amends the Anzac Day Act 1958 to make it an offence to conduct a public auction of land or a business before 1pm on ANZAC Day, consistent with the general prohibition of shop trading before 1pm on that day.
Finally, the bill makes a number of miscellaneous and consequential amendments to the Act, and introduces some transitional provisions relevant to other amendments made by the bill.
In conclusion, I would like to take this opportunity to thank the many stakeholders who contributed to the review of the Act. The bill introduces critical reforms designed to mitigate consumer detriment identified during the review, while not impeding legitimate and beneficial property transactions.
I commend the bill to the house.
Mr ONDARCHIE (Northern Metropolitan) (17:45): Following Mr Somyurek’s enthusiasm, I move:
That debate on this matter be adjourned for one week.
Motion agreed to and debate adjourned for one week.