Being “on the ball” with ”off the plan”.
On 10 May 2013 the Victorian Court of Appeal handed down a decision in the matter of Harofam Pty Ltd v Scherman [VSCA]104 that will directly impact on a developers ability to extend the date of registration of plans of subdivision.
The Respondent (Scherman) purchased property from an unregistered plan of subdivision (i.e. off-the-plan) from the Appellant developer (Harofam). The contract stipulated that both parties had the right to terminate the contract after 24 months, if the plan of subdivision was not registered. Harofam included a clause in the contract of sale which purported to allow it a further extension of not more than six months (but did not include a fixed date) to register the plan in circumstances where delays ensued that were beyond Harofam’s control.
The Court held that the plan of subdivision was required to be registered within a defined period of time which was contemplated at the time the contract of sale was entered into between the parties. Harofam’s argument was that the six month extension provided certainty to the purchaser that, at worst, the purchaser knew that the plan had to be registered within 30 months. The court rejected this argument on the basis that:
(a) Disputes could arise between the parties as to which delays were considered to be out of Harofam’s control; and
(b) Section 9AE of the Sale of Land Act 1962 (“the Act”) requires that a subdivision be registered within a specific period of time, which is known to the parties at the time of entering into the contract.
Currently, the Act specifically sets out an 18 month time frame by which developers must register a plan of subdivision. However, this may be extended by developers in the contract of sale, provided that the new date for registration is specifically stated in the contract. Purchasers have the right to terminate the contract of sale once this deadline has expired, provided the plan remains unregistered.
Developers attempting to market off-the-plan lots to potential purchasers should ensure that a contract of sale specifically outlines the final date by which the plan of subdivision may be registered. Developers should attempt to take into account all foreseeable issues which could cause delays from the outset and this should be reflected in the date of registration of the plan of subdivision.
Failing to take the above into account could give purchasers the right to terminate the contract, demand a refund of their deposits and ultimately affect a vendors pre-sales significantly (which could, in turn, affect the viability of a development project).
For more information regarding off the plan sales, please contact Jonathan Tisher in our Property Law department.
