Amendments to the Sale of Land Act 1970 (WA) (SLA) came into effect on 3 April 2017.
The rationale for change
The amendments, introduced by the Sale of Land Amendment Bill 2016 (WA) which was passed through Parliament on 10 November 2016, are a welcome change after a number of recent WA Supreme Court cases brought the SLA into sharp focus and resulted in a substantial shift in the way provisions of the SLA had previously been interpreted. The effect of those decisions created an untenable position for those developers selling land who were not the owners at the time of sale, as well as a large degree of uncertainty for both sellers and buyers.
In 2014 the WA Court of Appeal in Barker v Midstyle Nominees Pty Ltd  WASCA 75, held that a contract for the sale of a proposed lot in a subdivision entered into before the land was owned by the seller was a breach of section 13 of the SLA and that the contract was at all times unenforceable by the seller, including after the seller became the owner of the land. This decision overturned the previous position in Midstyle Nominees Pty Ltd v Jordan  WASC 85 which held that contracts entered into in contravention of section 13 of the SLA were voidable at the option of the buyer, however the buyer's right to avoid the contract only existed until the seller became the owner of the land.
The outcome of the 2014 Midstyle decision left many sellers in the uncertain position of having their sales contracts entered into prior to them becoming the registered proprietor of the land unenforceable by them, but still enforceable by the buyers. The consequences for sellers selling developed land, such as lots in a strata titled development, were significant. Sellers who entered into sale contracts before they were the owner of the land and who then undertook a development over a period of months, or possibly years after the sale contract was signed, were particularly vulnerable as they were unable to enforce their contacts; these sellers risked buyers not effecting settlement after the development had been completed.
Striking a balance
The amendments strike a balance between consumer protection and a recognition of the need to allow these types of arrangements to facilitate development (particularly where a developer requires finance to secure the purchase of the land and undertake its development) and create certainty for developers and buyers alike.
Scope of the amendments
The amendments affect both strata developments and green title land developments where the seller is not yet the registered proprietor of the land at the time of entering into contracts for the sale of the proposed "lots" in the development. The key amendments include:
- expanding the application of section 13 SLA to the sale of one or more lots in a proposed subdivision, rather than the existing five lots or more (green title) or two lots or more (strata title);
- giving sellers the right to sell lots in a proposed subdivision or development where the seller is not the registered owner of the land the to be subdivided and/ or developed provided certain conditions are satisfied, affording greater consumer protection, including the following:
- the contract of sale (described in the SLA as a "future lot contract") must contain a "vendor's condition". A vendors condition requires the future lot contract to be conditional on the developer becoming the registered owner of the land within 6 months after the date of the future lot contract, or such later date as agreed to in the future lot contract. The seller also has an obligation to use reasonable endeavours to satisfy the vendor's condition including to obtain approvals for the proposed subdivision and lodge the necessary plans for the subdivision; and must give the buyer reasonable information about the steps taken to satisfy the vendor's condition upon request;
- the future lot contract must include a mandatory warning that the seller is not the owner of the land to which the future contract relates; and
- deposits paid under a future lot contract must be held in trust by the deposit holder named in the future lot contract (who must be an Australian legal practitioner, real estate agent or settlement agent).
The amendments do not apply retrospectively. Only contracts entered into from 3 April 2017 are captured meaning that earlier contracts that contravene section 13 of the SLA cannot be "cured" by variations which seek to bring the contracts in line with the new amendments. Those contracts will continue to be unenforceable by sellers who were not the owners of the land at the time of contract.
Failure by sellers to comply with the new obligations relating to a future lot contract means:
- the contract will be illegal and void;
- the buyer will be entitled to recover their deposit; and
- the seller will be guilty of an offence and be liable for a fine of $100,000 fine (a substantial increase from the $750 fine previously contained in section 13 of the SLA).
For more information, please contact Eagul Faigen or Robyn Rogers, DLA Piper, Perth.