Vendor Disclosure and Conveyancing (Sale of Land ... · PDF fileVendor Disclosure and Conveyancing (Sale of Land) Regulation 2005 revisited Diane Skapinker Partner February 2008

Vendor Disclosure and Conveyancing(Sale of Land) Regulation 2005 revisited

Diane SkapinkerPartnerFebruary 2008

1442632_1.PPT | Vendor Disclosure and Conveyancing (Sale of Land) Regulation 2005 revisited | February 20081442632_1.ppt

page | 2

Vendor’s duty of disclosure – at common law• Vendor is only liable to disclose ‘latent’ defects in the

vendor’s ‘title’• ‘Caveat emptor’ (let buyer beware) applies to all other

matters Latent defect = one which a purchaser (or expert employed on its behalf) is not reasonably able to discover on inspection of the propertyPatent defect = a defect visible to the eye or which a purchaser inspecting the property with reasonable care ought to discover

Liability limited by a scheme approved under Professional Standards legislation


page | 3

Vendor’s duty of disclosure – at common law

• A defect in title affects the vendor’s ability to pass an unencumbered title to the property the subject of sale

• It covers those matters ‘within the vendor’s knowledge which detract from his right to convey the estate he has agreed to sell or which prevent him from conveying his title free of encumbrance’: Holland J in Dormer v Solo Investments [1974] 1 NSWLR 428

• Examples include undisclosed easements, restrictive covenants, leases, encroachments


page | 4


• By contrast, a defect in quality affects the quality (value/use) of property but not vendor’s ability to pass title

• Examples include town planning provisions, structural issues, termites, contamination, heritage listing, noise and even whether a property is haunted (Stambovsky v Ackley (1991), NY) or previous occupants had been ill (Deverick v Hedley (2000), NZ)

• In Borda v Burgess [2003] NSWSC 1171 an undisclosed mining lease was held to constitute only a defect in quality and not a latent defect in title on basis that mining lease is not an interest in land


page | 5


• No duty on vendor to disclose ‘proposals’ which might at some future time affect the property of which vendor is aware at date of contract: Dormer v Solo Investments

• 2005 standard form contract precludes the purchaser from relying on any promises, representations or statements about the property/title made by that vendor that are not set out or referred to in the contract : clause 10.1.5 (although this cannot exclude misrepresentations under TPA, FTA or Contracts Review Act)


page | 6


• Unless contract provides to the contrary, no implied term that:

– property sold has any particular quality;– the property/improvements is/are fit for habitation;– property sold is legally/physically suitable for any

particular purpose;– the existing use of property is legally permitted

• Purchaser may have remedies where vendor has fraudulently concealed defect in quality that would otherwise be patent: Anderson v Daniels (1983) NSW ConvR 55-144


page | 7


• Although a failure to disclose a defect in quality or a proposal affecting the property known to the vendor will not entitle the purchaser to a legal remedy (such as termination of contract or damages) it may be relevant in proceedings for equitable relief (eg defence to an action for specific performance by a vendor or for recovery of deposit under s55(2A), Conveyancing Act: Tsekos v FCA [1982] 2 NSWLR 347

• Consequence of limited nature of vendor’s duty of disclosure is that purchaser must ascertain quality defects and proposals before exchange


page | 8

Vendor’s duty of disclosure – under contract

• On completion vendor must cause legal title to property to pass to purchaser free of any mortgage or other interest subject to any necessary registration: clause 16.3, 2005 standard contract

• Purchaser has no right to object, raise requisition etc in relation to any of the matters (both title and quality) set out in clause 10 of 2005 standard contract. This requires purchaser to investigate those matters before exchange.


page | 9

Vendor’s duty of disclosure – under statute• ‘Vendor disclosure’ legislation (took effect on 1 May

1986) is intended to provide prospective purchasers with information about the property to allow them to exchange contracts quickly (and so reduce ‘gazumping’)

• Legislation extends vendor’s duty of disclosure beyond latent defects in title in 3 ways:

– by requiring vendors of land to attach prescribed documents to contracts for sale of land

– by deeming vendors of land to make certain warranties about the property

– by implying prescribed terms into contracts for saleof land


page | 10

Vendor’s duty of disclosure – under statute

• ‘sale’ defined in Conveyancing Act 1919 (CA) to mean ‘only a sale properly so called’

• ‘land’ defined in CA to include estates and interests, whether vested or contingent, freehold or leasehold, and whether at law or in equity

Kirby P described purpose of legislation in Nguyen v Taylor (1992) 27 NSWLR 48 at 52 as follows:

‘by shifting to the vendor the obligation to make disclosures to the purchaser, upon the basis of which the latter could thereafter sign the contract …By facilitating the earlier exchange of contracts, it was hoped to reduce the practice of gazumping.’


page | 11

Section 52A(2), Conveyancing Act (CA)

A vendor under a contract for sale of land:(a) shall, before contract is signed by or on behalf of the

purchaser, attach to contract prescribed documents or copies of such documents; and

(b) is deemed to have included in contract certain prescribed terms, conditions and warranties. Clause 20.1 of 2005 contract contains an acknowledgment by purchaser that anything stated to be attached to contract was attached by vendor before purchaser signed it and is part of contract: Gibson v Francis (1989) NSW ConvR 55-548 held such a clause does not preclude (estop) a purchaser from exercising its statutory remedy


page | 12

Section 52A(3), CA – reliance on prescribed documentsWhere vendor attaches certificate/document issued, on/before date of contract, to vendor by government department, statutory authority, council or prescribed person/ body, being a document which(a) is required to be attached to contract, (b) contains information consistent with provisions of a

term, condition or warranty prescribed, or


page | 13

Section 52A(3), CA – reliance on prescribed documents (cont’d)(c) contains information which has caused vendor to

make a specific disclosure in the contract in relation to any such term, condition or warranty, purchaser/mortgagee of purchaser shall have and may exercise, in relation to the certificate/document, the rights, powers and immunities that purchaser/ mortgagee would have had if certificate/document had been issued to purchaser/mortgagee


page | 14

Prescribed Documents

Clause 4(1) of Conveyancing (Sale of Land) Regulation 2005 (Reg) provides that for the purposes of s52A(2)(a) of CA, the prescribed documents are:

(a) such of the documents specified in Schedule 1 … as are relevant to the land the subject of the contract for sale

Note: Other statutes might also require documents to be attached to a contract for the sale of land eg section 95, Home Building Act 1989 in relation to owner-builders


page | 15

Prescribed Documents – Schedule 1 to Reg

Examples of prescribed documents include:• Section 149 certificate (unless land is not within a local

govt area)• Diagram from recognised sewerage authority (if

available in ordinary course of administration) indicating location of authority’s sewer in relation to the land

• Property certificate• Copy of plan for the land issued by Dept of Lands/ LPI

(except in case of limited title land)


page | 16

Prescribed Documents – Schedule 1 to Reg

• Copies of all deeds, dealings and instruments lodged/ registered at LPI shown on relevant property certificate creating easements, profits a prendre, restrictions on use or positive covenants burdening or benefiting (any part of) the land, together with copies of all Memoranda referred to in any such instrument

• notice to vendors and purchasers of prescribed size and print

• smoke alarm noticePrescribed Documents do not include surveys, building certificates, leases


page | 17

Prescribed Documents

• Reg does not specify when the Prescribed Documents need to be obtained before exchange

• Although an ‘old’ document will satisfy the ‘Prescribed Documents’ requirement, as information in such a document may be out of date, the vendor may breach a Prescribed Warranty: Verman v McLaughlin (1990) NSW ConvR 55-521

• Parties cannot contract out of Prescribed Document provisions - s52A(4) of CA renders void any provision, whether in sale contract or any other agreement which ‘purports to exclude, modify or restrict’ or would ‘have the effect of excluding, modifying or restricting any such provision’


page | 18

Remedy for breach of Prescribed Documents requirement – s52A(6), CAThe regulations may make provision for … the remedies and relief available to a purchaser under a contract for the sale of land and the penalties which may be incurred by a vendor under such a contract: (a) for any failure or refusal to comply with any of the

provisions of this section or the regulations …, and (b) for any breach of a term, condition or warranty

deemed to be included in the contract under this section..


page | 19

Remedy for failure to attach Prescribed Documents – cll 19 & 20, Reg

• cl 19(1)(a) - purchaser under contract for sale of land may rescind the contract for failure by vendor to attach to the contract the prescribed documents

• cl 20(1) - purchaser rescinds a contract for the sale of land by notice in writing served on the vendor:

(a)if the purchaser’s right to rescind arises from vendor’s failure to attach prescribed documents - at any time within 14 days after the making of the contract, unless the contract has been completed


page | 20

Prescribed Warranty – s52A(2)(b), CA

• A vendor under a contract for the sale of land shall be deemed to have included in the contract such terms, conditions and warranties as may be prescribed.

• cl 8, Reg provides that for the purposes of s52A(2) (b), the prescribed warranty for a contract for the sale of land is the warranty set out in Pt 1, Sch 3


page | 21

Prescribed Warranty – Part 1, Sch 3, Reg

Vendor warrants that, as at the date of contract and except as disclosed in contract: (a) the land is not subject to any adverse affectation;(b) the land does not contain any part of a sewer

belonging to a recognised sewerage authority;(c) the s149 certificate attached to the contract specifies

true status of land in relation to matters set out in Sch 4 to EP&A Reg 2000;


page | 22

Prescribed Warranty – Part 1, Sch 3, Reg (cont’d)Vendor warrants that, as at the date of contract and except as disclosed in contract: (d) there is no matter in relation to any

building/structure on the land (being a building/structure included in the sale of the land) that would justify making of any upgrading/ demolition order or, if there is such a matter, a building certificate has issued in relation to the building/structure since the matter arose [defined in cl 2(d), Pt 1, Sch 3];

(e) if the land is burdened by positive covenant imposed under Div 4, P 6 to CA, no amount is payable under s88F of that Act in respect of the land.


page | 23

Prescribed Warranty – ‘adverse affectations’ – cl2, Pt 1, Sch 3For the purposes of this warranty: (a) land is ‘subject to an adverse affectation’ if anything

listed in Pt 3 of Sch 3 to the Reg applies in respect of the landA property is not relevantly ‘affected’ unless the actual or potential effect of the affectation ‘is a legal or factual prohibition of, or limitation upon, what…would otherwise be the rights of the owner for the time being to alienate, or to use, the subject matter of the contract in any manner which he saw fit’: Little v Piccin (1983) NSW ConvR 55-152


page | 24

Prescribed Warranty – examples of ‘adverse affectations’ – Pt3, Sch 3• Proposal for re-alignment, widening or siting, or

alteration of the level, of a road/railway by RTA, RailCorp, TIDC or RIC;

• Proposal by or on behalf of Minister for Education and Training to acquire the whole or any part of the land;

• Proposal of TransGrid or an energy distributor (within the meaning of the Energy Services Corporations Act 1995 ) to acquire any right or interest in the whole or any part of the land;4

• Interim heritage order, listing on State Heritage Register or other order or notice under Heritage Act 1977;


page | 25

Prescribed Warranty – examples of ‘adverse affectations – Pt 3, Sch 3• Notice to or claim on vendor by any person, evidenced

in writing, in relation to any common boundary/boundary fence between the land and adjoining land, or any encroachment onto any adjoining land by any building/structure on the land or any encroachment onto the land by any building/structure on any adjoining land or any (application for an) access order under Access to Neighbouring Land Act 2000;

• Order under s124 of Local Govt Act 1993 to demolish, repair or make structural alterations to a building which has not been fully complied with.


page | 26

‘Adverse affectations’ – proof of ‘proposals’• How firm/binding must ‘proposal’ be before it can said to

‘affect’ the land?– more than ‘mere unofficial speculation’: Jones v Assef

(1976)– ‘an intention given force to by adoption by means of a

resolution of adoption by some process which gives the intention some operative effect’: DNT Properties Pty Ltd v Knox (1972)

– stage reached must be beyond mere informal intention or contemplation by the council and there should be ‘a decision, whether it be called a recommendation or a proposal, which clearly authenticated the Council’s recognition of the proposal to acquire the three properties’: Alusta Pty Ltd v Duncan (1973)


page | 27

‘Adverse affectations’ – proof of ‘proposals’

Clause 2, Pt 1, Sch 3 to Reg:(a) a public/local authority has a proposal in respect of

land if, and only if, the authority has issued a written statement the substance of which is inconsistent with there being no proposal of the authority in respect of the land, and

(b) without limiting the way in which it may otherwise be disclosed, if any of the following is attached to the contract (eg a document issued by public/local authority to effect that the authority has a relevant proposal or a copy of the order, notice, declaration or other instrument giving rise to the adverse affectation)


page | 28


• ‘at this time there are no Commission works on the property … however the parcel lies within an area under investigation for a major high voltage transmission line proposed to be constructed …Associated with the line it will be necessary to acquire an easement 60 metres in width centred on the route’: Arias v Brigden (1986) NSW ConvR 55-278

• ‘the land lies within an area under investigation for a high voltage transmission line proposed to be constructed…At the present stage of enquiry [the property] is affected by one of the alternative routes’: Korbol Holdings Pty Ltd v Johnson (1987) NSW ConvR55-337


page | 29


• Copmar Holdings v The Cth (1989) NSW ConvR 55-451: ‘It is not enough that the statement is consistent with there being a proposal affecting the land if it is also consistent with there being no proposal … [T]ogive a right of rescission the statement must assert or imply a state of affairs which in substance is at variance or incompatible with the notion of there being no proposal affecting the land at the relevant date.’(McHugh JA)


page | 30

Remedy for breach of Prescribed Warranty

• cl 19(1)(b), Reg provides that the purchaser under a contract for sale of land may rescind the contract for breach of the warranty (referred to in clause 8 and Part 1 of Schedule 3) prescribed under s52A(2)(b) of the Act

• cl 20(b), Reg provides that a purchaser rescinds a contract for the sale of land by notice in writing served on vendor if purchaser’s right to rescind arises from the vendor’s breach of the prescribed warranty- at any time before the contract is completed


page | 31

Remedy for breach of Prescribed Warranty –clause 19(2), RegContract may not be rescinded unless:• breach constitutes a failure to disclose to purchaser

the existence of a matter affecting the land;• purchaser was unaware of existence of matter when

contract was entered into; and • matter is such that purchaser would not have entered

into contract had s/he been aware of its existence.

Meaning of clause 19(2) considered by Austin J in Mandalidis v Artline (1999) 47 NSWLR 568


page | 32

Prescribed Term (cl 1, Sch 2)

Nothing in this contract or any other agreement prevents the purchaser, expressly/by implication, from making any objection, requisition or claim that purchaser would otherwise be entitled to make in respect of: (a) any encroachment onto any adjoining land by any

building/structure on the land, other than a dividing fence …, or

(b) any encroachment onto the land by any building/ structure on any adjoining land, other than a dividing fence …,


page | 33

Prescribed Term (cl 1, Sch 2) (Cont’d)

unless the encroachment is disclosed and clearly described in this contract and contract contains express term precluding purchaser from making such an objection, requisition or claim


page | 34


Term implied in contract for sale of land if: (a) contract is contract for sale of lot in (proposed)

strata plan;(b) contract is entered into before date of registration of

strata plan or within 12 months after that date, (c) pursuant to s109M of EP&A Act 1979, occupation

certificate is required before occupation/ use of (part of) building of which the lot and access to the lot form part, may commence, and


page | 35

Prescribed Term (cl 2, Sch 2) (Cont’d)

(d) contract does not expressly provide that vendor and purchaser agree that: (i) occupation certificate in relation to (part of) building of which lot and access to lot form part, will not be issued before completion, and (ii) occupation/use of lot will not commence before occupation certificate is issued.


page | 36


(1) Vendor must serve at least 14 days before completion the original/ copy of an occupation certificate within the meaning of the EP&A Act (being an interim/final occupation certificate) in relation to the building, or part of the building, of which lot and access to the lot form part.

(2) For the purposes of this clause, the part of a building comprising access to a lot is any part of the building reasonably necessary for access to the lot.

(3) The purchaser does not have to complete earlier than 14 days after service of original/copy certificate


page | 37


Term implied in contract for the sale of land if: (a) the contract is a contract for the sale of a lot in a

deposited plan, or in a proposed deposited plan, (b) the contract provides for: (i) the erection by vendor

of a dwelling-house on the lot, or (ii) the sale of dwelling-house already erected on the lot, and (c) pursuant to s109M of EP&A Act an occupation certificate (within meaning of that Act) will be required to issue before occupation/use of the dwelling-house may commence


page | 38


(1)The vendor must serve at least 14 days before completion the original/copy of an occupation certificate within the meaning of EP&A Act (being an interim/final occupation certificate) in relation to the dwelling-house.

(2)The purchaser does not have to complete earlier than 14 days after service of the original or copy certificate.


page | 39

Prescribed Documents and Prescribed Warranty-exemptions• s52A(5), CA provides that the regulations may provide

that the obligation to attach Prescribed Documents or make Prescribed Warranty shall not apply to or in respect of prescribed vendors, prescribed contracts, prescribed land or prescribed classes of vendors, contracts or land

• cll 10 & 11, Reg exempt contracts listed in Parts 1 and 4 of Sch 4 and land listed in Sch 5


page | 40

Options to purchase land (call options)

• Section 52A, CA applies to ‘contracts for the sale of land’

• Option agreement is not a ‘contract for the sale of land’• Section 52A only operates if and when option is

exercised: Todd v Georgievski (1987)• Where Prescribed Documents are not attached to

option agreement, grantee of option would have to exercise the option and then rescind the resulting contract for breach of Prescribed Document or Prescribed Warranty, if applicable


page | 41

Prescribed Warranty in Option – Pt 2, Sch 3

Vendor warrants that, as at date of option and except as disclosed in the option:(a) the land is not subject to any adverse affectation,(b) the land does not contain any part of a sewer

belonging to recognised sewerage authority, (c) the s149 certificate attached to option specifies true

status of land in relation to matters set out in Sch 4 to EP&A Reg 2000, and


page | 42

Prescribed Warranty in Option – Pt 2, Sch 3 (Cont’d)Vendor warrants that, as at date of option and except as disclosed in the option:(d) there is no matter in relation to any

building/structure on land (included in the sale) justifying making of any upgrading/demolition order or, if there is such a matter, a building certificate has issued

(e) if the land is burdened by a positive covenant under Div 4, Pt 6 to CA, no amount is payable under s88F.


page | 43

Options to purchase land (call options) –exemptions (Pt 2, Sch 4)

Sch 4 exempts a contract arising upon the exercise of an option to purchase land:

– where the option to purchase land is contained in will or lease (cl 1);

– so long as the proposed contract and Prescribed Documents are attached to the option (cl 2);

– where the terms of the option (other than for residential land) prevent its exercise earlier than 3 months after date on which it is granted (cl 3)


page | 44

Options to sell land (put options)

• Section 52A does not apply to put option agreement (not ‘sale’ properly so called) but will apply to contract for sale of land arising upon exercise by vendor of put option

• Query whether contract is exempt from vendor disclosure requirements when exemptions in Pt 2, Sch 4 apply only to options to purchase land

• To avoid this argument put option agreement should allow vendor to attach updated Prescribed Documents to contract at date of exercise of put option


page | 45

Sale of ‘residential property’

• Offence for vendor to advertise/offer property for sale unless

– copy of proposed contract (excluding particulars of purchaser and purchase price); and

– Prescribed Documents (s66R, CA)are available for inspection by any purchaser

• 5 business day cooling off period for contracts for sale of residential property unless, eg, purchaser provides s66W certificate (although purchaser forfeits 0.25% of purchase price if cooling off right is exercised and contract rescinded): ss66S, 66U, 66V


page | 46

Sale of ‘residential property’ (Cont’d)

• Contract must contain prescribed notice, failing which purchaser can rescind during cooling off period: ss66X, 66U


page | 47

Options for purchase of ‘residential property’

• Purchaser has 5 business day cooling off period to rescind an option to purchase residential property unless, eg, purchaser provides a s66ZF certificate (but will forfeit 0.25% of purchase price if it rescinds): ss66ZB, 66ZE

• This type of option is void unless granted by way of exchange of counterparts, one of which is signed by each of vendor and purchaser, and if it is exercisable within 42 days after it is granted: s66ZG


page | 48

Options for purchase of ‘residential property’(Cont’d)• If copy of proposed contract and Prescribed

Documents are not attached to option agreement at time it is granted, either party may rescind option (or if option has been exercised, resulting contract): s66ZI