Real Estate Contract changes in depth analysis.

The Sale of Land Amendment at 2014 (“Amendment Act”) came into effect on 1 October 2014.

1. The main purpose of the Amendment Act is to “re-enact, reform and modernise” Vendor Statements provided under Section 32 of the Sale of Land Act and to make consequential amendments to other relevant legislation.

This has resulted in a new form of Section 32 Statement (Vendor Statement) being used on and from that date.

2. The Amendment Act also introduces a new requirement for Vendors (or their real estate agent) to provide a Due Diligence Checklist to prospective purchasers of residential land from the time that the land is offered for sale.

3. There is also a new form of Contract of Sale of Real Estate prescribed by the Estate Agents (Contracts) Regulations 2008 (“Regulations”) which updates the previous prescribed version.

This paper is intended to briefly highlight these updates and how they may affect real estate agents in particular, including some suggested action points.

Also, just a quick note to advise that whilst the Amendment Act and the new form of Section 32 Statement commenced on 1 October, there are transitional provisions which allow an old form of Vendor’s Statement to be used in certain circumstances, namely where:

1. The relevant property was “on the market” for sale prior to 1 October; and

2. An old form of Vendor’s Statement was prepared and signed prior to that date.

However, it is suggested that where possible the new form of Section 32 Statement should be used even during the transitional period.

NEW FORM OF VENDOR (SECTION 32) STATEMENT

By virtue of the changes brought about by the Amendment Act, a new format of statements under Section 32 of the Sale of Land Act has been developed, as well as a range of changes to the information and documentation attached to the Statement.

This paper does not propose to detail all of these changes but will highlight some important features in the new document.

These changes include the following:

1. The new format of the Statement requires the names and signatures of both the Vendor and the Purchaser (as well as the date of signing) on the first page rather than at the end of the Statement. (The Amendment Act also allows the Vendor to sign the Statement by “electronic signature” but does not specify what constitutes an electronic signature).

2. It requires a search statement (i.e. a title search) to be included rather than a mere photocopy of the duplicate Certificate of Title.

3. It only needs to disclose services that are not connected to the property.

4.It only requires relevant information regarding any Owners Corporation affecting the land to be included and an Owners Corporation Certificate is no longer mandatory. (However, I am of the view that it is still prudent to attach an Owners Corporation Certificate where possible).

BUT NOTE – in the event that the Owners Corporation is inactive (and this includes a situation where the Owners Corporation has not within the last 15 months held an annual general meeting, fixed any fees and not held any insurance) no Certificate or information is required. The Vendor Statement simply needs to disclose that the Owners Corporation is inactive.

5. For an Off-The-Plan sale the latest version of the Plan of Subdivision must be attached.

6. Only notices, orders, declarations, reports or recommendations that “directly and currently” affect the land which the Vendor is expected to have knowledge of need to be included.

7. The Section 32 Statement no longer needs to be attached to the Contract.

8. An Additional Vendors Statement is required when the land is sold subject to a mortgage or under a terms contract.

9. Only one counterpart of the Section 32 Statement is required.

Failing to use the new form of Section 32 Statement from 1 October may entitle a Purchaser to exercise rights to rescind the Contract prior to settlement.

DUE DILIGENCE CHECKLIST

The Amendment Act now makes it a requirement for a Vendor (or a licenced estate agent appointed by the Vendor) offering vacant residential land and/or land with an existing residence for sale to make available to all prospective purchasers a Due Diligence Checklist (“Checklist”) from the time that the land is offered for sale.

Note that the “vacant residential land” is very broadly defined to include any vacant land on which the construction of a residence is permitted.

The Checklist must be in a form approved by the Director of Consumer Affairs Victoria. Consumer Affairs has already developed a form of Checklist which is available on its website.

The Checklist contains information similar to the warnings appearing on the previous form of Vendor’s Statement as well as a variety of information that a Purchaser should consider and investigate when buying a residential property.

The Amendment Act specifically provides that where the Vendor has appointed a licenced real estate agent, the obligation to provide the Checklist falls on the agent rather than the Vendor.

Failure to provide the Checklist may incur a liability to a fine of up to 60 penalty units (currently, $8,856.60).

However, the Amendment Act does not appear to give the Purchaser any rights if the Checklist is not provided.

So, how is the Checklist made available? The Amendment Act provides that it is to be made available if:

(a) Copies of the Checklist are on display or offered to prospective Purchasers at an open for inspection; and

(b) If it is available (either directly or by a link) on any internet website maintained by the Vendor or the Vendor’s estate agent.

NEW FORM OF CONTRACT

With the new form of Section 32 Statement also comes a new form of Contract of Sale of Real Estate (published jointly by the Law Institute and Real Estate Institute of Victoria).

The form is substantially the same as the previous form but there are a few amendments and updates which agents should familiarise themselves with.

Agents should be aware that Section 53A of the Estate Agents Act allows them to fill in a standard form of Contract prescribed by the Regulations, and also to fill in a Contract prepared a legal practitioner or licensed conveyancer.

CONCLUSION/ACTION PLAN

So now that you are aware of these significant changes in the law, what should you do?

I would recommend some or all of the following:

1. Review your existing listings which commenced prior to 1 October. If the Section 32 Statement is in the old form, check whether it has it been signed by the Vendor prior to 1 October.

Regardless of whether or not it has been signed, you should confirm with the Vendor’s Solicitor whether an updated Section 32 Statement is required. (My recommendation is to use a new form of Section 32 Statement wherever possible).

2. Ensure that the new form of Section 32 Statement is used for any listing commencing from 1 October.

3. In most cases ensure that the Vendor’s legal practitioner prepares the Contract of Sale.

4. If you, as selling agent, are required to prepare the Contract, you should only use the form prescribed by the Regulations.

5. Where only one Section 32 Statement is available, obtain written confirmation from the Purchaser that a signed Section 32 Statement was given prior to the Contract being signed (and if possible photocopy the Statement after it has been countersigned and dated).

6. For residential sales, make sure that you make the Checklist available both at open for inspections and on your website. I would also recommend that when you send property information to prospective Purchasers for example by way of an information memorandum, tender process, brochure or email, you should include the Checklist (or a link) as part of these materials.

7. Keep a written record of how and when you made the Checklist available for each of your residential listings.

For expert Real Estate advice please contact Ron Cohen or a member of our Real Estate Law team.