Law

A significant decision for property developers and purchasers of lots “off the plan”

By 26 May, 2014 January 21st, 2019 No Comments

The Court of Appeal has delivered a significant decision for property developers and purchasers of lots in proposed subdivisions “off the plan”.

By way of background, the Sale of Land Act (1979) WA (Act) prevents a vendor from individually selling five or more lots in a subdivision or proposed subdivision, or two or more strata lots in a strata development or proposed development, unless they are the registered owner of the land or strata lots.

The purchasers in this instance had purchased lots in the proposed subdivision known as Aqueous Apartments, Mandurah Quay (pictured above) in circumstances where the vendor was not, at the time of entering into the contracts, the registered proprietor of the land the subject of the proposed strata lot development.  The vendor property developer had therefore breached the Act.

The Court of Appeal needed to consider whether the contracts for the sale of the Lots were enforceable by the vendor against the purchasers.  The Court of Appeal formed the view that in passing the Act into law, Parliament had intended that a contract created in contravention of this provision of the Act should be unenforceable by a vendor without any limitation or qualification.

Accordingly, the contracts for the sale of Lots were not enforceable by the vendor against the purchasers.

The case has important ramifications for the property industry as:

  1. Purchasers of lots in proposed subdivisions “off the plan” may be able to avoid their obligations under their sale contract if the property developer had not complied with this provision of the Act at the time the contract was executed.  This can have negative consequences for property developers where there has been a fall in the property market and the property developers are unable to enforce payment of the agreed contract price (or find an alternative buyer at the same or similar price);
  2. Sales contracts for lots in proposed subdivisions “off the plan” that include provisions that state that the contract is conditional upon the vendor becoming the registered proprietor of the land may be ineffective; and
  3. Financiers are likely to be unwilling to accept sales contracts provided by property developers executed prior to a property developer becoming the registered proprietor of the land.

The Department of Commerce has issued a publication for those considering buying land or property off the plan which has been updated to include reference to this decision.