Conveyancing Table of Contents
In this chapter
1. Cooling Off Notice
At the top of page two of the standard form contract is the cooling off
notice. In the previous edition of the standard contract this notice had to be
attached as a separate page. If the notice is not relevant because the land is
not within the definition of "residential" or an auction is anticipated, leave
the notice in unaltered.
A certificate under s.66W has not been incorporated in the contract. Should
a certificate be required it will have to be annexed.
2. Opening Words
The opening words of the provisions of the contract exclude Schedule III of
the Conveyancing Act, 1919 which would apply to all contracts unless
excluded.
Obviously the contract will be subject to any legislation that cannot be
excluded. The idea of this provision was that should a particular provision
contravene legislation it would not be in breach of legislation against
misleading conduct.
3. Condition 1 - Definitions
(a) Generally
Definitions for the purpose of the contract occur:-
* at the top of page 1 of the standard contract: "contract ...
comprising this page, the following cooling off notice, the
following provisions, Schedule 1 and anything attached.
* on page 1 where terms are defined.
* in clause 1 "Definitions".
* clause 20.1 provides "The parties acknowledge that anything stated
in this contract to be attached was attached to this contract by the
vendor before the purchaser signed it and is part of this contract.
* clause 20.6 defines "sign" and "served".
* clause 20.10 provides that "the term 'within' in relation to a period
means at any time at all before the end of the period.
* at the start of some provisions e.g. 10.1.2 regarding "service".
* in special provisions e.g. A1.1 regarding the meaning of "body
corporate" and "the property" given in the opening words of clause
A1, A3.3 regarding old system.
(b) Definitions Clause
"Adjustment date" means the earlier of the giving of possession to the
purchaser or completion. This is relevant for clauses 14.1, 14.4
(adjustments), A2.1 and A2.2 (tenancies). Completion means the date upon
which completion actually takes place and not when it ought to have taken
place. Completion occurs when the balance of the purchase price is paid to
the vendor and the assurance by the vendor is delivered to the purchaser
irrespective of whether the purchaser is in occupation.
"Bank" includes a bank as defined in the Banking Act, 1959, the Reserve
Bank or a State bank. This is important for clauses 1 (business day), 3.1,
3.2 (investment of deposit), 14.6 (adjustments) and 16.4.1 (completion).
The reference to the Reserve Bank means that a cheque signed by the
Reserve Bank counts as a bank cheque, even if not purchased over a
counter in the normal way. The reference to a State bank refers to the bank
of any State.
"Business day" means any day except a bank or public holiday throughout
N.S.W. or Saturday or Sunday. This is the usual meaning of "business
day"1.
"Date of this contract" refers to the date on which the contract is made,
whether by exchange of contracts or not. That is, not necessarily the date at
the foot of page 1.
"Document of title" is a document of title or evidence relevant to the title or
the passing of title. This is used in clauses 16.2.1 and 16.3 (completion).
"Legislation" may be an Act or a by-law, ordinance, regulation or rule made
under an Act. This is relevant for the opening words in front of clause 1,
18.1.3 (possession before completion), 19.2 (rescission of contract),
Schedule 1 Documents and A1.12 (strata or community title).
"Normally" means subject to any other provision of this contract. This is a
convenient shorthand used in clause 14.1, 14.6 (adjustments), 16.2
(completion), 17.1, 17.2 (possession), 19.2 (rescission of contract), 20.11,
20.12 (miscellaneous), A3.5.3 (abstract of title), A5.9 (consent to transfer)
and A6.2 (unregistered plan).
"Party" refers to each of the vendor and the purchaser.
"Protected tenancy" is a tenancy affected by Part 2, 3, 4 or 5 of the
Landlord & Tenant (Amendment) Act, 1948. This is relevant for clauses
17.2 (possession) and Schedule1. Any tenancy of prescribed premises (e.g.
any dwelling) is a prescribed tenancy, unless exempted by s. 5A (e.g.
dwellings erected after a certain date or lease registered under 5A) or 5AB
(premises vacant on or became vacant after 1st January, 1986, lease granted
after then. For a tenancy to be a protected tenancy as defined, the whole of
one or more of Parts 1-5 must apply to all prescribed premises, in spite of
5A and 5AA2.
To "rescind" this contract means to rescind it from the beginning. This is
not confined to rescision under an express provision of the contract e.g.
when a provision speaks of the contract being "rescinded" (as in clause
11.3), this covers rescission under the contract, the general law or
legislation (although in the last case the operation of the provision may be
affected by the anti-gazumping legislation. There is a distinction between the
word "rescind" and the consequences of rescission.
4. Condition 2 - Deposit and other payment before completion
(a) Generally
Condition 2 deals with the payment of the deposit and payment of the
balance of the purchase price however they do not purport to cover
extensively all aspects of the rights and obligations of vendor and purchaser
in these matters. These conditions also depart substantially from the
conditions contained it the 1972 edition of the standard form contract. This
has been brought about largely because of the High Court decision in Brien
v. Dwyer 3.
A deposit under the contract for sale serves two purposes: first, as a security
for performance by the purchaser; secondly if the contract proceeds to
completion as payment of part of the purchase price. If the contract is
terminated by the purchaser in consequence of the vendor's default, the
purchaser is entitled to recover his deposit (plus interest in most cases).
A solicitor who fails to advise a vendor client of the advantages of
demanding a deposit, is professionally negligent4. The same principle holds
for a solicitor who fails to warn a purchaser of the dangers of entering into a
binding purchase before a binding sale has been made where the proceeds
of the sale are required to complete the purchase, is professionally
negligent.
Provision for payment of a deposit is not essential to the validity of a
contract for the sale of land. There is no requirement for the payment of a
deposit under an open contract in New South Wales. But standard form
contracts invariably expressly require the payment of a deposit. Condition
2.1 provides for payment, on the making of the contract, of a deposit of the
amount stipulated in the Terms.
Previously there was some dispute as to the effect of the purchaser's failure
to pay the deposit where the parties had stipulated for payment of a deposit.
Payment of the deposit had been held in England to be a condition precedent
to the formation of the contract for sale and that failure to pay precluded the
coming into existence of the contract. It has now been settled in Australia,
that payment of the deposit was not a condition precedent. Rather a contract
come into existence notwithstanding failure to pay, such failure to pay
constituting a breach of condition subsequent to the formation of the
contract (Brien v. Dwyer).
In Brien v. Dwyer it was held that firstly whatever the appropriate time for
payment of the deposit, payment must be made timeously and the purpose
of the deposit as a security for the purchaser's performance of the contract
negates any implication of a term allowing payment within a reasonable time
after that prescribed by the contract. Secondly, if payment is not made
timeously, the vendor may terminate the contract without the need for any
prior notice. Thirdly, failure to pay is a breach of a fundamental term of the
contract which comes into existence upon exchange. And, fourthly, the
contractual provision permitting payment of the deposit by cheque does not
permit payment by post-dated cheque.
The pre-contract deposit serves as an indication of the purchaser's genuine
interest in buying the property however the mere payment of a pre-contract
deposit in N.S.W. creates no enforceable rights or obligations in vendor or
purchaser. There is no doubt that a purchaser who has paid a pre-contract
deposit is entitled to have it refunded to him in the event of no contract being
entered into.
Where the vendor has authorised his estate agent to receive pre-contract
deposits on his (the vendor's) behalf the purchaser should seek recovery
from the vendor and not the agent in the event the contract is not entered
into. However it has been held in Australia that the estate agent does not
have apparent or ostensible authority to receive pre-contract deposits and the
agent is the person to be sued for the return of a deposit at any time before
entry into a binding contract, as money held to the prospective purchaser's
use.
At common law it would appear that the estate agent receives the pre-
contract deposit as "agent for the purchaser" rather than as "stakeholder".
(b) "It is an essential provision"
"It is an essential provision that ..." does not mean it is essential to have a
deposit. It means that if there is a deposit stated, and it is not paid in
accordance with clause 2.1, this is a breach of an essential provision, and
the vendor can terminate the contract (at general law or under clauses 2.4 or
9), but only until the deposit is paid5. The opening words make this time for
payment of the essence, overriding clause 20.11 which provides that
"normally, if a party must do something within a time, the time is not
essential."
This paragraph merely states what the law implies. Failure to pay the
deposit in the manner required by a contract is a breach of a fundamental
term of the contract entitling the vendor immediately to terminate the contract
without the necessity for any prior notice.
The fact that the failure to pay the deposit is the result of an innocent
oversight on the part of the purchaser or his solicitor is no excuse and the
motives of the purchaser are irrelevant. For example, at a sale by auction
where a purchaser is unable to pay the deposit on the fall of the hammer
because he has left his cheque book at home the auctioneer is entitled to put
the property up for sale again.
There are some qualifications to this. Condition 2.4 entitles the purchaser to
"cure" the defect by payment before termination and the vendor with
knowledge of the purchaser's failure to pay the deposit may waive his
rights. A vendor would waive his rights and elect to affirm the contract if he
takes any steps to perform the contract or requires the purchaser to perform
the contract eg. the vendor demanding payment of the deposit, giving a
statement of title, performing obligations under special conditions of the
contract or giving notice to the purchaser requiring the tender of the
assurance.
Also at the time of exchange there may be a waiver of the requirement for
timeous payment eg. where the vendor or his solicitor exchanges in the
knowledge that the deposit is not yet in the hands of the depositholder
designated in the Terms.
(c) "On the making of this contract the purchaser must pay the deposit"
The 1972 contract required payment of the deposit "upon the signing" of the
contract whereas the current contract requires that the deposit be paid to the
depositholder designated in Terms "on the making of this contract". This
expression should be interpreted to mean "up to and including but not after"
the making of the contract. If the exchange is effected in person by the
parties or their solicitors, by means of a simultaneous swap of counterparts,
the contract is "made" at that time.
This applies even if the date of making of the contract is not a business day.
Clause 20.7 which provides that "if the time for something to be done or to
happen is not a business day, the time is extended to the next business day"
is expressed not to apply "in the case of clause 2".
(d) "To the depositholder as stakeholder..."
The depositholder is to hold the deposit pending its becoming payable to
one party or the other e.g. to the vendor on completion. This is relevant for
clauses 16.4.2, 16.5 (completion) subject to 7.2.1 (claims by purchaser).
A stakeholder is a person who holds money independently of two or more
claimants, to be applied in a particular way when a particular event occurs.
Under the present condition the stakeholder holds the deposit until
completion at which time he is to account for it to the vendor. Pending
completion the stakeholder should not pay over the deposit to either party
without the consent of the other unless the contract goes off through the
default of one party in which case he may pay it to the other.
Whether a contract has been validly terminated may involve difficult
questions of law and fact, and if there is any dispute between vendor and
purchaser concerning their respective entitlements to the deposit, the
stakeholder should seek and order from the court. A stakeholder who in the
absence of a court order pays out the deposit to party not entitled to it is
liable to recompense the party ultimately held entitled to it.
The general principle is that the deposit is only recoverable from the
stakeholder and if the stakeholder is unable to repay the deposit (as where
he is insolvent or has misappropriated the money) the purchaser has no
recourse against the vendor. However the purchaser may recover the
deposit from the vendor in the following situations:-
* Where the contract for sale provides expressly for a refund of the
deposit upon the occurrence or non-occurrence of a specified event
this is construed as a warranty by the vendor that he will refund the
deposit upon the occurrence or non-occurrence eg. where
Minister's consent cannot be obtained to the transfer of Crown
land.
* Where the purchaser has been induced to enter into the contract by
the fraudulent misrepresentation of the person engaged by the
vendor to find a buyer and to whom the deposit has been paid as
stakeholder.
* Where the stakeholder is an auctioneer the auctioneer is regarded as
the agent of the vendor so far as the risk of losing the deposit is
concerned.
* Where the vendor has declined the purchaser's request that a
different person be appointed as stakeholder this throws upon the
vendor the risk of loss of the deposit in the hands of the vendor's
nominee.
For the vendor the general principle that a deposit paid to a stakeholder is
recoverable only from the stakeholder has the consequence that the
purchaser cannot be compelled to pay the deposit over again if the contract
proceeds to completion and the stakeholder for some reason (as through
defalcation or insolvency) does not account for it to the vendor. The vendor
is bound to convey the property to the purchaser upon payment of the
balance of the purchase price.
At common law a stakeholder is entitled to keep any interest earned on the
stake however in N.S.W. this would appear to be abrogated by legislation.
Section 36(1) of the Property Stock & Business Agents Act in relation to
estate agents and s. 41(1) of the Legal Practitioners Act in relation to
solicitors would appear to make a deposit "trust money" in the hands of the
agent or solicitor and as such the agent or solicitor would have to account to
the person ultimately entitled to the the deposit for any profits made on the
deposit.
To make the recipient of the deposit an "agent for the vendor" and not a
"stakeholder" the conditions contained in the contract would have to be
amended. This would have the effect that the agent would have to pay the
deposit to the vendor on demand, the vendor would be personally liable for
the return of the deposit and the agent must account to the vendor for any
interest earned on the deposit.
(e) "2.2 The deposit (or any part of it) can be paid by cash or cheque"
The common law position is that a vendor is not obliged to accept a cheque
for the deposit and may insist on cash. Also unless an agent has express
authority he is not entitled to receive a deposit otherwise than in cash. Any
doubts about the right to payment of the deposit by cheque are put to rest by
condition 2.2. The vendor is not entitled to reject payment of the deposit by
cheque but a post-dated cheque is not a "cheque" for the purposes of this
condition6
It appears sufficient that the purchaser's personal cheque or a cheque drawn
by a third party in favour of the vendor or a negotiated cheque (ie. a bearer
cheque or endorsement of an order cheque) is handed over as a deposit. The
contract provides in condition 2.4 that if the cheque is dishonoured the
purchaser will be in breach of contract.
Cash of any amount is sufficient for payment of the deposit. This is in
contrast to clause 16.4.1 which allows the purchaser to pay only "up to
$ 2,000.00" on completion. However, $ 10,000.00 or more may be hard
to bank7.
An alternative to payment is a deposit guarantee bond in which case clause
2A is used. This is an optional insert sheet.
(f) "2.3 The deposit is to be taken to be paid..."
This supports the common practice of handing to a vendor solicitor, upon
exchange of contracts, a cheque made payable to the vendor's agent for the
deposit or for the balance of the deposit, if a holding deposit has been paid.
Delivery to any other person is not sufficient and delivery denotes actual
receipt by them. Again questions of reasonableness of any delay are
irrelevant.
(g) "2.4 If the deposit is not paid on time..."
The vendor can terminate under the general law or clause 9.
In the absence of contrary agreement between the parties, at common law
notice of termination for late payment of deposit may be given orally,
although for reasons of proof writing is no doubt to be preferred. It appears
that under this current condition read with clause 9 written notice is
essential. Service of the notice of termination should be within the
provisions of condition 20.6.
(h) "2.5 ...A charge..."
It appears that this clause does not extinguish the common law right of a
purchaser's lien. A purchaser who, prior to completion, pays to the vendor
the deposit, or part of the purchase price, or other moneys payable under the
contract, has an equitable lien over the land co-extensive with the amount
paid, enforceable by sale under order of court in the event of the contract
going off for some reason other than the purchaser's default. The principle
behind this is that in respect of the moneys paid the purchaser is regarded in
equity8 as a secured creditor, the security being the lien over the property. A
purchaser's lien is available to a purchaser although the contract is not
specifically enforceable.
All amounts paid by the purchaser are not encompassed within the charge
created by this clause only amounts paid prior to completion. In this sense
the charge may have a narrower scope than a purchaser's lien. A lien may
include interest on a refund of a deposit or money outlaid for the repair of
the premises pursuant to a contractual obligation.
The fact that the charge is by an instrument attracts provisions of the
Conveyancing Act9. The charge relates only to the land. If it related to the
furnishings and chattels, it would be void to some extent unless registered
as a bill of sale10.
There will be no charge in favour of a purchaser in respect of a deposit or
instalments of purchase price which have been validly forfeited following
the purchaser's repudiation of the contract. The charge created by the
paragraph is subject to any subsisting interest in the property.
Neither the charge nor the general law purchaser's lien is created where the
deposit is held by a stakeholder, as provided for in condition 2.5 of the
contract, unless the stakeholder pays the deposit over to the vendor in
accordance with the requirements of the contract11.
The charge is lost on termination for breach of the contract. The purchaser
cannot then lodge or maintain a caveat under this clause and can only sue for
any refund due. The charge also ceases on completion, as the deposit then
becomes payable to the vendor pursuant to clauses 16.4.2 and 16.4.5.
5. Clause 3 - Investment of the Deposit
(a) Generally
A trustee cannot derive a profit from a trust, by investing trust funds. There
is no authority to invest a deposit, unless the contract contains some special
provision dealing with the investment of the deposit or unless the parties
jointly provide such an authority to the stakeholder after exchange of
contract. Often the parties agree to invest the deposit pending completion
and to equally divide the interest earned.
The Liason Committee of the Law Society of N.S.W. and the Real Estate
Institute of N.S.W. in its guidelines notes that the selling agency agreement
provides for the deposit to be held by the agents. A breach of contract by the
vendor, with a possible risk of damages, could result if the deposit is
otherwise dealt with without the written approval of the agent.
In June, 1984 the Law Society Journal pointed out that "if the parties in a
conveyance wish to invest the deposit it is suggested that the agent be given
responsibility of doing so."
The statement that the deposit is to be invested can be anywhere in the
contract. Selecting the "Yes" choice in the "Depositholder" on page 1 of the
contract is the obvious place but it could be in a special condition.
As the depositholder is not a party, the contract cannot oblige the
depositholder is presumably not bound to do more than hold the deposit,
even if directed by the parties. It is necessary to obtain the depositholder's
agreement to this arrangement before the contract is made.
(b) "3.1 Invest the deposit"
This clause should not be deleted, even if the deposit is not to be invested,
this clause may be necessary for the purposes of clause 7.2.2.
"At the risk of the party who becomes entitled to it..." has the effect, for
example, if the deposit becomes payable to the vendor, and the deposit
disappears, it is sufficient for the purchaser to hand over an order under
16.4.2.
"Bank" is defined in clause 1. A permanent building society would have to
be incorporated under the Permanent Building Societies Act or at least be
authorised to operate in N.S.W., as the account must be in N.S.W..A
wider expression would be "in any authorised trustee investment".
However, a list of possible investments is hard to compile. An investment
may be authorised by the Wills Probate & Administration Act or by more
specific legislation. Also, this gives the depositholder a wide power of
investment. If the parties are not happy with a bank or permanent building
society, they may care to name a particular institution, rather than use such a
wide phrase.
The investment is to be payable at call, as the vendor may need the whole of
the deposit on completion to simultaneously complete another purchase.
Apart from this, the vendor can simply allow half the interest on completion
(clause 3.2) and get the deposit and all the interest later. The letter to the
depositholder (clause 16.4.2) can be expanded to cover all, instead of half,
the interest.
(c) "3.2 Pay the net interest..."
This clause does not oblige a party to give a tax file number as there would
be difficulties in doing so. It is a matter for each party whether the party
wants to give the depositholder a tax file number to quote to the investment
body.
The expression "otherwise" covers the situation where the vendor
terminates and can recover the deposit (clause 9.1).
6. Clause 4 - Transfer
(a) Generally
Clause 4 deals with the purchaser's obligation to tender to the vendor for
execution the "appropriate assurance" of the property. Where the land is
Torrens title (including Qualified, Limited, Strata title and Crown Land) the
appropriate assurance will be the approved form of Real Property Act
transfer and where the land is under old system title the appropriate
assurance will be a deed of conveyance.
It was formerly the accepted practice for the purchaser's solicitor to forward
a draft assurance to the vendor's solicitor for his approval prior to the
engrossing of the formal document for execution by the vendor. But this
practice has no fallen into disuse.
At common law the purchaser had to bear the expenses both of the actual
engrossment of the assurance and of the transmission of the document to the
vendor. The vendor had however to bear the expenses of perusal and
execution by himself and any other party whose concurrence to the
assurance is required.
The assurance having been prepared at the purchaser's expense remains the
purchaser's property even after it has been executed by the vendor although
the vendor has the right to cancel the execution if the sale goes off.
The purchaser must tender the assurance to the vendor within 28 days from
the date of the contract. Service within the specified time requires that the
assurance reach the vendor within the time. It would seem that the tender
may be made at any time up until midnight of the last day and is not
restricted to tender before the close of normal business hours on that day.
Presumably the vendor's solicitor has implied authority to accept tender of
the assurance on behalf of the vendor.
If the contract stipulates a date for early completion it may be implied that
the time for tender of assurance be shortened. Conversely, however, a
contract that envisages considerable delay would not imply an extension of
time for tender of the assurance.
Under an open contract the purchaser is generally not obliged to tender an
assurance of the property to the vendor until the vendor has proved his title
to the subject property. Under the present contract however the purchaser is
obliged to tender an assurance within the period stipulated and it will be no
defence that the vendor's title had not been proved by the expiration of that
period. Clause 4.2 protects the purchaser against any implication of
acceptance of title resulting from submission of an assurance before the
vendor has proved his title.
If a purchaser fails to serve on the vendor the assurance within time the
vendor should serve upon the purchaser a notice calling upon the purchaser
to tender the assurance no later than the date specified in the notice in default
of which the vendor will terminate the contract. The date specified must
allow a "reasonable time" for tender of the assurance and the notice may be
given immediately the 28 day period has expired12.
It is not appropriate for the vendor to issue a notice to complete upon the
purchaser's failure to tender an assurance within the 28 day period because
default in the obligation to tender the assurance is not default in the
obligation to complete. However in some situations the failure to tender an
assurance may be part of the whole conduct on the part of the purchaser
unreasonably delaying completion. It will be appropriate to issue a notice to
complete where the purchaser's failure to tender an assurance has had the
practical effect of making it impossible to complete within the reasonable
time contemplated by the contract13.
The vendor is not obliged to prepare the assurance where the purchaser fails
to do so and it is sufficient (and necessary) for the vendor to show that he
was ready and willing to execute an appropriate assurance if tendered by the
purchaser.
(b) "4.1...Purchaser must serve form of transfer..."
The purchaser must serve the form of transfer within 28 days after the date
of the contract. In the case of old system title, this refers to the draft
conveyance (clause A3.3). The transfer or conveyance must include any
wording required by Schedule 1 of the contract "covenant/easement to be in
transfer.
This is a substantial change from the requirements of earlier editions of the
contract. Previously, the vendor had to give a statement of title
contemporaneously with the making of contracts, some time between the
making of the contract and written request by the purchaser or within a
reasonable time following written request by the purchaser. In relation to
Real Property Act land the vendor was under no obligation to supply a
statement of title unless the purchaser has first made written request for the
statement within 14 days after making the agreement.
For land under Torrens title the vendor's statement of title had to be
sufficient to enable the purchaser to prepare the transfer even though it was
considered a mere formality because the purchaser would have the benefit of
his own searches. This was all the more so under the 1986 edition of the
standard contract which required a copy of the certificate of title to be
annexed.
The practice developed of advising purchasers that the particulars of title
were "as set out in the contract" and this was sufficient provided that all the
necessary particulars were in fact stated in the contract itself or some
document to which the contract refers.
(c) "4.2...Transfer does not itself imply acceptance..."
The purchaser's solicitor when serving the draft transfer does not have to
say that this is without acceptance of title or subject to satisfactory replies to
requisitions. Despite this clause it would be prudent for the purchaser when
tendering his transfer to state expressly that the tender is not to be taken as
an acceptance of title and that it is subject to satisfactory replies to his
requisitions and to a good title being made out.
(d) "4.3...Information needed for the transfer..."
The information needed for the transfer depends in the case of Real Property
Act land on the legislation and the relevant approved form. The information
will usually be in the contract or served under clause A6.3 (unregistered
plan). In the case of old system land the information needed for the
conveyance depends on what is a proper form of conveyance in the
particular case. The information required will usually be in the contract or
served under A3.1 (qualified, limited and old system title). A plan registered
under clause A6 (unregistered plan) will almost always result in a qualified
title and a Real Property Act transfer. Therefore this provision is only a
backup provision for the unusual case.
7. Clause 5 - Objections, Requisitions and Questions
(a) Generally
This condition differs from a time-honoured formula that dealt with the
making of objections or requisitions and the tendering of an assurance to the
vendor. Traditionally time began to run against the purchaser for the making
of objections and requisitions (21 days) and for the tender of the assurance
(28 days) after service of the statement of title or after making of the contract
depending upon the title.
There was some authority that a vendor who failed to serve his statement of
title within the time provided could not complain if the purchaser's
objections or requisitions were made beyond the time provided.
Generally the purchaser is deemed to have waived any objection or
requisition which have not been made and served on the vendor within the
21 day period specified. Requisitions and objections may be divided into the
following categories:-
* Requisitions or objections as to title.
* Requisitions or objections as to conveyance.
* Requisitions in the nature of general inquiries concerning the
property the subject matter of the sale and structures thereon.
* Requisitions in the nature of reminders to the vendor of his
obligations under the contract.
Objections may also be distinguished from requisitions. A requisition is a
request by the purchaser for some action to be taken or information to be
given by the vendor. An objection is an assertion by the purchaser that the
vendor is unable to complete the contract in accordance with its terms.
(i) Objections or Requisitions as to Title.
These are objections or requisitions concerning the title to the subject matter
of the sale eg. the existence of easements or covenants affecting he
property, the encroachment by buildings and the power of councils to act
under s. 124 Local Government Act, 199314. They do not cover how a
property is affected by town planning restrictions or whether the property is
subject to rent control legislation.
(ii) Objections or Requisitions as to Conveyance.
Where the vendor's title is subject to some interest in favour of a third party
which interest the vendor is unable to remove as of right there is a defect in
the vendor's title and the purchaser may be able to rescind or claim
compensation. But if the vendor either by his own act or by requiring
another to act is able to compel the third party to give up the interest in
question there is no defect in the vendor's title and a requisition or objection
regarding the giving up of a third party's interest is concerned not with a
defect in title but rather with the mechanics by which the vendor is to
convey. Hence such an objection or requisiton is as to "conveyance".
Some examples of such objections or requisitions would be with regard to
the form of the transfer, the requirement that a person with a registered
interest be represented at completion, that the conveyance to the vendor was
defective in form or the terms of trust requiring an appointment of an
additional trustee. The importance of the distinction is that objections or
requisitions as to conveyance are not subject to the 21 day time limit
imposed by condition 6.
(iii) Requisitions in the Nature of General Inquiries.
It is customary for the purchaser's solicitor to ask a number of requisitions
such as: the ability of the vendor to carry out his obligations under the
contract, adjustment of rates, statutory notices, the nature, quality, use or
value of the property. It appears that the purchaser may be entitled to ask
these requisitions because they are concerned with the actual or prospective
rights and obligations of the parties under the contract or in respect of the
property.
The vendor is bound only to provide answers from his own knowledge or
from documents within his possession or that of his servants or agents and
is not bound to inquire elsewhere for information to provide to the
purchaser. Further it does not necessarily follow that the purchaser has any
right to relief if a matter adverse to the purchaser is disclosed unless the
disclosure points to some deficiency in title, some inability in the vendor to
fulfil his obligations under the contract or confers some equitable right on
the purchaser.
(iv) Reminders to the Vendor of his Obligations under the Contract.
Such reminders do no more than point out to the vendor that which the law
requires of him in any case and a purchaser cannot be prejudiced by failing
to raise such matters timeously.
(v) Framing Requisitions.
It has been held that neither the vendor nor his solicitor need answer a very
wide searching interrogatory in the following terms:
"Is there to the knowledge of the vendors or their solicitors any
settlement, deed, fact, omission, or any encumbrance affecting the
property not disclosed by the abstract?"15
A purchaser must direct the vendor's attention to specific matters and not
couch his requisition in wide catch-all terms. The purchaser is also not
entitled to insinuate that the vendor or the vendor's solicitor has improperly
failed to abstract a matter which the vendor or his solicitor knows to be
material to the title.
A purchaser should always be guided in making requisitions by the
countenance he would expect his requisition to receive from the Court in
proceedings for specific performance or the recovery of the deposit and
should therefore make no frivolous or unnecessary requisitions. A
purchaser should also be wary of making a wide searching interrogatory
because he runs the risk of learning from the vendor of matters such as
equitable interests which the vendor has quite properly left off the abstract
and over which the purchaser otherwise would have prevailed upon
completion.
(vi) Time for Making Objections or Requisitions.
In computing the 21 days within which the objections or requisitions must
be made and served the day upon which the vendor's statement of title is
served upon the purchaser is excluded. Although at common law there was
no reason why requisitions or objections cannot be made orally the present
condition requiring that they be "made and served" suggests they must be in
writing.
It has been held that the purchaser is entitled to make supplementary
objections or requisitions which properly arise out of the vendor's answers
to initial requisitions or objections made within the 21 days. Where the
contract does not specify any time limit for the making of these
supplementary objections or requisitions so it was thought that they should
be made within a reasonable time of receipt of the reply out of which they
arise. However the designation of the time limits in the current edition of the
contract as "essential"16 may prevent certain requisitions being made after
21 days.
Where the contract provides for a completion date which is only a short time
ahead, and particularly when time is expressed to be of the essence, a term
should be implied into the contract to reduce the time periods contained in
clause 5.
(b) "If the purchaser is or becomes entitled to make an objection..."
This clause applies only if the purchaser already has or acquires a right at
general law to make an objection (i.e. an assertion that the title is defective
for a particular reason) or a requisition , other than a claim (a requirement
that the vendor take some action to perfect or establish title.
(c) "...Only by serving it..."
Compliance with the time provisions is essential and if an objection or
requisition is not served within the relevant time the right to make it is lost.
Clause 20.11 which provides that "if a party must do something within a
time, the time is not essential" applies to things a party must do, not things a
party can do.
Objections "going to the root of a title" may be raised beyond the 21 day
period, but the question whether an objection goes to the root of a title is
often a difficult one. Objections to "conveyance" can be made up to
completion.
(d) "5.1.1 If it arises out of this contract - within 21 days..."
If, for example, the vendor has a different surname in an attached copy of a
folio certificate, the purchaser should requisition for a statutory declaration
as to change of name within the 21 days. If the purchaser does not, the
purchaser will be forced to argue this is an objection or requisition as to
conveyance, which is outside the wording. The purchaser could rely on
s. 57(1)(d) Conveyancing Act, 1919 which gives a purchaser the right to
have an objection to registration removed by the vendor. However, in some
cases this may be at the purchaser's expense.
The 21 days is calculated from the date of the contract as defined in clause
1. There are no special times for difficult titles e.g. old system or crown
land.
(e) "5.1.2 If it arises out of anything served..."
If an abstract of title (e.g. under clause A3.1 - qualified, limited and old
system title) is served before the contract is made the time for objections,
requisitions or questions is 21 days from the date of the contract. If it is
served after the contract is made the time is 21 days from service of the
abstract.
(f) "5.1.3 In any other case..."
For example, if the purchaser learns from an enquiry that the property is
affected by something, at some point the right to make an objection or
requisition is lost. What is a reasonable time will turn on the nature of the
affection and the circumstances.
(g) General Questions
This expression covers any "requisitions" which are really enquiries of the
vendor. The provision applies to general questions e.g. "Is the property
affected by ...?". It does not apply to a question about a particular matter.
This provision operates on a question by question basis. The purchaser is
not limited to one set of questions, as long as every set of questions is
served within 21 days.
8. Clause 6 - Error or Misdescription
(a) Generally
At common law a vendor was bound to produce a property corresponding
precisely to that described in the contract. A deficiency in the subject matter
of the sale was equivalent to a total want of title, entitling the purchaser to
annul the sale and recover the deposit and conveyancing expenses. The
harshness of the common law rule was ameliorated in equity by the
willingness of the Court of Chancery in a vendor's suit for specific
performance to treat insubstantial deficencies as not being a breach of an
essential term, and to require the purchaser to complete with compensation.
Conversely, the purchaser could obtain specific performance with
compensation but could not rescind if the vendor was willing to convey the
property with compensation.
Conditions such as this clause override the common law idea that any error
in the description of the property annulled the sale. The generally held view
is that conditions such as this do not derogate from the purchaser's equitable
rights and the condition itself is not to be read down as applying only in
circumstances where compensation would have been available under the
general law.
The courts have introduced a number of qualifications to the operation of
compensation conditions in contracts. A vendor will not be granted specific
performance of a contract for sale where the error or misdescription is so
great that the purchaser would be forced to accept a property substantially
different from which he contracted to buy17. This is known as the rule in
Flight v. Booth18 .
(b) Claim for compensaton
Clause 6 contains important departures from its counterparts in earlier
standard form contracts for sale of land eg. condition 8 of the 1965 contract
and condition 5 of the 1972 contract. These changes were prompted largely
by the decision of the High Court in Travinto Nominees Pty. Ltd. v.
Vlattas19 in 1973.
In Travinto Nominees the sale of a property was subject to an existing lease
but the vendor failed to disclose that the lease contained an option for
renewal. The purchaser on discovering the existence of the option for
renewal made a claim for compensation under condition 8 in the 1965
contract. The High Court held that the omission to disclose the existence of
the option was not an "error or misdescription of the property" within the
meaning of condition 8 and the purchaser was therefore not entitled to
compensation under that condition. The error to be compensable had to
relate to the land or the improvements thereon and not just be an error in the
statement of the title to the property.
The wording of clause makes it clear that errors in the contract (whether as
to the property or as to the title or otherwise) and misdescriptions in the
contract (whether as to the property or as to the title or otherwise) fall within
the terms of the clause.
The following are examples of matters which would appear to give the
purchaser a right to compensation under clause 6:-
* The dimensions or area of the property are less than those stated in
the contract.
* The improvements referred to in the contract encroach upon other
land or are subject to exercise by the council of its powers under s.
124 of the Local Government Act, 1993.
* The rental or other income from the property is less than that stated
in the contract.
* Where the contract including a lease does not disclose an option to
renew.
* The contract states that the property has a physical attribute that it
does not have eg. amount of timber on the property.
* Where the contract fails to disclose or misstates the nature of an
easement, covenant or similar right.
* The contract promises a title which the vendor does not possess in
whole or in part.
(c) Qualifications to operation of compensation conditions
The purchaser's right to specific performance and compensation will be
refused where the vendor can demonstrate that the error or misdescription
was made innocently and that would suffer great hardship if the contract
were to be enforced against him. It is unusual for this defence of hardship to
succeed. A purchaser may also waive his claim for compensation, if after
making a claim for compensation which has not been acknowledged by the
vendor, he subsequently takes proceedings for specific performance without
reserving his rights to claim compensation.
It has been said that specific performance will not be awarded with
compensation where the deficiency or defect is not capable of estimation in
money term. However the modern tendency is to not shrink from the task of
fixing an appropriate amount even where assessment is difficult. Despite the
purchaser's pre-contract knowledge of the error or misdescription it appears
that the vendor is obliged to comply with clause 6.
Words of approximation such as "approximately", "more or less",
"thereabouts" or "about" cover only minor discrepancies and whether such
words remove the right to compensation depends on the circumstances of
the case. Where the error or misdescription is too substantial to be excused
by the words of approximation, the purchaser is entitled to compensation
for the whole of the deficiency.
It is also thought20 that where the stated area has been copied into the
contract it should be rejected as a falsa demonstratio and the true area
regarded as that properly derived from calculations based upon the position
and length of the boundaries of the land. Falsa demonstratio is a principle
applied in Canadian cases as follows: if the description of the property
consists of more than one part, and one part is false but the other is true,
then provided that the true part describes the property with sufficient
accuracy, the false part may be rejected as a falsa demonstratio and will not
vitiate the description.
9. Clause 7 - Claims by Purchaser
(a) Generally
A distinction should be drawn between a right to "compensation" (ie. a right
to an abatement of the purchase price for a deficiency in the subject matter of
the contract) and a right to "damages". Where the purchaser's claim is for
compensation for a deficiency he is entitled to refuse to settle unless the
purchase price is abated appropriately and his conduct in so refusing to
settle will not debar him from later seeking specific performance. On the
other hand where his claim is for damages he is not entitled to refuse to
settle unless the purchase price is abated and his conduct in so refusing to
settle is a breach of contract and will debar him from later seeking specific
performance.
Condition 7 in the previous edition of the contract21 related to
"compensation" and had no relevance to a claim for damages for breach of a
term of the contract not involving an "error or misdescription" eg. where the
vendor fails to complete on the stipulated date, fails to erect a house on the
land as required by the contract, for breach of a collateral contract or for a
misrepresentation not incorporated into the contract. In such cases the
purchaser could not claim an abatement of the purchase price but had either
to rescind the contract or rely on the right to seek damages at law or in
equity.
The present clause 7 covers claims "whether for compensation or not".
Lang comments:
"The provision does not make it clear what what these are and
whether the clause precludes the making of claims for damages,
including for breach of warranty (under general law) after
completion. It certainly does not exclude statutory cliams after
completion sch as under the Trade Practices Act, 1974 (Cth) or
under the Fair Trading Act, 1987 (NSW). The term claim should
encompass claims for abatement of the purchase price, e.g. for a
title defect which (in the circumstances) does not constitute an error
or misdescription."22
Condition 7(a) in a previous edition of the contract23 contemplated that
compensation may be demanded by the purchaser or offered by the vendor.
This was to bring proceedings under the contract into line with the position
in Equity, so that in all cases where there is a relevant error or
misdescription the vendor must offer compensation before issuing a notice
to complete. Under the present clause it would still be open to the vendor to
offer compensation.
It would also appear that it is open for a purchaser during the currency of a
notice to complete to demand for the first time compensation for an error or
misdescription. The mere fact that he had not made a demand for
compensation by the date of issue of the notice to complete would not
prevent him from raising a valid demand thereafter during the currency of
the notice to complete.
The purchaser is entitled to insist that the vendor shall complete and "make"
compensation for any deficiency. Conversely the vendor is entitled to insist
that an error or misdescription shall not annul the sale but that the purchaser
shall complete upon the vendor giving compensation for any deficiency.
The condition does not give the vendor any right to compensation should
the property be greater in area or more valuable than stated in the contract.
Prima facie the vendor is responsible for the bargain he has made.
(b) "The purchaser can make a claim..."
This clause is really two clauses. The first part of the clause specify the way
in which the purchaser can make a claim before completion. The rest of the
clause specifies the way in which such claim is dealt with.
The clause applies to any claim, not just a claim for compensation. This may
create an aspect of uncertainty as discussed above.
Clause 7 has been drafted deliberately to preclude any right to compensation
unless the demand by the purchaser or offer by the vendor has been made
prior to completion. Although not entitled to compensation if not demanded
before completion it appears that a purchaser is able, in limited
circumstances to obtain damages, thereby obtaining indirectly that which
cannot be obtained directly.
In Jennings v. Zilahi-Kiss24 the contract described the property as including
five "flats" when in fact they were not flats in the accepted sense of the
word because certain municipal requirements had not been met. When the
purchaser discovered this after settlement he successfully sought damages
for breach of warranty. The court held that in accordance with the rule in
Flight v. Booth25 the error or misdescription condition did not cover a
misdescription so material and substantial that it might reasonably be
supposed that but for such misdescription the purchaser would never have
entered into the contract at all.
The compensation clause would also not preclude the purchaser from suing
in tort. A purchaser has been held26 to be entitled to damages in tort for the
vendor's fraudulent misrepresentation that the property included a roof
garden.
Contracts for the sale of land may be subject to the provisions of the
Contracts Review Act, 1980 where a provision of a contract is unjust ie.
unconscionable, harsh or oppressive. On occasions this Act may be relevant
to the condition regarding errors and misdescriptions. A contract may be
unjust in the circumstances in which it was made because of (a) the way it
operates in relation to the claimant, (b) the way in which it was made or (c)
both (a) and (b). Thus, it may be unjust under the Act because its terms,
consequences, or effects are unjust, as where it imposes on the claimant a
burden which was not reasonably necessary for the protection of the
legitimate interests of the party seeking to enforce the provision. It may be
unjust because of the unfairness of the methods used to make it as where in
the circumstances the claimant did not have the capacity or the opportunity
to make an informed choice as to whether he should enter into the contract.
It must be the contract or its provisions which are unjust and not the
transaction per se27.
In St. Clair v. Petricevic28 the Court set aside a contract for sale where the
vendor, who was "emotionally distraught" because of health and financial
problems, had entered into the contract at a price which was less than the
price she otherwise would have accepted, following a threat by the
purchaser to demolish the verandah of the vendor's house, that verandah
encroaching upon a right of way enjoyed by the purchaser. It was sufficient
that the threat was an inducing factor in entering into the contract. it is not
necessary for the claimant to show that he or she was "overborne" by the
threat, or to show that it was the sole or dominant cause of the making of
the contract.
One or more claims can be made, but the amount claimed must be specified
when making the claim.
(c) "7.1 The vendor can rescind..."
Condition 7(b) in the previous condition29 incorporated the rule in Flight v.
Booth30 with the modification that 5 per cent was the maximum
compensation that could be forced upon the purchaser31. If the
compensation exceeded 5 per cent of the purchase price the purchaser could
rescind or proceed with the contract and accept the compensation. If the
compensation did not exceed 5 per cent of the purchase price the purchaser
had to proceed with the contract and accept the compensation, otherwise, he
could rescind if he could discharge the onus of bringing his case within the
rule in Flight v. Booth32. The test was not whether the purchaser would not
have entered the contract but for the error or misdescription but rather
whether it might reasonably be expected that the purchaser would not have
entered the contract but for the error or misdescription. It was not
approached solely by a consideration of the purchaser's state of mind.
Under this condition where the purchaser chose proceed with the contract
and claim compensation this was subject to the vendor's right to rescind
under condition 8 of that edition of the contract in respect of a claim for
compensation exceeding 5 per cent of the purchase price. Also where after
receiving knowledge of the facts giving rise to a right to rescind under the
condition the purchaser expressly or impliedly elected to keep the contract
on foot the purchaser lost the right to rescind and was be bound to take the
property with compensation.
The present contract no longer gives the purchaser an an entitlement to
rescind if the claim exceeds 5 % of the price. It seems that the purchaser's
right to rescind for error or misdescription now depends on the test in Flight
v. Booth33.
Under clause 7.1 the vendor is given the right to rescind if the claim exceeds
5 % of the price34. This appears to be absolute and expresses a contractual
entitlement to rescind. The right is no longer conditional on the vendor
being unable or unwilling, reasonably or otherwise, to comply with the
purchaser's claim as, for example, in clause 835.
Condition 8 in previous editions of the contract did not refer to "reasonable
grounds" only "unable or unwilling". It will be interesting to see whether
the qualifications upon the vendor's right to exercise his power to rescind as
discussed in relation to clause 8 will apply equally to claims for
compensation coming within clause 7.1. That is, whether the mere fact that
the purchaser has made and declined to waive a claim for compensation
exceeding 5 per cent of the purchase price will not entitle the vendor to
rescind. Will the vendor need to establish that he has not acted recklessly in
entering into the contract eg. where he knows, or ought to know, from the
surrounding circumstances that the purchaser may have a substantial claim
for compensation. Will the vendor also need to establish that he is not acting
unreasonably or unconscionably in rescinding in the light of circumstances
at the time of rescission eg. where he uses a purchaser's claim for
compensation for an entirely ulterior purpose, such as to extricate himself
from the contract in order to sell at a higher price to another purchaser.
It is not clear whether either party can require completion when a small
compensation claim is made. Formerly the contract did not allow rescission
where the compensation demanded was less than five per cent of the
purchase price36.The answer appears to turn on whether the purchaser's
claim is properly described as "an objection or requisition" within the
meaning of clause 8.1.
Clause 7.1.2 echoes s. 56(1) of the Conveyancing Act which cannot be
excluded. Section 56 requires the vendor to give the purchaser reasonable
notice of his intention to rescind so as to enable the purchaser to waive the
requisition or objection. It should not be assumed that the requirement of
"reasonable" notice will be necessarily satisfied by the 14 days notice
stipulated in the condition. Further, it may be that a vendor who purports to
rescind without having given the reasonable notice required by s. 56 may be
found thereby to have repudiated his obligations under the contract thus
enabling the purchaser to accept the repudiation and himself terminate the
contract.
There would also seem to be no reason why the purchaser, who makes a
claim exceeding 5 per cent of the purchase price and is threatened with
rescission unless the claim be waived, could not withdraw his claim and
substitute for it a claim not exceeding 5 per cent of the price. Clause 7.1.3
would require the purchaser to waive the claim in writing. This is in keeping
with clause 8.3.
(d) "7.2 If this contract is completed..."
This clause by agreeing to submit disputes to arbitration attracts and is
subject to the Commercial Arbitration Act, 1984.
Provisions in previous editions of the contract to submit a dispute to
arbitration37 did not oust the jurisdiction of the court to settle the dispute.
Only the question of the amount of compensation was to be settled by
arbitration not the question of whether there was a right to compensation.
Clause 7.2.3 allows the arbitrator to determine the validity as well as the
amount of the claims.
If completion occurs, the amount claimed up to 10 % of the price is retained
by the depositholder and invested until the claims are finalised. The
purchaser cannot recover more compensation than the amount claimed. If
the amount awarded is more than the amount claimed, all the interest is
payable to the purchaser.
Time limits are placed on the arbitration procedure, at least on the request
for the appointment of an arbitrator, which is three months after completion,
otherwise the claims lapse. It would be sufficient to prevent lapsing if either
party requests an appointment for arbitration. No time limit is set for the
appointment or the arbitration itself.
(e) Measure of compensation
As far as any general principle exists it is that the purchaser is entitled to be
put as nearly as possible into the position he would have enjoyed had he
obtained the land contracted to be sold without the error or misdescription.
The measure of damages depends on the circumstances eg.
* Where the purchase price has been calculated according to the
dimensions or area of the land on the basis of a price per acre or per
foot of frontage the purchaser will be compensated by a
proportionate abatement of the price.
* Where the purchase price has been calculated according to the
income from the property this would be the basis for a
proportionate abatement.
* Where the property does not possess an advantageous physical
characteristic, eg. a made up road, it has been held that the measure
of compensation is not the cost of making up the road but rather the
difference between the value of the property in its actual state and
its value had the road been made up.
Professor Butt in his book The Standard Contract for Sale of Land in
N.S.W.38 gives a number of examples of the flexibility of the court in
assessing compensation.
10. Clause 8 - Vendor's Right to Rescind
(a) Generally
Conditions of sale permitting the vendor to rescind following the
purchaser's insistence upon unwelcome objections or requisitions have been
common in contracts for the sale of land for at least 140 years. Conditions
of sale such as the present condition were devised to enable vendors to
rescind where purchasers insisted upon an objection or requisition which
because of the complexity of old system title the vendor was unable or
unwilling to satisfy.
The two overriding questions in considering the application of these
conditions has always been:-
1. Is the matter raised by the purchaser of the kind which gives rise to
the exercise of the vendor's right to rescind?
2. If yes, will the court, in the light of the circumstances of the case,
nevertheless refuse to permit the vendor to rely upon the right?
(b) "The vendor can rescind..."
Under earlier standard form contracts, the question had sometimes arisen
whether the vendor could rescind under a "vendor's recission" condition
where the purchaser had refused to waive a claim for compensation for an
error or misdescription. It has been held that the vendor could not rescind
where the claim for compensation arose out of an error or misdescription
that was not a defect in title.
It is clear from the current contract that where the purchaser has made and
refuses to waive a claim for compensation exceeding five per cent of the
purchase price, the vendor's right to rescind will come into operation
regardless of whether or not the purchaser's claim arises out of a defect in
title. However the contract does not expressly deal with the problem of
whether the vendor can rescind where the purchaser refuses to waive a
claim for compensation which does not exceed 5 per cent of the purchase
price. The answer turns on whether the purchaser's claim is properly
described as "an objection or requisition" within the meaning of clause 8.1.
An objection or requisition as to title comes within condition clause 8.139 .
Apart from that, no clear principles are available as to whether objections
and requisitions as to conveyance, requisitions in the nature of general
enquiries and reminders to the vendor of his obligations under the contract
fall within clause 8.1.
In Didsbury v. Griffin40 the subject was a dwelling-house which included
an unauthorised extension used as a studio office. After entry into the
contract the vendor received a notice under s. 317B(1A) of the Local
Government Act, 1919 requiring the removal of the extension. The vendor
complied with the notice but the purchasers refused to settle unless (1) a
certificate under s. 317A of the Act was forthcoming in respect of the work
done in compliance with the notice; (2) council approval was obtained to a
development application by the purchasers to the use of an extension as a
studio office (their intent being to restore the property to its state as at the
date of the contract; and (3) compensation from the vendor for the cost of
restoration work.
The vendor purported to rescind the contract under condition 841 on the
ground that he was unwilling to comply with the purchasers "objections or
requisitions". It was held that the demand for a certificate was a requisition
as to title, and so was a requisition within the meaning of the term
"objection or requisitions" in condition 8(b). This was because the s. 317B
notice was a defect in title and the vendor was under an obligation to show
that the defect was cured by compliance with the notice through the medium
of obtaining a certificate under s. 317A. However, the demand for council
approval of the development application was not an objection or requisition
within the meaning of condition 8. The result of this case was however that
the vendor was not entitled to rely on his purported rescission on the
grounds of reasonableness.
In practice however it is often found that the vendor has acted unreasonably
in purporting to rescind under the condition and this makes is strictly
unnecessary to decide whether the matter raised by the purchaser is an
"objection or requisition" within the meaning of the condition.
By virtue of clause 8.3 an oral waiver or waiver by conduct is not sufficient
to prevent rescission. Which is in keeping with clause 7.1.3.
(c) Restrictions on exercise of power to rescind
The reference to "reasonable grounds" in clause 8.1 echoes the caselaw.
The vendor cannot act arbitrarily or capriciously, but only upon reasonable
grounds and in good faith. The burder of proof being on the purchaser that
the vendor has acted otherwise.
The court may, in all the circumstances of the case, refuse to permit the
vendor to take advantage of the right to rescind. Historically the condition
was inserted into contracts for sale to preserve the vendor from the prospect
of incurring unexpected and uncontemplated expenses or litigation which
the inherent complexity of title to land might pose. To construe the clause
literally however would be to give the vendor the power unilaterally to
decline to perform the contract.
Whether the clause justifies the vendor in a given case in rescinding the
contract requires consideration of the purpose of the clause, the vendor's
conduct to ensure he is using the power bona fide for the proper purpose
and the vendor's rescission must be reasonable.
The vendor will not be permitted to resort to the rescission condition to
extricate himself from the consequences of "recklessness" in entering into
the contract. But even where there has been no recklessness in entering into
the contract he will not be permitted to rescind where in all the
circumstances of the case it would be "arbitrary", "capricious" or
"unreasonable" for him to do so.
Recklessness in entering into a contract was considered in Selkirk v.Romar
Investment Ltd.42 where the vendor knew at the date of entry into the
contract that he was not likely to be able to obtain evidence of the death of a
Crown grantee. However in several earlier sales the purchasers had been
prepared to accept the title without proof of this death and even though the
vendor might have brought the title situation directly to the purchaser's mind
by a special condition the Privy Council held that the vendor had not been
reckless in entering the contract.
It would appear that vendors are not reckless in entering into a contract on
the basis of erroneous legal advice particularly if there is no question of
legal competence but the matter involves difficult questions of law.
Situations were the Court has considered whether the vendor has acted
"unreasonably" in purporting to rescind include:-
* It was held to be unreasonable for the vendor to rescind where the
claim for compensation for a deficiency in frontage amounted to
one-fourtieth of the purchase price.43
* It was not unreasonable for the vendors to exercise their power to
rescind where the purchaser's requisition related to right of way
referred to in a conveyance 35 years prior that the vendors were not
aware of.44
* The High Court held that a vendor was not entitled to rescind were
the purchaser required a caveat lodged by an earlier purchaser under
a contract which had since been terminated to be removed.45
* The vendors were held to be entitled to invoke the rescission
condition upon the purchaser's requisition requiring the vendors to
remove the need for Minister's Consent. Under the Crown land
legislation the purchaser, a corporation, could not purchase the land
unless the need for Minister's Consent was removed. Neither party
had realised this prior to entering into the contract.46
* Where a property was subject of an order under s. 317B of the
Local Government Act, 1919 requiring the demolition of an
unauthorised extension and the vendor complied with the order the
vendor's purported rescission was held to be invalid. The
purchasers made a requisition requiring a certificate under s. 317A
of the Act in respect of the part demolished. The vendor purported
to rescind under condition 8 when the purchasers failed to waive
the requisition. The Court held that the vendor's unwillingness to
meet the requisition was in all the circumstances "unreasonable and
capricious" because it was unreal to suggest that there would be any
problem encounter with council in obtaining the issue of the s 317A
certificate.47
Certain factors may be relevant when considering whether the vendor was
"reckless" in entering into the contract or "unreasonableness" in exercising
the right to rescind. It will be rare for the vendor to be permitted to rescind
in the event of an objection or requisition concerning a defect that the vendor
knew of when entering the contract. It would have been expected to
preclude any objection or requisition by an appropriate provision in the
contract for sale. But this is not to say that the vendor can never rescind in
such circumstances.
(d) Miscellaneous aspects of recission by vendor
The vendor's power to rescind under clause 8 echoes s. 56(1) of the
Conveyancing Act which cannot be excluded. Section 56 requires the
vendor to give the purchaser reasonable notice of his intention to rescind so
as to enable the purchaser to waive the requisition or objection. It should not
be assumed that the requirement of "reasonable" notice will be necessarily
satisfied by the 14 days notice stipulated in the condition. Further, it may be
that a vendor who purports to rescind without having given the reasonable
notice required by s. 56 may be found thereby to have repudiated his
obligations under the contract thus enabling the purchaser to accept the
repudiation and himself terminate the contract.
Under clause 8 the giving of notice is a precondition to the validity of the
rescission. It may be assumed that this notice should be served on the
purchaser within condition 20.6. The condition prescribes no formal
requirements for the vendor's notice other than that it be "in writing". Two
basic requirements that should be satisfied are that the ground of the
vendor's threatened rescission be stated and that the notice should bring to
the purchaser's attention the consequences of the failure to waive the claim,
objection or requisition.
It has been held that a notice was ineffective which merely stated:
"the vendor is unable to satisfy the requisitions on title and we shall
be glad if you will let us know within 14 days whether your client
wishes to proceed with the sale."48
Although it is no doubt preferable to refer in the notice to clause 8, it will
not render a notice ineffective merely because the condition is not referred
to. A notice of intention to rescind which is equivocal as to the vendor's
intention to rescind, as where it is expressed to be "without prejudice", is
not an effective notice.
It is a well established principle that the vendor need not give reasons for
invoking his right to rescind under the former versions of clause 8, either at
the time he gives notice of intention to rescind or at the time he actually
rescinds. Where he gives reasons the vendor may at a later stage adduce
further reasons. The failure to give reasons may, however, be a factor
which will be taken into account by the court in determining the
reasonableness of the rescission.
The onus of establishing that the contractual right to rescind has arisen is
upon the vendor but the purchaser bears the onus of showing circumstances
that should prevent the vendor exercising that right.
The vendor may rescind only if the purchaser has not waived his claim,
objection or requisition within 14 days after the vendor's notice of intention
to rescind has been given. It would not be open to the purchaser to claim
that a vendor's rescission was invalid on the ground of a decision by the
purchaser to waive, made within the 14 day period but not communicated to
the vendor within that time. A purchaser's silence following a vendor's
notice amounts to an admission by the purchaser that he is not disposed to
waive the objection to title which he has made.
In condition 8(b) of earlier editions of the contract wording precluded any
argument that the vendor by expressing a willingness to investigate, or
purporting to deal with, the substance of the purchaser's claim, objection or
requisition, may have waived his right to rescind. Similar wording has not
been used in the current contract. However it has been held49 in N.S.W.
that a vendor who issues a notice to complete thereby precludes himself
from later relying upon the right to rescind. It is clear that the vendor will
not be permitted to rescind if he delays unreasonably in exercising the right.
The vendor may rescind notwithstanding any litigation in respect of the
purchaser's claim for compensation, objection or requisition but the vendor
would be prevented from rescinding unless he rescinds reasonably promptly
after the issue of process. Once the Court has pronounced a decision against
him the right to rescind is lost.
Where the vendor validly rescinds under clause 8, the provisions of clause
19 are thereby invoked. Rescission under clause 8 is in general terms a
rescission ab initio, the deposit and all other money paid by the purchaser
must be refunded and neither party is liable to the other for damages, costs
and expenses, although liability for breaches of contract is not extinguished
by the rescission and a purchaser who has been let into possession may
have to make some recompense for the benefit he has received thereby.
11. Clause 9 - Purchaser's Default
(a) Generally
Clause 9 of the contract for sale confers certain remedies upon the vendor in
the event of default by the purchaser in the performance of "essential"
obligations. We look at two aspects of the condition: the nature of
"essential" obligations (including notices to complete) and the ambit of the
remedies (including the vendor's right to sue for damages and his right to
resell the property).
(b) Default in essential obligations
(i) Essential obligations
The Court of Appeal had held that a similar condition in the 1972 edition of
the contract gave the vendor the right to terminate the contract for any
default under the contract. The purport of the present condition 9 is to
provide a right of termination only where the purchaser has defaulted in the
observance or performance of obligations under the contract which are, or
have become, "essential".
The test of whether a term in a contract is essential depends on the intention
of the parties as appears in or from the contract. The words of Jordan, C.J.
in Tramways Advertising Pty. Ltd. v. Luna Park (NSW) Ltd. 50:
"The test of essentiality is whether it appears from the general
nature of the contract considered as a whole, or from some
particular term or terms, that the promise is of such importance to
the promisee that he would not have entered into the contract unless
he had been assured of a strict or a substantial performance of the
promise, as the case may be, and that this ought to have been
apparent to the promisor."
Tested by these criteria, the purchaser's obligation to pay the deposit would
be regarded as an "essential" obligation, as would the mutual obligations of
the parties on completion - that of the vendor to transfer an unencumbered
title to the purchaser and that of the purchaser to pay the purchase price. But
whether other obligations under the contract are essential is more difficult to
determine and it is not sufficient to raise the status of all clauses of the
contract to the level of essential terms. The position may be different where
the parties add clauses to the printed form of contract and expressly refer to
them as conditions or purport to confer a right to termination for breach.
See The Standard Contract for Sale of Land by Butt51 for some factors
relevant in determining whether or not an obligation is essential.
The current edition of the standard form of contract attempts to clarify which
clause compliance with which is essential. Clause 20.11 provides that
"normally, if a party must do something within a time, the time is not
essential." Other clauses specify that it is an essential clause e.g. clause 2.1
(deposit).
The modern emphasis is on the nature of the breach. A term may be such
that some breaches may give a right of termination, some may not,
depending on the seriousness of the breach. For example, some breaches of
clause 18.1.2 (early occupation) may justify termination, others may not.
Clause 9 refers to non-compliance with "this contract (or a notice under or
relating to it)". The clause therefore applies to both a failure to comply with
the contract in an essential respect and a failure to comply with a notice in an
essential respect e.g. a notice fixing time which is of the essence in relation
to completion or any other obligation. These are two separate areas. A
notice to complete does not write the time it provides into the contract52.
(ii) Time Stipulations.
Special considerations apply to terms in contracts for the sale of land
stipulating the time for performance of an obligation. At common law, time
stipulations in contracts for the sale of land were said to be "of the essence".
By this it was meant that timeous performance of the obligation concerned
was a condition of the contract. Thus where a contract stipulated a date for
completion and the vendor was unable to complete on that date, the vendor
was precluded thereafter from enforcing the contract against the purchaser
and was liable in damages to the purchaser.
Conversely where the purchaser was unable to complete on the stipulated
date, he was unable thereafter to enforce the contract against the vendor and
was liable in damages to the vendor, and the vendor could terminate the
contract and forfeit the deposit. Most of the reported cases dealt with the
failure to complete within the time stipulated in the contract for completion
but the same rule applied to time stipulations for the performance of steps in
the conveyancing process leading up to completion.
Equity would grant specific performance of the contract at the suit of the
party who had breached the time stipulation however this was subject to
normal equitable discretions and where appropriate would be accompanied
by an award of damages to compensate the innocent party for any loss
caused as a result of the breach.
An assimilation of the rules of law and equity was achieved in N.S.W. by
s. 13 of the Conveyancing Act, 1919. There is some uncertainty as to the
operation of this section but it is clear that time stipulations in contracts for
the sale of land are, or become, of the essence, both at law and equity, in
the following circumstances:-
* Where the parties expressly provide that time shall be of the
essence. The usual way in which such agreement is expressed is by
the use of the formula "time shall be of the essence" but it is not
necessary to use the formula. It has been held that time was of the
essence where the contract provided for completion on or before a
certain date and that should completion not take place on or before
that date either party could terminate the contract. But time was held
not to be of the essence where a contract provided that completion
shall take place on a specified date but that if it did not the purchaser
shall pay interest on the unpaid purchase price.
* Where from the surrounding circumstances, including the nature of
the property, time is of the essence. This is especially the case
where the property is of a wasting nature or liable to unpredictable
fluctuations in value because it is implied that the parties must have
intended time stipulations for completion of such contracts to be
strictly adhered to lest they be prejudiced by delay. Examples of
time stipulations held to fall within this category are the sale of a
public house, sale of a determinable interest (a life estate) and sale
of a pastoral holding under a lease of limited duration.
* Where the appropriate notice procedure is followed. This is dealt
with in more detail below.
(iii) Time of the Essence by Notice Procedure
Where time is not of the essence for the performance of an obligation under
the contract, it may nevertheless be made so by the giving of an appropriate
"notice". The requirements for a valid notice to complete may be stated as
follows:-
1. The recipient must be in default such as to justify the
giving of the notice. A distinction must be drawn between a
contract stipulating the non-essential date for completion and a
contract silent as to the date for completion. Where the contract for
sale stipulates a date for completion, a notice to complete may be
given to the party who has failed to complete as soon as that
stipulated date has passed. It is now clear that failure to complete on
the non-essential stipulated date for completion is a breach of
contract which although not entitling the innocent party immediately
to terminate the contract does justify the immediate giving of a
notice to complete to he defaulter. A vendor normally could not
give a notice to complete upon the purchaser's failure to submit the
appropriate assurance within 28 days because the default is not a
default in the obligation to complete. However the vendor can give
the purchaser a notice calling on him to furnish the assurance within
a reasonable time failing which the vendor will treat the contract at
an end (ie. a notice to perform).
Where the contract for sale does not stipulate a date for completion
the law implies an obligation to complete within a reasonable time.
The question of what is a reasonable time for completion is judged
at the time of entry into the contract, in the light of the provisions of
the contract and the circumstances then existing, circumstances later
arising are not relevant. See Standard Contract for Sale of Land by
Butt53 for some examples of what has been held to be a reasonable
time. Once it is established that a "reasonable time" has elapsed and
a party has neglected to complete after being called upon by the
other party to do so, a notice to complete may be given.
2. The giver of the notice must be ready, willing and able
to proceed to completion. This encompasses the requirement
that the giver of the notice be free of default under the contract.
Thus a vendor cannot give a notice to complete where he has failed
to give proper particulars of title, he has wrongfully removed items
from the property or there is a defect in title constituted by the
power vested in the local council under s. 124 Local Government
Act to order demolition of structures forming a substantial part of
the subject matter of the contract.
If at the time of giving of the notice the only matters outstanding for
the vendor to do were of a "mechanical" nature the notice may still
be valid. Where a mortgage is to be discharged or a caveat
withdrawn on completion the vendor need not at the time of issuing
the notice to complete be in possession of an executed discharge of
mortgage or withdrawal of caveat if all the arrangements have been
made for the handing of these documents over on settlement. It has
been held54 that a vendor was able to give a notice to complete
where the contract provided for vacant possession to be given on
completion and when the notice was given the property was
tenanted and a notice to quit had not been given. This was because
the tenants were tenants at will and could be removed on 24 hours
notice. A charge for land tax will not invalidate a notice to complete
a vendor who is unable to remove the charge by the time stipulated
in the notice to complete is in substantial default and the purchaser
will be entitled immediately to terminate the contract.55
3. The time fixed by the notice must be reasonable in all
the circumstances. Whether the time specified is reasonable
depends upon all the circumstances of the case as they stand at the
time the notice is given. This necessarily introduces an element of
uncertainty into the giving of a notice to complete: " the appropriate
length of notice to be given cannot be determined by rule of thumb,
but must be a matter of professional judgment"56. A cautious
vendor will always err on the generous side. It is generally thought
in practice in NSW that a period of between 21 and 28 days is
enough but it turns on the facts of the case. The High Court has
expressed the view that "strong circumstances" must exist to justify
a notice giving less than 14 days for completion 57.
Professor Butt in Standard Contract for Sale of Land58 analyses
some of the factors in determining whether a particular notice has
allowed a reasonable time for completion.
In computing whether the time allowed in the notice is reasonable
allowance generally will not be made for the fact that the recipient's
solicitor will, through ill-health or holidays, be unable to attend to
the matter (although this may be relevant to whether the recipient is
entitled to a refund of deposit in exercise of the court's discretion
under s. 55(2A) Conveyancing Act.
There is a general principle that the reasonableness of the time
specified in a notice to complete is computed having regard to the
date of receipt of the notice to complete not the date of its issue.
However this is subject to any contrary provision in condition 21.
If one party stipulates or both agree a particular time for settlement
on a certain day but one party is not in a position to complete when
the time arrives, it seems that the other party cannot terminate the
contract if the first party is in a position to complete later on the
same day.
4. The notice must be in order as to form and content.
Notices to complete commonly assume a stylised form nevertheless
no particular form of notice is necessary and quite informal
documents or correspondence will suffice provided that the
requisite information is conveyed. Indeed there seems no reason
why an oral notice to complete would not be effective, although for
reasons of proof writing is to be preferred.
The requirements concerning content are few: the time prescribed in
the notice must be reasonable, the notice must state with reasonable
explicitness what it is that is being required to be done and the
notice must state with reasonable explicitness that if what is being
required to be done is not done the giver will treat the contract as at
an end or will treat himself as entitled to put an end to it.59 Clause 9
of the standard contract provides that "the vendor can terminate by
serving a notice". The word used is "by" not "only by". The
standard contract therefore contemplates the vendor terminating at
general law, for example, by conduct. This has to be distinguished
from a notice of termination which clause 9 requires to be served.
A valid notice must demand completion on a particular date and a
notice has been held invalid where a letter called upon the recipient
to complete, appointed a date and hour for completion, and added:
"We make time of the essence of the contract herein" seemingly for
failure adequately to point out the consequences of non-compliance.
However it is thought that a statement that the nominated date in the
notice for completion is "of the essence" should be regarded as a
sufficient indication that termination may follow non-compliance.
5. Some miscellaneous aspects must be contemplated. Care
should be take if the notice calls upon the recipient to submit an
assurance as well as to complete. The mere issuing of a notice does
not constitute waiver of rights which may have accrued to the giver
of the notice. A notice has been held to be invalid for threatening to
exercise upon non-compliance rights in excess of those actually
possessed. Importantly a valid notice to complete makes time of the
essence for both parties to the transaction. The result is that the
recipient may terminate the contract if the giver is unable to
complete on the day nominated for completion and the recipient is
not required to give a notice to complete before exercising the right
to terminate.
There is no need for a notice to complete to be given where the
defaulting party has repudiated his obligations under the contract as
distinct form merely failing to complete. Whilst failure to comply
with a valid notice to complete establishes a repudiation by the
recipient of the notice, equally the innocent party may terminate if
repudiation can be established from other circumstances. But
repudiation of a contract is a serious matter and will not lightly be
inferred. Repudiation may be found where a purchaser advises that
he has no intention of completing the contract or that he has no
prospects of finding the finance necessary to complete.
(iv) Performance of essential obligations
There appears to be a distinction drawn between essential terms requiring
"strict" performance and those requiring only "substantial" performance. In
the former category, the promisee may treat himself as discharged from the
contract upon any breach by the promisor, however slight. But in the latter
category, the promisee may not treat himself as discharged where there has
been substantial performance by the promisor. The applicability of clause 9
will not be in doubt where the essential obligation breached by the purchaser
is one requiring strict performance. But where the essential obligation
allegedly breached is one requiring substantial performance only, the better
view appears to be that there is no breach, despite less than strict
performance by the purchaser, and so no "default". Therefore clause 9
would not come into operation.
(v) Vendor's waiver of essentiality
The condition does not deal specifically with the question of the effect of
"waiver" by the vendor of the purchaser's breach of an essential obligation.
The vendor may through his conduct be found to have "waived" at least
temporarily, the right to terminate for the purchaser's breach of an essential
obligation but the purchaser bears the onus of proving waiver by the vendor
of the right to terminate. Two specific processes may be involved "election"
and "estoppel".
The vendor will not be permitted at the one time to exercise the right to
terminate for breach of an essential obligation and the (alternative and
inconsistent) right to keep the contract on foot. He must choose ("elect") to
exercise one or the other, and once he exercises one right he forfeits the
right to exercise the other. However a party who elects to keep the contract
on foot rather than terminate for the other party's default, keeps it on foot in
respect of both its benefits and its risks.
The vendor's right to insist upon the essentiality of an obligation under the
contract, or to insist upon the essentiality of time for the performance of an
obligation under the contract, may be lost by operation of the law relating to
estoppel i.e. where one party has allowed another party to act on an
assumption to his detriment the former may be prevented from departing
from that assumption.
(vi) Relief against forfeiture for default in essential obligation
It should be noted that it may be possible for the purchaser to obtain an
order for specific performance notwithstanding breach of an essential
obligation. Whether the exceptional circumstances exist in a given case
hinges on the existence of unconscionable conduct. Butt Standard Contract
for Sale of Land60 considers what may amount to unconscionable conduct.
(c) Vendor's remedies
(i) Generally
The remedies conferred by the terms of clause 9 may be expressed
schematically in the following fashion:
The vendor may-
A. keep or recover the deposit and terminate the contract: and
thereafter
B. either
1. (a) sue the purchaser for breach of contract, and
(b) retain any purchase-money paid over and above the
forfeited deposit as security for any such damages or
compensation awarded:
(i) for 12 months, or
(ii) where proceedings for damages or compensation
(including, where appropriate, an allowance for an
occupation fee or rents and profits) are
commenced within 12 months of termination of
the contract;
or
2. (a) resell the property as owner, and
(b) where the vendor has resold the property under a contract
made within 12 months of termination of the contract
(i) recover any deficiency on resale and such
expenses as liquidated damages, and
(ii) retain any purchase-money paid over and above
the forfeited deposit as security for any such
deficiency on resale or attempted resale.
Under clause 9 the vendor is given the option, after terminating the contract,
of either suing for damages in accordance with general law principles or
reselling the property as owner and claiming as liquidated damages any
deficiency on resale and expenses. Under general contract law principles, a
vendor who terminates the contract for the purchaser's breach can sue for
damages for that breach, the measure of damages being the difference
between the contract price and the value of the property at the date of the
breach of contract.
The vendor is permitted under the general law to resell the property but the
amount of any deficiency on resale will not necessarily be the measure of
the vendor's damages for the purchaser's breach. Under the present
condition, if the vendor chooses to resell as owner the measure of his
damages is the amount of the deficiency on resale (plus the expenses of
resale and the purchaser's default). Further, under general law principles
there is no right in a vendor to retain purchase-money (other than any
forfeited deposit) as "security" for damages which might be awarded for the
purchaser's breach. But there is such a right under clause 9.
One important qualification to clause 9 is that the remedies are only
conferred under the condition only in the event of default by the purchaser
in the performance of essential obligations under the contract or a notice
given in pursuance of the contract. The wording used is "does not comply
with this contract (or a notice under or relating to it).
(b) Forfeiture of deposit and termination of contract
By the terms of clause 9, upon the requisite default by the purchaser the
vendor may, by notice in writing served on the purchaser, forfeit the deposit
(except so much of it as exceeds 10 per cent of the purchase price) and
terminate the contract.
Since the obligation of vendor and purchaser upon completion are
dependent and concurrent, a vendor cannot terminate the contract for the
purchaser's default in performance of an essential obligation unless the
vendor himself was ready, able and willing to complete as required by the
contract. For example, a vendor cannot terminate for the purchaser's failure
to complete on an "of the essence" date unless the vendor himself was
ready, willing and able to complete on that date. The vendor could sue for
damages for the purchaser's breach, but unless able to complete as required
by the contract the damages would be nominal only.61
The deposit is liable to be forfeited upon termination by the vendor even
without express provision for forfeiture. This follows from the nature of the
deposit as a security for the purchaser's performance of the contract. But it
is only the deposit which is forfeitable on termination. If the sum in
question is properly characterisable as a part payment of the purchase price
and not a "deposit" it is not forfeitable as a deposit.
Where the deposit has been paid, the vendor generally is entitled to forfeit
the full amount of the deposit notwithstanding that the amount of his actual
loss is less than the amount of the deposit. The right to sue for and recover
an unpaid deposit will be particularly valuable to a vendor whose loss is less
than the stipulated deposit.
The right to sue to recover an unpaid deposit is not however free from
doubt. A number of modern decisions indicate that an equity court has
jurisdiction to grant relief against forfeiture of a deposit consequent upon
termination of the contract for the purchaser's default, where the deposit is
in the nature of a "penalty". This is but one instance of the equitable
jurisdiction to relieve against penalties.
Sections 55(1) and 55(2A) Conveyancing Act are designed to enable the
purchaser to recover a deposit which otherwise might be forfeited to the
vendor. The latter has already been mentioned as it gives the court a
discretion to order the repayment of the deposit.
The word "recover" in clause 9.1 clarifies the vendor's right to recover an
unpaid deposit from the purchaser. For example, if the purchaser's cheque
bounces, the vendor can sue the purchaser for the deposit under the contract
and on the cheque.
The words "keep and recover" do not give any direct right against the
depositholder, who is not a party to the contract. However, the
depositholder as a stakeholder agrees to pay in accordance with the contract,
and these words indicate the deposit is now payable to the vendor.
Deposit money forfeited by the purchaser (under a contract or legislation) is
liable to capital gains tax, in the same way as the fee for an unexercised
option62. This will be the case whether or not the asset to which the contract
and deposit related was exempt, would have been deemed not to create a
gain or disposal (e.g. sole or principal residence) or would have involved a
capital loss on disposal.
(c) Notice in writing required
The condition makes it clear that the only method by which the vendor may
terminate the contract is by "notice in writing" and such writing must be
"served" on the purchaser. No particular form of written notice is required
as long as the writing conveys the message that the vendor there and then
(ie. by the notice) terminates the contract.
(d) Suing for breach of contract
By the terms of clause 9, one of the remedies available to the vendor
following termination of the contract for the purchaser's default is "to sue
the purchaser for breach of contract". The damages available to the vendor
in pursuing this remedy will be governed by general principles of contract
law and the starting point in the assessment of damages is that the injured
party is to be placed in the same situation, so far as money can do, as if the
contract had been performed.
The general principle is limited by the rule in Hadley v. Baxendale 63:
"Where two parties have made a contract which one of them has
broken, the damages which the other party ought to receive in
respect of such breach of contract should be such as may fairly and
reasonably be considered either arising naturally, that is, according
to the usual course of things, from such breach of contract itself, or
such as may reasonably be supposed to have been in the
contemplation of both parties, at the time they made the contract, as
the probable result of the breach of it."
That case then went on to consider that damages should be such as in the
special circumstances of the case known to both parties may be reasonably
supposed to have been in the contemplation of the parties, as the result of a
breach, assuming the parties to have applied their minds to the contingency
of there being such a breach.
Specific heads of damage which often fall for consideration:
* The vendor is entitled to damages equal to the difference (if any)
between the contract price and the market value of the subject
property e.g.. if the contract price was $ 285,000 and at the time of
the breach of contract the value of the land had fallen to $ 145,000,
the vendor would be entitled to the difference less the amount of the
forfeited deposit.
* The vendor may recover the expenses of the abortive sale e.g. legal
costs, removalists, auctioneers and agents expenses.
* The vendor may recover loss of income from the property
attributable to the purchaser's default.
* Where after terminating the contract for the purchaser's default the
vendor chooses to resell the property he may recover form the
defaulting purchaser the expenses of the resale, at least where the
resale takes place sufficiently soon after the breach for the expenses
of resale properly to be attributable to the breach. This is distinct
from the vendor's right under clause 9.
* Where the purchaser has been in possession and has damaged the
property the vendor is entitled to recover the cost of repairing the
damage.
* Where the vendor intends to apply the proceeds of the sale towards
the purchase of another property, he may recover from the
defaulting purchaser any additional expenses incurred on that
purchase which flow from the default e.g. the vendor's cost of
obtaining alternative finance.
* It seems that, subject to any agreement to the contrary, at common
law no action lies against a defaulting purchaser for use and
occupation of the premises in respect of the period whilst the
contract was in force.
* The purchaser must pay interest on the outstanding balance of the
purchase price from the time when completion should have taken
place. However a set-off may be allowed for the benefits the
vendor derived from remaining in possession.
* In assessing damages payable to the vendor for the purchaser's
default, credit must be given for the amount of the forfeited deposit.
* It seems that in assessing damages payable credit must also be
given for any excess in value of the land at the date for assessment
of damages (usually the date of the purchaser's breach) over the
contract price.
* Vendors have been denied damages for additional interest incurred
under a mortgage following the purchaser's default unless the
purchaser knew of the mortgage before the contract.
If the purchaser has been in possession, the damages may include an
occupation fee (or an allowance for rents or profits). This is not prevented
by clause 18.6, which relates only to an agreed fee, but an agreed fee would
be taken into account in the calculation of damages.
(e) Retention
The vendor's right to retain, as security for "anything recoverable under"
clause 9., "any other money paid by the purchaser under this contract" may
often be valuable. If the purchase price was payable by instalments the
vendor would be allowed to retain any instalments paid. However, the right
of retention exists for only 12 months or, where the vendor commences
proceedings for the recovery of damages or compensation within 12
months, until proceedings are concluded. It would appear that this means 12
months from the date of termination of the contract.
(f) Resale
It is clear from the wording of clause 9 that the rights conferred under it are
not alternative to the rights conferred at common law upon termination.
However there is no need for the vendor to elect between common law and
contractual rights, except to the extent of any inconsistency.
It appears that the vendor has some obligations towards the purchaser in the
event of a resale however it is unclear as to whether this obligation is in the
nature of a "mortgagee style duty" or "mitigation style duty".
In determining whether there is a deficiency on resale any deposit forfeited
must be brought into account. The words "with credit for any of the deposit
kept or recovered" in clause 9.3.2 confirms this.
The vendor's right to recover any deficiency exists only where the "vendor
has resold the property under a contract made within 12 months". It would
appear that this means 12 months from the date of termination of the
contract.
The word "reasonable" applies to the costs and expenses, not to "any
attempted resale". A question which arises is whether the purchaser can
argue an attempted resale was not reasonable e.g. that it was to a purchaser
who was almost sure to cool off, and that the reasonable costs of that sale
are zero.
12. Clause 10 - Restriction on Rights of Purchaser
(a) Generally
Under the general law the vendor is obliged to disclose to the purchaser all
latent defects in title, and that failure to do so will, depending upon the
circumstances, entitle the purchaser to rescind or claim compensation. But it
is open to the parties to contract that no objection or requisition shall be
taken by the purchaser to defects in title and the present clause 10 is directed
to that end. It purports to preclude all objections, requisitions or claims by
the purchaser in respect of the various matter referred to in paras 10.1.1-
10.1.9. However this is subject to any right of rescission that may be
available under the Conveyancing (Vendor Disclosure and Warranty)
Regulation, 1986.
Two principles must be kept in mind. The first is that if the defect in respect
of which it is sought to preclude objection by the purchaser is not covered
by the condition of sale, the purchaser's rights are unaffected by the
condition. The other is that even if the defect is covered by the condition,
but the vendor has been less than fair and explicit in the manner in which it
has been disclosed to the purchaser, then, although the purchaser will be in
breach of contract if he refuses to complete, the vendor will not be able to
obtain specific performance in equity. The vendor may also be ordered to
return the deposit unless the contract "discloses" the defect64. The contract
cannot take away the court's discretion or alter the meaning of legislation.
In order to enable the vendor to obtain specific performance despite the
existence of a defect in title, the contract should clearly and fairly disclose
the nature of the defect and then preclude the purchaser from raising any
objection, requisition or claim in respect of that defect.
Under the present contract there could arise inconsistencies between clause
10 of the contract and clause 5(1) of the Conveyancing (Vendor Disclosure
& Warranty) Regulation, 1986. For example, an inconsistency between
clause 10.1.2 and clause 5(1)(b) of the Regulation. In the event of any
inconsistency the Regulation prevails, the purchaser may rescind but is not
entitled to any other remedy against the vendor.
It has been held that reference to "objection, requisition or claim" includes
rescission. Any doubt has been put to rest by including the wording "or
rescind or terminate" in the clause.
(b) "10.1.1 The ownership...of any fence"
This paragraph precludes the purchaser from making any objection,
requisition or claim for compensation in respect of the ownership or location
of any fence. The reference is to a "fence" not just a "dividing fence". For
example, within a strata parcel there may be a fence whose ownership or
location is unexpected and unfortunate, but which is not technically a
dividing fence. The body corporate is the owner of the whole parcel for the
purposes of the Dividing Fences Act, 195165.
"Dividing fence" is defined in the Act to mean "a fence separating the lands
of different owners whether on the common boundary of adjoining lands or
on a line other than the common boundary". A fence is a structure, ditch,
embankment (or hedge or similar vegetative barrier) enclosing or bounding
land. It includes a gate, cattle grid, apparatus necessary for operation of the
fence; natural, artificial watercourse that separates the land of adjoining
owners; and foundation, support necessary for support and maintenance of
the fence. It does not include a retaining wall or a wall which is part of a
house, garage or other building66.
Where the fence straddles the common boundary there is a presumption that
it belongs to the adjoining owners as tenants in common in equal shares.
This presumption is however rebuttable e.g.. where where one owner has
paid the whole cost of the fence he is regarded as the sole owner.
Where the fence is not on the common boundary, it normally belongs to the
person on whose land it stands, as a fixture. The result may be that one
owner occupies part of the land of his neighbour and it is possible for a
possessory title to be acquired to the part occupied. This paragraph does not
preclude objections, requisitions or claims for compensation respecting the
existence of a possessory title arising from occupation of the land as
enclosed by the dividing fence.
Where a give-and-take fence is erected, conferring on each adjoining owner
the right to occupy portion of the land of the other (up to the line of the
fence) each occupies such portion as tenant of the other.
Clause 10 applies to the ownership or location of "any fence". It does not
apply to:
(i) The lack of a fence or the state of repair of a fence. If this is a patent
defect the purchaser cannot complain under the general law. The
purchaser will be liable to contribute to fencing work under the
Dividing Fences Act.
(ii) The lack of a proper fence (e.g. one required by the Swimming
Pools Act, 1990). This may be a patent defect. The vendor can
reassure the purchaser by attaching a certificate under that Act.
(iii) A dispute, notice or claim in relation to a fence. This may be a
ground for the purchaser to rescind under clause 5(1)(k)
Conveyancing (Vendor Disclosure & Warranty) Regulation which
cannot be excluded.
(c) "10.1.2 A service..."
It seems clear that the purchaser would be unable to raise any objection,
requisition or claim on the ground merely that the services mentioned are
shared jointly with another property or that the services for the subject
property pass through another property.
The question which arises is whether services for any other property
passing through the subject property may be defects in title. It is not every
defect in title which entitles the purchaser to rescind. To justify rescission,
the defect must be substantial or essential67 and the passage of services
through the property may or may not be a substantial or essential defect.
For example, the passage of a sewer or water main across a suburban
building block is an essential defect entitling the purchaser to rescind but a
similar main across the corner of a large grazing property, although
technically a defect in title, would not entitle the purchaser to rescind.
A service does not "pass through" a property unless it enters the property on
one side and exits on another side. A service which enters the property but
comes to a stop exiting does not "pass through" that property.68
A service for the property passing through another property is a problem if
there is no easement, as the owner of the other property can cut through and
remove the service. A service of another property passing through the
property is not such a problem. If there is no easement the purchaser after
completion can cut through and remove the service.
This version of the clause has been extended to cover air, communication,
garbage, oil, radio and television services.
(d) "10.1.3 ... a party wall..."
Section 181B of the Conveyancing Act, 1919 defines "party wall" to mean a
wall divided vertically and longitudinally into two halves, each half
belonging to the owner of the land upon which it stands but subject of a
cross easement in favour of the owner of the other.
Where s. 181B does not apply, the question of the ownership of party walls
may be resolved by the following principles:-
* Where the wall is built on the boundary so that the centre of the
wall coincides with the boundary line, the property in the wall
follows the property in the land upon which it stands and each
person owns the portion of the wall which stands upon his land.
* Where the wall is built on the boundary but the centre of the wall
does not coincide with the boundary line, nevertheless each
neighbour will be regarded as owning one-half of the wall if it can
be "fairly" said that the wall was built as to half on one property
and half on the other, in this, minute inaccuracies my be
disregarded.
* Where the wall is built entirely upon the land of one neighbour it
belongs entirely to him.
* Where the situation of the boundary is not known, and the
neighbours have been using the common wall as a party wall, the
wall is prima facie owned by them as tenants in common in equal
shares.
* A wall may be a party wall as to part and in sole ownership as to
the remainder, either as to its height or its length.
As with easements generally, easements in respect of party walls may be
created in three ways: (1) by express grant or reservation; (2) by
implication; (3) by prescription. For a discussion of the creation of
easements see Butt The Standard Contract for Sale of Land69.
Clause 10.1.3 requires the purchaser to put up with a wall being a party
wall (with an easement for support burdening the property) or a wall not
being a party wall (with no easement for support benefiting the property) as
may happen when a common wall is extended without a grant of an
easement for the extension.
(e) "10.1.4 ... fair wear and tear before completion"
At general law, a vendor is not liable for deterioration of the property prior
to completion70 but is bound to take reasonable care to preserve the property
as it was at the date of the contract71.
From the vendor's status as trustee of the property for the purchaser there
follows the vendor's duty to exercise "reasonable care" in the use and
management of the property in the period between contract and completion.
This renders the vendor liable both for his own acts and omissions and in
some circumstances the acts and omissions of others.
Examples are, where the vendor fails to take steps to prevent damage
resulting from water pipes freezing and bursting or where he removes
valuable fixtures from the property prior to completion or where so much
rubbish is left on the premises that the purchaser cannot enjoy possession of
the premises or over grazes pastures or allows a business sold as a going
concern to deteriorate or fails to take reasonable care to prevent acts of
vandals.
The present clause72 exempts the vendor from liability for "fair wear and
tear" as in the absence of some such provision the vendor's duty would
include making good deterioration caused by the weather and by human use
having regard to the condition of the property at the date of contract. Fair
wear and tear means reasonable use of the property by the occupant and the
ordinary operation of natural forces and in this regard the tenancy cases may
be of some assistance.
The exemption is limited to deterioration or dilapidation due directly to fair
wear and tear and does not exempt from liability to repair damage flowing
consequently from reasonable wear and tear e.g.. if a tile falls off the roof it
is fair wear and tear however the vendor is not then permitted to do nothing
and let water damage make the premises uninhabitable.
(f) "10.1.5 A promise, representation or statement"
This echoes clause 20 of the standard contract for the sale of business and is
subject to overriding legislation. It is an attempt to exclude collateral
arrangements from the written contract. It is likely to have some legal effect
and may also exclude reliance on negligent or innocent misrepresentations.
However, such attempts to exclude representations or warranties unless
expressly made in the contract generally do not preclude reliance on
fraudulent misrepresentation or statutory remedies e.g. under the Trade
Practices Act.
(g) "10.1.6 A condition ... in a Crown grant"
This paragraph is designed to preclude objections, requisitions or claims by
the purchaser in respect of exceptions, reservations or conditions contained
in the Crown Grants covering the subject property. However it may be
doubted whether the paragraph achieves its purpose in all circumstances.
In the absence of any stipulation to the contrary the purchaser is entitled to
object to a title which is subject to a material exception, reservation or defect
contained in the Crown Grant. The present para of the contract will not be
effective to force upon a purchaser a title subject to a material exception,
reservation or condition in the Crown Grant of which the vendor was aware
at the date of the contract but failed to disclose to the purchaser.
This para does not preclude objection, requisitions or claims in relation to
breaches of the provisions of those reservations or conditions or the need
for the Minister's consent.
This applies only to a Crown grant. If a folio is subject to reservations and
conditions in a filed memorandum a copy should be attached to the contract
and referred to in Schedule 1. Wording such as "attached is a copy of
Memorandum S700000C" as item 4 may not clearly cover it. In general you
will not have a copy of the Crown grant. The folio will almost always be a
computer folio rather than the registered Crown grant.
If the land adjoins tidal water, and some creeks and rivers are tidal far
upstream, get a copy of the Crown grant and attach it to the contract. A
Crown grant may contain a reservation of all land within 100 feet (about 30
metres) of high water mark. In spite of the wording of 10.1.6, if such a
reservation is undisclosed, a court of equity may refuse specific
performance and order a refund of the deposit under s. 55 of the
Conveyancing Act.
Similarly, if the land is in a mining area, consider getting a copy of the
Crown grant and attaching it to the contract. The Crown grant may contain a
reservation of all land below 50 feet (about 15 metres), and protection for
the Crown against a claim for subsidence.
(h) "10.1.7 ... existence of any licence or permit ... to prospect"
This clause applies to exploration licences and permits, opal prospecting
licences and petroleum exploration licences. These are usually of little
concern to a purchaser, as they only give rights to prospect or test (not to
mine) and usually relate to a large area (i.e. there is no imminent danger of
any mining on a particular property).
(i) "10.1.8 Any easement or restriction ... disclosed or any non-
compliance"
The purpose of this paragraph is to preclude objections, requisitions and
claims by the purchaser in respect of both the existence of, and departure
from the terms of, any easement, or restriction as to user affecting the
property. However, the "substance" of the easement , covenant or
restriction as to user must be disclosed in the contract as a pre-condition to
the operation of this paragraph.
A difficult question of interpretation of this clause is whether the substance
of "any non-compliance" must also be disclosed. The equivalent clause in
the previous edition of the standard contract73 covered only "... easement
... or departure from the terms thereof provided that the substance of any
such easement ... is disclosed." The provision clearly provides that the
purchaser has to put up with any non-compliance.
A reference to a "non-compliance" with an easement includes:-
(i) An excessive use of an easement e.g. pipes which exceed the
diameter allowed by the easement or which intrude beyond the
boundary of the defined easement site.
(ii) An infringement of an easement e.g. a wall built across the site of a
right-of-way.
(iii) A non-compliance with an easement burdening the property e.g. the
purchaser may find a wall on the property is liable to be knocked
down pursuant to a right-of-way.
(iv) A non-compliance with an easement benefiting the property e.g. the
purchaser may find a right-of-way cannot be used, until a wall on
some other property is removed.
A reference to a "non-compliance" with a restriction on use includes:-
(i) A past breach e.g. a building erected in breach.
(ii) A continuing breach e.g. a prohibited use of the land.
This clause refers to an easement or restriction on use, not to "a
covenant"74. It does not apply to a positive covenant. But a positive
covenant should be disclosed because it would appear in the copy of the
folio certificate and item 4 in Schedule 1.
(j) "10.1.9 Everything else ... disclosed"
This paragraph serves as a "catch-all" provision and provides that the
purchaser cannot raise any objection, requisition or claim in respect of the
existence of any matter disclosed in the contract. This clause is subject to
any legislation that cannot be excluded e.g. clause 5A Conveyancing
(Vendor Disclosure & Warranty) Regulation, 198675.
It also serves to tie these disclosures into s. 55(1) Conveyancing Act, 1919.
The existence of a defect in title, even though strictly covered by the
condition of sale, may prompt a court of equity to refuse specific
performance at the suit of the vendor, but the purchaser may remain liable at
law for breach of contract in refusing to complete. In such a case, equity
leaves the parties to their rights at law: the vendor, although not entitled to
specific performance, may forfeit the purchaser's deposit and sue for
damages.
Section 55(1) provides that the purchaser may nevertheless be entitled to
recover his deposit and any instalments of purchase money he has paid
where specific performance would be refused "by reason of a defect in the
vendor's title".
There is no point in a special condition purporting to make the purchaser
take subject to any undisclosed encroachment or non-compliance with the
Local Government Act and Ordinances76.
This provision is not likely to have the effect of excluding requisitions or
objections relating to matters such as caveats, mortgages, charges or writs
entered on the folio of the register and shown only on the copy of the folio
attached to the contract but whose "substance" is not otherwise disclosed.
(k) 10.2 Quality of furnishings & chattels
This clause is intended to avoid rescission or termination of the contract or
delay in settlement because of defects in things which may be of little
importance in relation to the land77. However the clause may not always
achieve its purpose. This does not affect other remedies e.g. damages.
When chattels included in the sale are of major importance, a purchaser
could seek an appropriate special condition e.g. that it is an essential
obligation of the vendor to deliver certain equipment properly maintained
and in good working order.
13. Clause 11 - Compliance with Notices and Orders
(a) Generally
The purpose of this condition of sale is to adjust the rights of vendor and
purchaser with respect to notices from competent authorities or neighbours
requiring work to be done or money expended on or in relation to the
property.
The scheme of clause 11 is:-
1. The vendor must fully comply, prior to completion, with the
requirements of any valid notice issued prior to the date of contract
by
(i) any competent authority, or
(ii) any owner or occupier of adjoining land,
necessitating the doing of work or expenditure of money on or in
relation to
(i) the property, or
(ii) any footpath or road adjoining the property,
provided that such requirements are existing at the date of the
contract.
2. Any such requirements which do not come into existence until after
the date of contract (even though the relevant notice was issued
prior to the date of contract) are the purchaser's responsibility, and
the purchaser must indemnify the vendor in regard to them.
3. The vendor remains liable in respect of any work done by any
competent authority prior to the date of contract upon the property
or any footpath or road adjoining the property, and must indemnify
the purchaser against liability for the same; this indemnity continues
after completion of the contract.
4. If the contract is rescinded (other than as a result of the purchaser's
default), the vendor must repay to the purchaser any amount
expended by the purchaser in complying with requirements of the
kind set out in 2, provided that the expenditure is reasonable.
(b) The wording of the condition
There is a general principle that rights and obligations under a contract for
sale merge in the conveyance or transfer and thus cease to be enforceable
after completion. This principle is subject to the intention of the parties and
it has been held that the rights and obligations created by clause 11 may be
enforced notwithstanding completion.
The clause specifies that "requirements" must be existing at the date of the
contract, not merely the notice itself.This clause can be complicated in its
application on account of the questioning of the validity of particular
notices. A notice will not be "valid" where it fails to comply with mandatory
conditions of form, nor will it be "valid" where it purports to require the
doing of an act which the giver of the notice has no authority to require.
The notice need only to be issued, not served or received, and a competent
authority may include the body corporate of a strata plan. Notices within
category 1 (as set out above) must be fully complied with by the vendor
prior to completion. The vendor cannot require completion by the purchaser
until the requirements of the notices have been fully complied with. A
purchaser who refuses to complete until the vendor discharges his
obligation to comply with notices, does not thereby repudiate the contract78.
However the vendor may issue a notice to complete provided that he
complies with the requirements by the time of the expiration of the notice to
complete.
The purchaser's obligations under category 2 is subject to actual completion
of the contract. If the contract is never completed, the purchaser does not
become liable to comply with such notices. The vendor is not relieved "from
liability in respect of any work done by any competent authority prior to the
date of this agreement upon the property" merely because the owner for the
time being may be the purchaser. If the competent authority seeks to recover
from the purchaser the vendor must indemnify the purchaser.
Category 4 requires expenditure which produces some lasting benefit to the
subject property and it must be real although not substantial. It is also the
actual expenditure which must be repaid to the purchaser.
This clause applies to "the property" not just the land including
improvements but also the furniture and chattels. For example, a noise or
safety notice may issue in respect of some equipment included in the sale.
(c) Notices by competent authorities
Commonly encountered legislative provisions which empower authorities to
give notices are as follows:-
* The Local Government Act, 1993, empowers councils to require an
owner of land to take action in relation to surface water, to
contribute to kerbing and guttering, to repair or remove any
unsightly, dilapidated or dangerous fence, verandah, awning, shed
or structure on or near a road, to carry out work for public health,
safety and convenience and to give notices with regard to building
regulation and water supply, sewerage, drainage and supply of
electricity.
* The Metropolitan Water, Sewerage and Drainage Act, 1924, Hunter
District Water, Sewerage and Drainage Act, 1938 and the Broken
Hill Water and Sewerage Act, 1938 gives the appropriate
authorities to issue a variety of notices and to demolish offending
work.
* The Water Resources Commission may direct owners of land to
remove artificial obstructions to the flow of water pursuant to the
Water Act,1912.
* Under the Soil Conservation Act, 1938 the Commissioner may give
to an owner a notice requiring the carrying out of remedial work,
the adoption of specified practices of land utilisation or the limiting
of the number of livestock on the land.
* Notices requiring the eradication or control of noxious insects,
plants and animals may be issued under the Noxious Insects Act,
1934, Prickly-pear Act, 1924, Local Government Act, 1919 and
the Pastures Protection Act, 1934.
* The Health Commission pursuant to the Public Health Act, 1902
may make a "closing order" in respect of any house or building
which is unfit or unsafe for human occupation or which has
become ruinous and dangerous.
* The council may require an owner of land to establish and maintain
fire breaks and to remove material under the Bush Fires Act, 1949.
* The Heritage Act, 1977 empowers the Heritage Council to serve a
notice on the owner of a building the subject of a conservation
instrument to show cause why it should not make an order
requiring him to carry out repairs.
(d) Sections 124 and 172 Local Government Act, 1993
Section 317A of the Local Government Act, 1919 was repealed by the Local
Government (Building Certificates) Amendment Act, 1986 which was
assented to on the 17th December, 1986. The amending Act inserted a new
Division (Division 4D Part XI, ss. 317AA-317AJ) into the Act. The major
innovation was that the "certificate of compliance" formerly obtained under
s. 317A was been replaced by a "certificate of non-action" obtainable under
s. 317AE. The Local Government Act, 1993 replaced the s. 317AE
certificate with a certificate under s. 172. The scheme of the provisions are
as follows:-
1. Application may be made to the council for a "building certificate"
in relation to the whole or part of a building 79. The application may
be made by the owner, a purchaser or any person having the
owner's written consent.
2. Upon receipt of an application, the council may require such
information (including building plans, specifications, survey
reports and certificates) as may be reasonably necessary to enable it
to determine the application80. If the applicant is able to provide
evidence that no material change has occurred in relation to the
building since the date of the survey certificate supplied the council
is not entitled to require a more recent survey81.
3. The council determines the application by issuing or refusing to
issue a building certificate82. The council must issue a building
certificate if, following inspection, it appears that at the date of the
inspection there is no matter discernible by the exercise of
reasonable care and skill that would enable it to (i) make an order
under s. 124, (ii) seek an order requiring demolition, alteration,
addition or rebuilding, or (iii) take proceedings concerning any
encroachment onto land vested in or under the control of the
council83; alternatively, it must issue a certificate if there is such a
matter, but the council does not propose to do any of the things
referred to above84. If it refuses to issue a certificate, the council
must give reasons sufficient to inform the application of the work
that needs to be done to enable the issue of a certificate.85
4. A certificate under s. 172 may be issued as to part only of a
building. There was formerly some doubt as to whether s. 317A
permitted the issuing of certificates as to part only of a building.
These doubts were put to rest by the Land and Environment Court
in Riba Constructions Pty. Ltd. v. Marrackville Municipal Council
86 holding that there was power to issue a certificate as to part only.
But no such doubts can arise under the new legislation, which
expressly contemplates application for and grant of a certificate as
to part only of the building.87
5. A building certificate prevents the council taking any of the
following action, by reason of anything existing or occurring
before the date of inspection, or within 7 years of the date of
inspection, by virtue of detioration solely by fair wear and tear: (i)
making an order under s. 124, (ii) seeking an order requiring
demolition, alteration, addition or rebuilding, or (iii) taking
proceedings in relation to any encroachment by the building on land
vested in or under the control of the council88.
6. The certificate will not prevent a council from taking proceedings
under sections 626 or 627 (offences for failing to apply or comply
with council approval for various activities) or order No. 4 in the
Table to s. 124 (fire safety orders).
Under s. 124 if any building is in such a dilapidated or unsightly condition
as to be prejudicial to the property in or inhabitants of the neighbourhood,
the council may order the owner to demolish or re-erect or repair the whole
or any part of it within a reasonable time to be fixed by the order. If any
building is erected or altered after 1st January, 1959, without the prior
approval of the council the council may by notice in writing specifying a
reasonable time for compliance, order the owner to demolish such building
or alteration, or carry out specified work.
It is to be noted that departure from approval is equivalent to non-approval.
An owner who has received an order has a right of appeal to the Land &
Environment Court. A council is not required to observe the rule of natural
justice that a person be given the opportunity of being heard.
The important qualification to s. 317AE was that it did not apply to any
building in respect of which the council had issued a certificate under s.
317A. However, amending legislation repealed the second paragraph of s.
317B(1A) Local Government Act, 1919 by which the provisions of that
subsection were expressed not to apply to a building in respect of which a
certificate under s. 317A has issued. The Local Government Act, 1993
contains no provision similar to s. 317AB(1A).
The questions that arise are, whether inability to obtain a s. 172 certificate
and/or the existence in the council of a power to order demolition is a defect
in title, and whether such defect entitles the purchaser to rescind. The
following appears to be the law at present:-
(i) Mere inability to obtain a s. 172 certificate is not a defect in title.
(ii) Refusal by the council to give a certificate is not a defect in title
because it is but an expression of council's opinion.
(iii) If a breach can be shown the power of council to order demolition
is a defect in title89 and
- if the breach affects a substantial part of the subject matter the
purchaser may rescind or complete and seek compensation either
under clause 7 or seek an order for specific performance with
compensation.
- if the breach is only insubstantial the purchaser cannot rescind but
may claim compensation under clause 7 or specific performance
with compensation.
(iv) The purchaser's right to rescind or claim compensation will be
subject to any contrary provision in the contract but a condition
which provides merely that the purchaser will make no objection
requisition or claim concerning the state of repair of the premises
will be ineffective to preclude objections, requisitions and claims
concerning the council's power under s. 124.
There has been some interesting developments in relation to a council's
liability to purchasers. In Clarke v. Shire of Gisborne90 a purchaser was
held entitled to damages from the local council for the council's inspector's
negligence in carrying out a building inspection during the course of
construction of the building by the vendor. Since that case the High Court
has held91 that the council owed no duty of care to a subsequent purchaser
of a house with defective footings (which could have been discovered by a
careful inspection of the property at the construction stage) because either:
(1) on the facts, the council owed no duty to inspect the footings at the time
of their construction; (2) on the facts, the purchaser when buying the
property had not relied in any way upon the council's exercise of its
statutory powers in building matters; or (3) the damage was not the result of
any act of the council, but was the consequence of the builder's negligence,
which the council was under no duty to act to prevent.
In the U.K.92 a statutory authority was held not to owe a duty of care to
recipients of grants or their successors in title to ensure that the extensions
were properly executed. This was were the statutory authority made grants
to houseowners for extensions which were required by statute to be
"executed to the satisfaction of" the authority. A council in a position to
exercise its powers under s. 124 may, in appropriate circumstances, be
liable in negligence to a person who suffers loss if the council fails to
exercise those powers.93
(e) Notices by Owners or Occupiers.
Adjoining owners may also give notices requiring the construction or repair
of dividing fences under the Dividing Fences Act, 1951 and Pastures
Protection Act, 1934.
Clause 11 would appear to apply to notices from adjoining owners
necessitating the doing of work or expenditure of money eg. requiring a
nuisance to be abated, overhanging branches to be lopped, encroaching tree
roots to be removed, interference with an easement to cease or breach of a
restrictive covenant to be remedied.
To the purchaser's liability there is one possible exception. It may be that a
notice from an adjoining owner discloses a substantial and irremediable
defect in title eg. a breach of a significant restrictive covenant affecting the
property. In the absence of any provision to the contrary in the contract a
purchaser is entitled to rescind on discovering such a defect.
14. Clause 12 - Certificates and Inspections
(a) Generally
This clause authorises the purchaser to make various enquiries and
inspections. It does not give the purchaser any fresh rights in respect of
anything the purchaser finds.
The prescribed residential tenancy agreement protects tenants to some
extent. The prescribed form does not prevent entry under a separate
statutory power e.g. by a surveyor. A surveyor has a statutory power of
entry on giving the prescribed notice prior to entry94.
A question that will arise is whether the words "any certificate or report
reasonably required" allows the cutting of any access trap door e.g. for a
pest inspection.
Under some legislation, for example the Swimming Pools Act, 1990, only
the owner can apply for a swimming pool certificate. Clause 12.2 authorises
the purchaser to apply on the vendor's behalf. This provision does not
apply to an application for an approval or consent. If the purchaser want to
make such an application the purchaser has to ask for a special authority.
(b) "12.3 ... Pre-completion inspection"
This only refers to one inspection. If a pre-completion inspection is
unsatisfactory e.g. some of the furnishings and chattels are missing, the
inspection may not count. The clause could be interpreted as allowing the
purchaser to keep coming back until one "satisfactory" pre-completion
inspection is made. In any event, the vendor is not ready and willing to
complete if furnishing are missing. When the vendor is ready and willing to
complete the purchaser can require proof of this and could argue that
allowing an inspection is the only satisfactory method of doing this.
15. Clause 13 - Building Certificate
(a) Generally
This provision constitutes an important new clause. It recognises the reality
that purchasers of many properties require building certificates to protect
themselves and because many financiers require it. The following scheme is
adopted in this clause relating to this difficult and contentious topic:-
(a) For the purchaser to have the benefit of this provision, the
application must be made by the purchaser for a building certificate
within 14 days after the date of the contract. This includes an
application made before exchange of contracts95.
(b) If the council issues any notice, or requires work to be done as a
condition of issuing the certificate, the purchaser can:-
(i) require the vendor to comply with those notices or to carry
out the work; or
(ii) make requisitions or objections relating to it and if it would
involve demolition of a substantial or material part of the
improvements, to rescind because it would be a defect in
title96.
(c) The vendor is entitled to rescind if the vendor is reasonably unable
or unwilling to comply with the requisition or objection (clause 8).
The existence of this provision should encourage solicitors to advise
vendors to obtain building certificates before marketing properties and attach
those certificates to the contract, rather than risk the possibilities following a
purchaser's application after contract, which cannot be anticipated with
much accuracy.
This provision is not a substitute for rendering the contract subject to the
purchaser obtaining a building certificate in respect of the property. If that is
desired, a special condition is required. Accordingly, there appears to be
four choices for the parties:-
(a) The vendor obtains (or holds) a certificate of compliance or a
building certificate before contract. That should be attached to the
contract and clause 13 deleted.
(b) Clause 13 be retained. It is then up to the purchaser to apply for a
building certificate within 14 days after the date of the contract.
(c) Clause 13 be deleted from the contract. In some situations the
purchaser may not require a building certificate, because of the
nature of the property, e.g. almost vacant land, dilapidated
improvements (which the purchaser intends to demolish or
substantially reconstruct) or the sale of a strata title unit. If clause
13 is deleted from the contract as submitted by the vendor, the
purchaser's solicitor will have to discuss with the purchaser the
ramifications.
(d) The parties agree to make the contract subject to one of them
applying for and obtaining a building certificate.
(b) Other rights
Some other rights of the purchaser are preserved by clause 11.3.
If the vendor wants to delete or override clause 13 the vendor must keep in
mind that the purchaser has rights outside the contract in respect of an
encroachment or non-compliance with the Local Government Act. The
vendor will still have to comply with clause 5A Conveyancing (Vendor
Disclosure & Warranty) Reglation.
16. Clause 14 - Adjustments
(a) Generally
This condition is the so-called "adjustments" condition. It provides for the
apportionment of income from and outgoings in respect of the property as
of the adjustment date. The definitions clause, clause 1 defines "adjustment
date" to mean the earlier of possession and completion. If some other date is
to apply, for example, the date of making of the contract, a special condition
must be added to the contract.
(b) "14.1 Normally, the vendor..."
The word "normally" i.e. subject to any other provisions of this contract97
refers to clauses 14.3, 14.4, 14.5, 14.7 and A4.2.
"Rents and profits" is a generic term denoting generally all income from and
produce of the property the subject of the sale. Under s. 144(1) of the
Conveyancing Act, 1919 all rents and other periodical payments in the
nature of income are considered as accruing from day to day and are
apportionable on a daily basis. Therefore when the date for apportionment
falls between two rent days, the vendor is entitled to a proportion of the rent
representing the period from the first day of the rental period up to and
including the date for apportionment and the purchaser is entitled to a
proportion representing the period thereafter up until the last day of the
rental period.
Section 144(3) makes it clear that the entire payment, including the
apportioned part, is recoverable by the person who would have been entitled
to recover it had it not been apportionable under the section and he must
then pay over the appropriate proportion to the person entitled to it. For
example, if the date for apportionment falls between two rent days, the
purchaser will be entitled on the next rent day to receive the whole of the
rent instalment from the tenant, and will be obliged then to pay to the vendor
the appropriate proportion.
Apart from agreement between vendor and purchaser, then, the vendor is
not entitled to insist upon an actual apportionment of rent on the day for
adjustment specified in the contract. It would appear that clause 14 does not
embody any agreement to the contrary and all that it does fix is the date by
reference to which adjustments are to be made. As a matter of practice the
appropriate proportion is usually allowed to the vendor on settlement.
Where, through no default on the part of the purchaser, completion of the
contract is delayed and the vendor continues to receive rents after the
adjustment date, the vendor holds such rents for the benefit of the
purchaser. The vendor cannot appropriate such rents towards repayment of
arrears of rent which have accrued up until the stipulated date for
adjustments.
Profits of a "capital" nature are not apportionable and accrue entirely to
either purchaser or vendor. An example of a capital profit is compensation
under war-time legislation. Generally a capital profit accruing before
contract belongs to the vendor and a capital profit accruing after contract
belongs to the purchaser.
The term "rate" has been defined as "a sum assessed or made payable by a
body having local jurisdiction over the district in which the person on whom
the rate is assessed dwells or has property". The word "taxes", like the
word "outgoings" is a word of wide import. The word "outgoing" is the
widest term that can be used. "Outgoings" has been defined to mean "all
rates, taxes...and, in the case of leaseholds, rent, accruing due in respect of
the property sold before the time for completion of the purchase; also all
ordinary expenses of cultivating or managing the property and keeping the
same in a due state of preservation, including the cost of ordinary repairs".
Many items, although strictly falling within the meaning of the term
"outgoings", will more appropriately be dealt with under clause 11 where
the outgoing concerned was preceded by a notice from a local or statutory
authority requiring work to be done or expenditure.
The words "up to and including the adjustment date" make it clear that the
vendor is entitled to receive the income form the property, and is obliged to
bear the outgoings, up until and inclusive of the date upon which
adjustments are to be made. This condition constitutes a contract by the
purchaser with the vendor to pay the rates, taxes and outgoings falling due
after such date. If, for example, adjustments are to be made at the date of
contract and the purchaser fails to pay the rates, taxes and outgoings which
fall due between contract and settlement, the purchaser is in breach of
contract. The vendor has the right to sue for damages or terminate the
contract.
There is a general principle of law that the provisions of a contract for the
sale of land merge on completion. The exception to this principle does not
apply to provisions of the contract which the parties do not intend to merge
on completion. Clause 14 falls within this exception. The inference from
this is that either or both vendor or purchaser may require after completion a
re-adjustment of rates, taxes and outgoings where the adjustment made on
completion was erroneous or incomplete. Such an adjustment may be
appropriate were an apportionment is subsequently found to be inadequate
because the land value later assigned to the land differed from that chosen
by the parties as the basis of apportionment. A re-apportionment could be
made under the principle that clause 14 does not merge on completion.
Any doubt is put to rest by clause 20.13 which provides that the rights
under clause 14 continue after completion. There should be no need for an
undertaking by a party to make further adjustments after completion. Any
right to an adjustment under clauses 14 or A2 continues after completion
and any other right to an adjustment should continue at general law.
A party may require on settlement an undertaking by the other party's
solicitor to adjust, or re-adjust, rates after settlement e.g. where the lot sold
is part of a new subdivision and a separate assessment for the property has
not yet issued. Where the undertaking is given by the solicitor, in his
capacity as solicitor, and does not clearly indicate that he is acting purely as
agent for his client and accepts no personal liability, the solicitor will be
personally liable on the undertaking. Disciplinary proceedings may be taken
against a solicitor who fails to honour a undertaking and the undertaking
may be enforced by application to the Court. The Court takes this course not
with the view to enforcing strict legal rights but rather to enforce honourable
conduct on the part of its own officers.
A large number of statutes in N.S.W. impose rates upon land. For example,
the Local Government Act, Water Board Act, Pastures Protection Act,
Prickly- pear Act, Noxious Insects Act, Wild Dog Destruction Act, Water
Act, Rivers and Foreshores Improvement Act and Irrigation Acts. Many of
these rates are a charge on the land in priority to all sales, conveyances,
transfers, mortgages, charges, liens and encumbrances. However, the
charge is of no effect as against a bona fide purchaser for value who at the
time of purchase made due enquiry but had no notice of the liability and a
purchaser who has obtained a certificate as to the amount due in respect of
rates is deemed to have made due inquiry.
As to whether rates must be adjusted on a "paid" basis on completion it is
interesting to look at clause 16.2.3 which requires the passing the
unencumbered legal title to the purchaser. The wording of clause 16.2.3
raises the question whether all rates and taxes on the property should be
discharged on settlement. It has been held98 in Queensland that the
purchaser could not insist that the vendor discharge all arrears of rates and
taxes prior to completion but must be content to deduct them from the
purchase price payable on completion; nor could the purchaser insist that the
current year's rates be discharged by the vendor prior to apportionment but
must be content.to apportion them on completion on an unpaid basis.
Viewed in light of the adjustments clause "free from encumbrances" did not
mean free from unregistered statutory charges for unpaid rates and taxes.
The applicability of this Queensland decision to N.S.W. is doubtful99. The
condition there dealt with was slightly different to the N.S.W. condition.
Under clause 16.2.2 the purchaser is entitled to insist that any charge for
land tax be removed prior to completion. Condition 13(a) in the former
standard contract also provided that the vendor must "pay or bear" all rates
up to completion. So it may be arguable that in N.S.W. arrears of rates and
taxes must be discharged by the vendor prior to completion; and the current
year's rates must also be discharged by the vendor prior to completion and
then apportioned on completion on a "paid" basis. These conclusions have
been put into doubt by the different wording of clause 14 of the current
edition of the contract.
(c) "14.3 If an amount adjustable ... has been reduced ..."
This paragraph provides that the rate as reduced pursuant to the provisions
of any Acts is that which is to be apportioned. For example, if the vendor is
entitled to a pensioner's rebate on the rates levied on the property, it is the
balance of the rates payable by the vendor after the pensioner concession
that is to be adjusted.
This applies to rates which have been reduced, e.g. under s. 575-581 Local
Government Act, 1993, rather than postponed e.g. under ss. 585-599 Local
Government Act, 1993. The balance of a reduced rate is immediately written
off, and although there may still be a right of recovery against the vendor in
the case of e.g. a wilfully false statement in obtaining the reduction, a
purchaser would be protected against the relevant authority by a rates
certificate.
The adjustment of postponed rates presents special problems. For example,
under ss. 585-599 Local Government Act where a single dwelling house is
erected on land zoned for commercial purposes the owner is entitled to seek
relief from payment of that part of the rates which is attributable to the
"higher use" for which the land is zoned. Rates postponed for five years
must be written off, along with the extra charges. However, when the land
ceases to be used as the site of a single dwelling the entitlement to
postponement ceases and the amounts postponed and not written off
become due and payable. The postponed part of the rate remains a charge on
the land100 and the purchaser is entitled to have satisfactory provision made
for its payment.
The method adopted to adjust postponed rates is that on settlement there
should be set aside from the purchase price a fund sufficient to meet the
amount of postponed rates outstanding at the time of settlement. If the land
use changes within the succeeding five years, then the vendor's proportion
can be paid from the fund and the balance remitted to the vendor.
If the vendor wishes to make the purchaser liable for the postponed rates
then a special condition can be inserted.
(d) Land tax
(i) Generally
There are two Acts governing land tax in N.S.W., the Land Tax
Management Act, 1956 and the Land Tax Act, 1956. The former deals with
the imposition, assessment and collection of land tax and the latter details
the amount of land tax payable.
Under the Land Tax Management Act land tax is charged on land as owned
at midnight on 31st December for the ensuing 12 months and is payable by
the owner upon the land value of all land owned by him and not exempt
from taxation under the Act. There are certain deductions based on the total
value of the land but generally these deductions are not available in respect
of land owned by a company or subject to a discretionary trust.
An individual will not be liable for land tax unless the total value of all the
non-exempt property owned by the individual less deductions exceeds
$ 160,000.00101. A discretionary trust is liable to pay land tax without any
threshold. A unit trust may also be liable for land tax as a special trust if it
has any elements of a discretionary trust.
Certain land is exempt from land tax e.g.
* land used for primary production, other than land in which some
companies have an interest.
* a strata lot used by the owner as his principal place of residence.
* a parcel of residential land not exceeding 2,100 m2 in an area used
by the owner as his principal place of residence. Where the parcel
would, but for the fact that it exceeds 2,100 m2, be exempt the land
value is reduced by the proportion that 2,100 m2 bears to the total
area. If the family home owned by a family company (even a
company as trustee for a family trust) the exemption will not apply.
Section 29 provides for the assessment of "related companies" separately,
or jointly, or any two or more jointly and the remainder separately. Jointly
assessed companies are deemed to be a single company.
Where a taxpayer defaults in the payment of land tax and the land is
mortgaged, leased or occupied, then upon being served with notice by the
Commissioner for Land Tax, the mortgagee, lessee or occupier is
responsible for payment of the land tax. In the case of a lessee the
responsibility to pay is limited to the amount of rent due to the taxpayer at
the time and payment to the Commissioner is a valid discharge for rent or
payments due to the taxpayer.
Of great importance to conveyancers is s. 47 Land Tax Management Act
which makes land tax a first charge on the land in priority to all other
encumbrances whatever. The charge is on land owned as at midnight on
31st December and the charge does not await the issuing of an assessment
to be created. Where the land taxed comprises two or more parcels, the land
tax is a charge on each parcel.
Section 47(1) provides that no charge is of any affect against a bona fide
purchaser for value who at the time of purchase made due inquiry but had
no notice of the liability. A purchaser is deemed to have made due enquiry if
he obtained a clear certificate under s. 47.
Where the same person was the owner of the land at both the time when the
charge arose and the time when the charge arose and the time when the land
tax became due and payable the Commissioner may either enforce the
charge or sue for debt, or do both. A point to note that although the charge
may be enforced against a successor in title the Commissioner cannot sue
and recover the land tax as a debt from any successor.
Importantly the Commissioner may release the whole or any part of the land
taxed from the charge, on payment of the amount he estimates to be not less
than the proportion of tax referable to the land released.
The Land Tax Act fixes the rates of land tax payable. Special rates of land
tax apply in the case of land owned by companies and deductions are
available for owners of residential units.
The Land Development Contribution Management Act, 1970 is designed to
levy a contribution in relation to the development of certain land within the
Sydney region. The Act taxes a proportion of the increase in the price or
market value of certain land over the market value of the land on the base
date, 1st August, 1969.
The Land Aggregation Tax Management Act, 1971 and the Land
Aggregation Tax Act, 1971 prescribes rates of tax upon owners of certain
de-restricted title land used for primary production. In effect this is land
exceeding 4,050 m2 in respect of which the requirement for Minister's
Consent to transfer has been bought off by payment of 5 per cent of the land
value and which has since changed ownership. At the present time the
substantive provisions of the Act have not been implemented. Nevertheless
the Registrar-General, when removing from title documents the notification
regarding the need for Minister's consent to transfer, enters an endorsement
drawing attention to the Act.102
(ii) Considerations for purchasers
Although land tax is not payable in respect of the sole or principal residence
the risk for the purchaser is that the provisions of the contract may result in
him paying a proportion of the current year's land tax on the home he
purchases even though it will not be liable for land tax in his hands as an
owner/occupier.
This problem can arise unexpectedly, for example, if the vendor of a
residential house is a company or if the property is an investment property,
the owner exemption would not apply. This may even occur when the
vendor is using the property as his own home but his sale and purchase
have overlapped and he is in fact the owner of two residences as at midnight
on the 31st December. Assuming that the value of the property is greater
than the tax free threshold a vendor liable for land tax may wish to pass on a
proportion of it to the purchaser. This is easily done by the vendor by
deleting a few lines of the standard form contract and it is therefore
important that the purchaser is alert to any alteration of the standard form.
A purchaser should also be wary of accepting the undertaking of the vendor
that he or it will pay any land tax assessed on the property. In these days of
corporate failure a purchasers should think long and hard before accepting
and relying on any undertakings given by a company vendor to pay moneys
after settlement. The property then held by the purchaser is charged not only
with the land tax for that property but with all land tax owed by the vendor
on all other properties he owns. Even should the purchaser be comfortable
with such an arrangement he is likely to find that his mortgagee will not
advance the funds until such time as all land tax has been paid.
In any case there is not good reason for accepting such an arrangement these
days when the Land Tax Office in most cases is able to assess land tax
virtually on the spot by calling up all the relevant information on a computer
screen. At the very least, the Land Tax Office will calculate "an amount to
clear" the usual certificate applied for by a purchaser to ensure that the
property is bought free of any charge for land tax.
(iii) Apportionment of land tax
The vendor can only require a land tax adjustment if the contract indicates in
Schedule 1 that a land tax adjustment is required103. An undisclosed need to
adjust land tax, especially when the purchaser will not be liable to pay land
tax on the property, would give rise to unfairness in the eyes of the party
disadvantaged. The provisions in the 1992 edition of the contract have the
merit that the contract will disclose whether the vendor is seeking an
adjustment of land tax. Many solicitors acting for a purchaser intending to
reside in the property would seek to have the contract amended so that the
vendor is not entitled to an adjustment of land tax.
Land tax is apportionable only where the vendor or a predecessor "has paid
or is liable to pay" land tax. This differs from earlier versions of this clause
which provided that if the liability to pay arose before the vendor became the
owner there was no adjustment104. Also the mortgagor and not the
mortgagee is the person liable to land tax and a purchaser cannot seek from
the mortgagee an adjustment for land tax. The charge being a defect in title,
a purchaser should demand its removal prior to settlement.
The question is whether the land was in fact liable for land tax at the start of
the relevant year. The land must also have a separate "adjusted value" as
defined by the Land Tax Management Act, 1956. Newly created
subdivisions may not have separate "land values" for each lot. If because of
a recent subdivision the property has no separate adjusted value, no land tax
is adjustable. Clause 14.7 requiring apportionment is expressed not to apply
to land tax105.
It is not an actual assessment of the vendor or prior owner which is
adjusted. Rather, the amount to be apportioned as land tax is the sum which
would have been payable by an owner for land tax on the property as if the
land had been the only land owned and the land was not the subject of any
trust or owned by a non-concessional company. It would be unreasonable
to require a purchaser of one parcel to make an adjustment on the basis of
the land tax payable in respect of all of the vendor's holdings.
The apportionment is calculated on the vendor's use of the property and not
the purchaser's intended use. Thus it may be that the purchaser is required
to contribute an amount for land tax although the land in the purchaser's
hand would be liable to a lower rate of tax or even exempt. The current
clause requires an adjustment of an amount calculated on a single property,
ordinary rate of tax basis, in relation to the owner at the relevant date, not
necessarily the vendor.
(iv) Charge for land tax
A charge on land for land tax is a defect in title. However the existence of a
charge for land tax does not preclude the vendor from giving a notice to
complete. A vendor's obligation is to remove the charge for land tax by the
time of completion of the contract and it is no objection to the validity of a
notice to complete that at the time it is given the land remains subject to a
charge.
Of course assuming that the notice to complete is valid notwithstanding the
existence of a charge for land tax at the time of its issue, a vendor who is
unable to provide a title clear of the charge at completion will be in essential
breach thereby entitling the purchaser immediately to terminate the contract.
Clause 16.2.2 requires the vendor to "clear any certificate served by the
purchaser before completion disclosing a land tax charge on the property".
This would oblige a vendor whose land was liable to tax to furnish a proper
land tax return to enable an assessment of land tax to be made and to
provide any further information required by the Commissioner in order that
an assessment might be made. Completion of the contract is subject to the
availability of a clear s. 47 certificate.
(e) "14.6 Normally, ... purchaser to produce a bank cheque..."
The word "normally" i.e. subject to, refers to clause 16.4.1. As the bank
cheque is for part of the price, it must be an unendorsed bank cheque
(clause 16.4.1). This provision is subject to 16.2.2 (vendor to clear any
land tax certificate) i.e. for land tax the vendor cannot just require a bank
cheque and then forward it under clause 14.6.2. This is not because clause
14.6 starts with "normally", as clause 16.2 does too, but because 16.2.2
imposes a separate obligation which must be met before 14.6 is considered.
The effect of clause 14.6.2 is that it is the purchaser who would normally
take the cheque for rates away after settlement.
Although the provision refers to a bank cheque the parties can agree to use a
trust or other cheque. This provision only applies to an amount adjustable
under clause 14 and not for example an amount to be allowed under clause
A4.1.
(f) "14.7 If the land is not subject to a separate assessment ..."
This is a backup provision, in case there is no simpler method e.g.
$ 1,000.00 per lot, provided by a special condition. You take the amount,
times the area of the part, divided by the area of the whole. In particular, a
subdivider who dedicates part of the land in a plan e.g. as a reserve or road,
gets no adjustment back from any purchaser for that part. An alternative
basis is rating value (and area only if there is no rating value). However, a
separate rating value will often not be available in time for completion.
(g) "14.8 ... Work started by any competent authority ..."
The vendor should be asked about any work started by an authority in case
the vendor wants to add a special condition moving in some or all of the
liability onto the purchaser.
17. Clause 15 - Completion Date
(a) "15.1 The parties must complete by the completion date ..."
These words are necessary to create an obligation. The statement of a
completion date on page 1 of the contract is merely a definition of that term.
(b) "15.1 ... (being a fixed but inessential date).
By using these words the stipulated time is not of the essence but does give
an indication of the intention of the parties. A party in default may be liable
in damages106 or, in the case of the purchaser, for interest on the purchase
money less rents and profits e.g. less any interest payable under clause 3.
These words override the special cases where at general law time impliedly
be of the essence.
Sometimes a special condition using the further words such as "and in this
respect time shall be of the essence of the contract" is added. These words
do make the time stated of the essence for both the vendor and the
purchaser. Often times a special condition is added to say that 14 days is
sufficient for any notice to complete. One view is that this cannot interfere
with the court's discretion. The other view is that this is simply a provision
allowing a party to fix a date for completion (as in A5.10 and A6.4), but
with time of the essence. In any event, a standard contract would have
trouble fixing a time that would be appropriate in all cases.
Lang suggests that the vendor should add a provision relating to the
duration of a notice to complete and some liquidated damages provision on,
as additional special conditions107.
(c) "15.2 ... A party can serve a notice to complete ..."
A notice to complete, if valid, fixes a further time for completion and makes
that time essential. The time can be a time of day.
18. Clause 16 - Completion
(a) 16.1 The legal title to the property passes on completion
(i) Property
The "property" in this clause is referred to on page 1 of the contract as the
"following land and the following furnishings and chattels". This
encompasses both the land and improvements as well as any items of
personal property specified.
(ii) Passing of Title to Real Estate
With respect to real estate clause 16.1 does no more than state that which the
law implies. There is a well-settled principle that upon entry into a valid and
binding contract for the sale of land the vendor (being still the holder of the
legal estate) becomes in equity a trustee for the purchaser and the beneficial
ownership passes to the purchaser. This is subject to the vendor having
made out his title according to the contract and the contract being specifically
enforceable.
This is a qualified "trusteeship" only and does not co-incide entirely with
normal concepts of trusteeship. The vendor still has interests in his own
property e.g. the vendor's lien for unpaid purchase price, the right to remain
in possession pending completion and the right to the rents and profits
pending completion. From the vendor being a trustee flows the obligation to
manage and care for the property pending completion of the sale.
From the principle of the purchaser being "beneficial owner" flows the rule
that the property is at the purchaser's risk between contract and completion.
In the absence of want of reasonable care by the vendor in the use and
management of the property, the purchaser bears any diminution in the
value of the property. For example, if a building on the land is, without
fault on the part of the vendor, destroyed or damaged by fire the purchaser
is not entitled to any abatement of the purchase price.
Clause 16.1 is subject to any legislation which cannot be excluded (as
indicated in the opening words of the clauses on page 2 of the contract) e.g.
for Real Property Act land the legal title will not pass until the transfer is
registered108.
(iii) Insurance by Purchaser
Until recently the purchaser was required to take out insurance against
damage to or destruction of the property. That is, he had an insurable
interest from the time of entry into an enforceable contract. Moreover the
purchaser could not rely on the fact that the vendor had the property
insured. A purported assignment by the vendor to the purchaser of the
vendor's insurance policy would be ineffective without the insurer's
consent. If the vendor was entitled to benefits under an insurance policy and
the purchaser later paid the purchase price the insurer may recover the
amount paid to the vendor by subrogation.
Under s. 50 of the Insurance Contracts Act, 1984 (Cth) which came into
force on the 1st January, 1986 a purchaser may be entitled to claim under a
policy of insurance maintained by the vendor over the subject. However a
number of problems with this section have been highlighted.109 If the
purchaser pays the full purchase price to the vendor (as he must do if the
risk has passed) the vendor has suffered no loss, and as a consequence
there is no "money payable" under the vendor's policy (an insurance policy
being a contract of indemnity only). Presumably, as no claim could be made
under the vendor's policy by the vendor if the full purchase price is paid, so
also no claim can be made by the purchaser under that policy, there being
nothing in section 50 to overturn the principle that a policy of insurance is
one of indemnity only.
Section 50 also suffers from the deficiency that it provides protection to a
purchaser only where the vendor has a current policy of insurance; and
further, if provides protection only to the extent of the cover maintained by
the vendor. Nor by its terms, will s. 50 apply where the risk has not passed
to the purchaser as in the case of dwelling-houses within the provisions of
Conveyancing (Passing of Risk) Amendment Act, 1986.
On the 1st May, 1986 the Conveyancing (Passing of Risk) Amendment Act,
1986 came into operation. The risk of damage is now postponed until
completion or some time after the purchaser has entered into possession of
the property. This legislation makes provision for the rescission of a
contract by the purchaser by notice in writing served within 28 days of the
purchaser becoming aware of the damage110 or reduction in the purchase
price by such amount as is just and equitable in the circumstances.111
It is important to note that the right to rescind is only available where the
land (which includes buildings and other fixtures112) is "substantially
damaged" after the making of the contract113. Land is substantially damaged
if the damage renders the land materially different from that which the
purchaser contracted to buy114. However the right of rescission must be
exercised within 28 days of the purchaser first becoming aware of the
damage to the property or such longer times as may be agreed between
vendor and purchaser115.The right of the purchaser to a reduction in price
applies whether or not the land concerned is substantially damaged116. If
the purchase price is not reduced on completion as required by s. 66M of
the Act the amount by which the purchase price should have been reduced
may be recovered by the purchaser from the vendor as a debt117.
These provisions cannot be excluded by agreement between the parties in
the case of the sale of a dwelling house, "Dwelling-house" is defined to
mean premises (including a strata lot) used or designed for use principally
as a place of residence, and includes outbuildings and other appurtenances
to a dwelling-house, and a dwelling-house in the course of construction118.
In relation to the Conveyancing (Passing of Risk) Amendment Act it should
be noted that the risk does not pass until (a) completion or (b) a time after
the purchaser has taken or been taken or been entitled to take possession
(being a time "stipulated by the parties") whichever is the earlier119.
Possession of land is defined to include the occupation of the land pending
completion or the receipt of income from the land120.
It is important to appreciate that s. 66K(1) does not render the purchaser
automatically liable for risks from the time of entering into possession, but
only if the contact stipulates the time when the risk should pass in that
event. If the purchaser is entitled to possession and the contract does not
contain an express provision dealing with the passing of risk, the risk
remains with the vendor until completion of the sale. Clause 18.3 of the
current edition of the standard contract imposes on the purchaser, if given
the benefit of possession, the risk in respect of damage to the property.
There is not as yet a lot of case law on the new legislation. From one case
Shadlow v. Skiadopoulos121 the following propositions emerge:-
* The term "dwelling-house" includes a dwelling-house on land used
for purposes other than purely as the curtilage of a dwelling-house
(as in the case of a house on an area of land intended for use as a
farm).
* A purchaser's claim for a reduction in price under s. 66M is not a
claim for compensation under condition 7 of the contract for sale;
rather, it is a statutory right. Hence, a vendor is not entitled to
rescind under condition 8(a) of the contract in respect of such a
claim.
* In determining what reduction in price is "just and equitable"122
and whether it would be "just and equitable" to require the vendor
to complete the sale123, the amount of any insurance proceeds paid
to the vendor in respect of the damage is a relevant matter. On the
facts, the amount paid to the vendor in respect of the damage was
held to be the amount by which the purchase price should be
reduced.
* It is doubtful whether a purchaser who takes out insurance before
the risk has passed has any claim under his policy.
It is suggested that the legislation concerning the passing of risk does not
alter the general law principle that the vendor becomes a trustee for the
purchaser upon entry into a valid and binding contract for sale. This is
because the vendor's duty as trustee arises out of his obligation to convey
what he has agreed to sell and this obligation has not been altered by the
passing of risk legislation.124
(iv) Passing of Title to Personal Property.
Where the furnishings and chattels listed on page 1 of the contract are in fact
fixtures the rules as to the passing of title to real estate apply. Where the
items are personal property s. 25 of the Sale of Goods Act, 1923, provides
that unless otherwise agreed goods remain at the seller's risk until the
property in them is transferred to the buyer. The provisions of the Sale of
Goods Act could result in the property passing on making of the contract
but it seems clear enough that the purpose of clause 16.1 is that the legal
property in the furnishings and chattels is not to pass to the purchaser until
completion.
Special problems concerning the passing of property to personalty arise
where the contract entitles the purchaser to possession before completion.
Also it is to be noted that the Conveyancing (Passing of Risk) Amendment,
1986 only applies to "land" which includes "buildings and other fixtures".
In the case of the furnishings and chattels, the legal title passes on delivery -
but the vendor can constructively deliver the furnishings and chattels by
handing over the key to the premises where they are kept, or presumably by
authorising this handing over e.g. by saying the keys are with the agent.
(b) "16.2 Normally, by completion the vendor must ..."
The word "normally" refers to clause 10 (see definitions in clause 1) e.g.
16.2.3 is subject to anything in substance disclosed in the contract such as
clauses 10.1.8 or 10.1.9.
This clause deals with the "mechanics" of the passing of title, that is, what
documents should be handed to the purchaser on completion and what
documents should be produced by the vendor.
(i) "16.2.1 Give the purchaser all documents of title ..."
Under an open contract the vendor must hand over to the purchaser upon
completion all documents of title relating exclusively to the property sold.
The right to deeds follows the right to the land itself and the title deeds are
incident to the purchaser's right to possession under his freehold estate.
Previous editions of the contract referred to "muniments" of title. If a
document is a "muniment" of title it had to be handed over to the purchaser
on completion. But if the document is a mere "evidence of title" then it had
only to be handed over if it is in the vendor's "possession or control".
Muniments of title are those documents upon which proof or defence of title
to the land depends i.e. they are documents which are necessary for proof
of title. They would include instruments evidencing dispositions of interests
in land, statutory declarations as to pedigree or identity, certificate of title,
proprietors copy of any registered dealings and any unregistered dealings.
They may also include survey reports and s. 172 certificates.
Under s. 57(1)(c) of the Conveyancing Act a purchaser of Torrens title land
is entitled to have the "relevant certificate of title" lodged by the vendor at
the office of the Registrar-General to enable the transfer to be registered.
The position under the present contract for sale is that the purchaser may
refuse to complete the transaction until there is available the separate
certificate of title for the particular parcel of land being purchased.
Within the category of evidences of title will be all documents which assist
in establishing title to the property or which go toward establishing the
vendor's right to use and enjoy the property and structures thereon. For
example, surveys, s. 172 certificates, certified copies of documents, copies
of town planning orders and strata roll notices.
Documents are within the vendor's possession or control if within his actual
possession or the possession of his solicitor or agent. Documents held by a
mortgagee are not in the vendor's possession until the discharge of the
mortgage.
Under previous editions of the contract all non-exclusive muniments and
evidences as are in the vendor's possession and control must be produced
on completion or immediately following completion. A document is not
exclusive if it relates to other properties as well. It seems however that a
vendor will not be in breach of this obligation unless the purchaser has
made a request for production. The proposed place for production should be
reasonable in the circumstances.
Solicitors whether acting for vendors or purchasers must keep in mind s.
53(2)(e) Conveyancing Act under which a vendor must deposit documents
of title with the Registrar-General where the vendor does not retain any part
of an estate to which the documents relate and the documents are subject to a
covenant to produce or any right of production.
In the case of Real Property Act land, if a plan of subdivision has been
registered before the date of the contract, or is registered after the date of the
contract, the time in clause 15.1 (or clause 15.1 as extended by A6.4) will
usually be sufficient for the issue of a separate certificate of title for the land.
If not, there is no document of title which relates only to the property, and
the vendor can presumably insist on the purchaser completing on the
strength of a direction for delivery of the separate certificate of title125.
Although, a purchaser would usually want a final search to check the old
certificate of title is still in the custody of the Registrar-General, a prior
search for any prior direction and an undertaking from the vendor's solicitor
to hand over the certificate of title if it issues to the vendor's solicitor.
In the case of a consolidated folio, where the contract relates to some but not
all of the lots in the folio, the vendor can presumably require the purchaser
to complete in the same way as there is again no document of title which
relates only to the land.
The term "document of title" is defined in clause 1 as "document of title or
evidence relevant to the title or the passing of title". Clause 16.3 echoes the
general law.
(ii) "16.2.2 Clear any ... land tax ..."
The vendor would usually assist the purchaser in applying for a certificate,
with a view to a quick settlement. Under procedures introduced by the Chief
commissioner of Land Tax on 1st August, 1986 the vendor's assistance
should take the form of completing the description of property section of an
application for certificate under s. 47, making and signing the statement by
vendor/owner on the face of the application, and then handing the
application to the purchaser on exchange of contracts.
If the purchaser's solicitor gets a certificate which shows a charge, the
solicitor should serve it on the vendor's solicitor, to get the benefit of the
provision. If the vendor cannot pay out the charge before completion, it will
be necessary to settle a the Land Tax Office, pay out the charge from the
proceeds of sale, and get a "clear" stamp on the certificate at that time.
(iii) "16.2.3 ... Cause the unencumbered legal title to pass ..."
This sub-clause provides that not only is the unencumbered fee simple the
subject of the sale but that there is an express provision that a good title will
be made to the property. This is important because where there is an express
provision that a good title will be made the normal rule - that the purchaser
takes subject to irremovable defects in title of which he knew before
entering into the contract does not apply. Under the present contract the title
must be unencumbered on completion.
In the case of land, it has always been the practice that the purchaser
prepares the transfer and submits it to the vendor, by and through their
respective solicitors, a practice echoed in this clause. The vendor's
solicitor's duty has then been "merely and exclusively to protect the interest
of the client on whose behalf (the solicitor) is consulted." This provision
adds to the vendor's common law obligation and makes it a contractual duty
to ensure that any transfer submitted for execution is, or will be upon
registration, sufficient to "cause the unencumbered legal title" to the land in
the transfer to pass to the purchaser. This may involve pointing out a
mistake in the transfer, when it is submitted.
The wording of this sub-clause raises the question whether all rates and
taxes on the property should be discharged on settlement. It has been
held126 in Queensland that the purchaser could not insist that the vendor
discharge all arrears of rates and taxes prior to completion but must be
content to deduct them from the purchase price payable on completion; nor
could the purchaser insist that the current year's rates be discharged by the
vendor prior to apportionment but must be content.to apportion them on
completion on an unpaid basis. Viewed in light of the adjustments clause
"free from encumbrances" did not mean free from unregistered statutory
charges for unpaid rates and taxes.
The applicability of this Queensland decision to N.S.W. is doubtful127. The
condition there dealt with was slightly different to the N.S.W. condition.
Under clause 16.2.2 of the standard contract the purchaser is entitled to
insist that any charge for land tax be removed prior to completion.
Condition 14.1 also provides that the vendor "will be liable" for all rates up
to completion. So it may be still arguable that in N.S.W. arrears of rates and
taxes must be discharged by the vendor prior to completion; and the current
year's rates must also be discharged by the vendor prior to completion and
then apportioned on completion on a "paid" basis.
As the property in the sale includes the specified furnishings and chattels the
vendor must also cause to pass to the purchaser the unencumbered legal title
to the furnishings and chattels. In the case of furnishings and chattels, the
legal title passes on delivery but the vendor can constructively deliver the
furnishings and chattels by handing over the key to the premises where they
are kept, or presumably by authorising this handing over ("the key's with
the agent"). In the previous edition of the contract condition 4(c) which
provides that no defect in the title to or quality of any furnishings or chattels
included in the sale shall of itself entitle the purchaser to rescind or terminate
the contract.
It should be noted that under old system title the deed of conveyance vests
the legal estate in the purchaser and registration is not necessary for the
passing of title although it is advisable for purposes of priority. Under
Torrens title registration is necessary to pass title and it is not strictly within
the vendor's power to "cause" the legal title to pass to the purchaser rather it
is up to the Registrar-General.
The words, "subject to any necessary registration" merely recognise all Real
Property Act dealings and some old system documents are not effective until
registration128. For example, for Real Property Act land the title will not be
unencumbered until the discharge of mortgage is registered129, and the legal
title will not pass until the transfer is registered130. These words are neutral
on the question of the expense of obtaining registration - the vendor bears
the registration fee on the discharge, but the purchaser bears the registration
fee on the transfer. Also, if there is an objection to the registration of a Real
Property Act transfer, the vendor bears the expense of removing the
objection, with some exceptions131.
The purchaser also bears any notice of transfer fee (e.g. if there is an
enclosure permit held with the land132). Any such fee is not part of the
passing of title, but only notice of the passing of title.
(iv) Unregistered Dealings on Settlement
The important question here is whether the purchaser can refuse to settle
until all registered encumbrances (other than those to which the sale is
subject) are removed from the title? In Jonray (Sydney) Pty. Limited. v.
Partridge Bros. Pty. Limited133 it was held that a purchaser was bound to
accept on completion a transfer by direction from the registered proprietor
(the vendor) and an unregistered discharge of a registered mortgage. This
was because the purchaser would obtain the protection of s. 43A Real
Property Act. Also if there is a "successive" effect of s. 43A it would appear
that a purchaser on completion would have to accept two transfers, one
from the registered proprietor to the vendor and another from the vendor to
the purchaser.
To obtain the benefit of s. 43A the purchaser may insist that the holder of
any interest in the property which is to be discharged should be represented
on settlement. With the exception that were a transfer by direction is
tendered the presence of the transferor or the transferor's representative at
the settlement cannot be required. It was held in Neeta (Epping) Pty. Ltd. v.
Phillips 134where there was a contract providing for vacant possession to be
given on completion that it was insufficient for the vendor to hand over a
surrender of lease when the tenant was still in possession on settlement.
Apparently the surrender was conditional on the tenant receiving some
consideration and if that consideration was not paid either on or before
settlement the surrender was ineffective.
(c) "16.4 On completion the purchaser must ..."
(i) "16.4.1 Pay ..."
Clause 16.4.1 requires the purchaser to pay the vendor. The provision goes
on to talk about "other money payable to the vendor". However, some of
the money may have to be paid under clause 7.2.1, and the vendor's
solicitor can receive or direct how the money is to be paid135. For example,
the amount payable to an outgoing mortgagee may not be known until just
before completion, when the vendor may not be available, and clause 20.5
allows the vendor's solicitor to write a letter directing payment of the
relevant amount, and to hand the letter over on completion.
Clause 20.5 provides the authority necessary for the purchase money (or
any other money) payable under the contract for sale to be paid to the
vendor's solicitor or as that solicitor may direct in writing. It has the effect
of requiring a direction from the vendor's solicitor before the purchaser may
safely pay the money to the vendor.
Payment to the solicitor is deemed to be payment to the vendor so that if the
solicitor misappropriates the money the vendor must bear the loss. It
appears that this authority extends to payment to the solicitor's clerk on
settlement.
However, if the vendor is a trustee (including an executor or administrator),
the vendor cannot delegate the receipt of the part of the purchase money
payable to the vendor, except as authorised by the trust instrument or
legislation. However, s. 53 Trustee Act, 1925 permits a trustee to employ a
bank, solicitor, stockbroker, real estate agent or prescribed person to receive
and pay money on the trustee's behalf.
The purchaser is not going to pay except to the vendor (general law), the
vendor's solicitor or as directed by the vendor's solicitor. There is a receipt
in the transfer signed by the vendor, but this is not conclusive between the
parties, and s. 39 Conveyancing Act merely allows the receipt to be in the
transfer rather than endorsed.
Where the vendor is selling as a trustee a receipt in writing from the trustee
is required to discharge the purchaser's obligation to pay the purchase
money to the trustee personally or pay the moneys into an estate bank
account. A trustee includes executors or administrators of deceased estates.
Where the sale is by a mortgagee exercising a power of sale a receipt in
writing from the mortgagee is sufficient discharge for the purchaser and the
purchaser is not concerned to see to the application of the money paid.
(ii) "... by cash ..."
Clause 16.4.1 by limiting the payment of cash to amounts of $ 2,000.00
avoids difficulties with the Cash Transactions Reports Act (Cth), where the
figure is $ 10,000.00 or more, and reduces the risk of a person being
attacked and robbed on the way to or from a settlement. The vendor can
waive the provision, and take more than $ 2,000.00 in cash - but does not
have to.
(iii) "... or unendorsed bank cheque ..."
The word "unendorsed" means the cheque must be drawn in favour of the
right person, rather than drawn in favour of the right person, rather than
drawn in favour of another person and endorsed in favour of the right
person. The word "bank" is defined in clause 1 and does not include, for
example, a merchant bank or a wholly overseas bank.
The common law position is that the purchase money under the contract is
payable in cash in legal tender. The contract provides that payment may be
made by "bank cheque".
One view is that payment by bank cheque is a conditional payment only and
does not discharge the obligation to pay the balance of the purchase price
until it is honoured by the bank upon which it is drawn. On the other hand
the vendor must hand over the title deeds and conveyance upon tender by
the purchaser of a bank cheque. From this it may be argued that the tender
of a bank cheque discharges the purchaser's obligations leaving the vendor
in the event of dishonour of the bank cheque with an action against the bank
on the cheque only. Sometimes the purchaser may also be liable in fraud.
Bank cheques are regarded in commercial transactions as equivalent to cash
but they are not cash and nor are they strictly "cheques" because a cheque
drawn by a bank upon itself is not "a addressed by one person to another".
The practice of banks generally is to honour cheques drawn upon
themselves. However if the bank is entitled to repudiate liability on a bank
cheque as against the customer (e.g. forgery) the bank may also repudiate
liability as against the vendor136.
The possibility that payment on a bank cheque may be withheld is simply a
risk which (short of obtaining verification from the issuing bank that the
cheque will be met) must be borne by vendors under the contract of sale.
(iv) "... the balance of the price ..."
If the vendor is providing vendor finance, add a special condition to say that
the balance of the price (or a certain lesser figure) will be advanced by the
vendor to the purchaser on completion. For example, "on the security of a
mortgage in the form of the attached draft mortgage, completed as indicated
in the draft". This avoids arguments over "reasonable terms" - in the draft
you can indicate exactly how blanks are to be completed e.g. "(insert date of
completion)".
"Any other amount payable by the purchaser" refers, for example, to
adjustments payable under clause 14 or an amount payable under clause
18.4. However, this provision does not apply to any other amount payable
in respect of the property. For example, it probably does not apply to a
licence fee payable for early possession under a collateral agreement - clause
18.1.3 seems directed to negative obligations not positive ones.
(d) Vesting of deposit on completion
Until completion the vendor is not entitled to call upon the stakeholder to
pay the deposit over to him under clause 2. However when completion
takes place the vesting in the vendor is automatic pursuant to clause 16.5
and does not require the procedure for an order authorising payment having
been followed. The procedure for the giving of an order authorising
payment to the vendor is designed to safeguard the stakeholder against
claims by the purchaser that he ought not to have paid the deposit to the
vendor and it is not a precondition to the vesting of the deposit in the
vendor.
Clause 16.4.2 refers to what is commonly known as "the order on the
agent", as the depositholder is usually the vendor's agent firstnamed on
page 1. This is usually simply a letter from the purchaser's solicitor, rather
than a special document. This does not attempt to say that the depositholder
must pay the vendor, as the depositholder is not a party to the contract. The
obligation to pay arises out of the acceptance of the position of stakeholder
pursuan to clause 2.1.
The words "to account to the vendor for the deposit" require the payment to
the vendor less any amount payable to the depositholder e.g. agent's
commission and expenses. The order usually reads "please account to the
vendor for the deposit", without going into the items involved.
Clause 16.5 is an attempt to avoid the effect of the depositholder's
bankruptcy, by moving the property in the deposit across to the vendor.
19. Clause 17 - Possession
(a) Generally
The word "normally" refers to clause 10.1.9 and any tenancy in substance
disclosed in Schedule 1 or elsewhere (see definition of "normally" in clause
1).
If the benefit of possession is to be given to the purchaser at some date other
than completion clause 17.1 should be amended accordingly. Care should
be taken to mark "subject to the following tenancies" otherwise the sale is
with vacant possession. If "subject to the following tenancies" is marked
but no particulars of tenancies are inserted in Schedule 1 this does not mean
that the purchaser can assume that there are no tenancies.
To give the benefit of existing tenancies or occupancies the vendor must do
whatever is necessary on the vendor's part to enable the purchaser to receive
the rents and profits. A mortgagee in possession is not an occupancy subject
to this description. Errors in Schedule 1 may give rise to a claim for
compensation or in certain cases, the right to rescind.
Where the contract provides for vacant possession, the purchaser is entitled
to insist upon receiving vacant possession, even though he has pre-contract
knowledge of the existence of a tenancy over the property.
Where the contract provides that the property is sold subject to existing
tenancies or occupancies, these should be disclosed in Schedule 1. The
most prudent course for the vendor to adopt so as to avoid the possibility of
error or omission in disclosure, is for a photocopy of the lease to be
annexed to the contract.
Previous editions of the standard contract did not import into the contract "a
choice printed in BLOCK CAPITALS". Where the contract was silent as to
whether the property was sold with vacant possession, there is a
presumption that vacant possession will be given on completion. This
presumption could be rebutted by the purchaser's pre-contractual
knowledge that the property was subject to a tenancy or occupancy. It was
in this sense that it was often said that the vendor had a "duty" to disclose to
the purchaser all existing tenancies and occupancies. But although
designated as a "duty" it was rather a matter of the vendor protecting himself
against claims by the purchaser for breach of the implied term for vacant
possession on completion.
(b) Granting leases or occupancies between contract and completion
Where the property is sold with vacant possession to be given on
completion, the vendor will be in breach of contract if the property is not
vacant on completion. To that extent, the vendor is not entitled between
contract and completion to grant a lease which endures beyond completion.
However, there is no principle which would deny the vendor the right to
grant a lease which will expire before completion.
Where the sale is subject to existing tenancies or occupancies the question
whether the vendor may between contract and completion grant a lease or
occupancy is more difficult. As a matter of prudence, the vendor should
consult the purchaser before re-letting the premises. If, after consultation,
the purchaser agrees to compensate the vendor for the loss of rent up until
completion the vendor should not re-let the property. If, after consultation
the purchaser does not agree to compensate the vendor for loss of such rent,
the vendor may re-let the property but should take reasonable steps to
ensure that the rent is not less than that under the previous lease and that the
terms and conditions of the new lease are comparable to the old lease.
If consultation is not practical the vendor is not necessarily prevented from
re-letting e.g. if the vendor is aware that the purchaser is buying the
property as a letting proposition and not on the basis of a vacant possession
price, he may be justified in re-letting. It should also be noted that as a
general rule the vendor ought to consult the purchaser before determining
any tenancy subject to which the property is sold and should not determine
the tenancy against the purchaser's wishes.
(c) Attornment
A formal attornment by the lessees is no longer strictly necessary upon a
conveyance or transfer of the reversion137. But the purchaser should give
notice to the lessee of the transfer or conveyance, because until the lessee
receives notice from the purchaser he is entitled to continue to pay rent to the
vendor.138
Nevertheless, it is advisable for a "notice of attornment" to be handed by the
vendor to the purchaser upon completion, directing the tenant to pay future
rents to the purchaser, and for this notice to be served upon the tenant.
Where this course is adopted the provisions of s. 22A(d) of the Landlord &
Tenant Act, 1899 come into operation. The notice effects an attornment
without any acknowledgment by the tenant and will be important in any
proceedings by the purchaser as landlord under Part IV of the Act for the
recovery of possession of the premises.
(d) Rights of tenant or occupant
It is well settled that a purchaser of property who has notice that some
person other than the vendor is in possession of the property, takes subject
to the rights of that person in the property i.e. notice of the fact of
possession is notice of the rights of the possessor. This is sometimes
referred to as the rule in Hunt v. Luck.139
The purchaser will also take subject to the rights of the occupant even where
the vendor himself is also in occupation. Clearly, then, it behoves the
purchaser to inquire of the occupant as to his rights in the property. It is not
sufficient for the purchaser to ask the vendor what rights the occupant
possesses. The inquiry must be made of the occupant himself. One
exception to this is that the purchaser does not take subject to "right" of the
occupant which are vague and ill-defined.
Where the land is under old system title the application of the principle in
Hunt v. Luck is not affected by registration of the conveyance to the
purchaser under the Registration of Deeds Act, 1897. To attain priority over
a competing interest by registration under that Act, the conveyance must be
taken bona fide and the requirement of bona fides has been interpreted to
mean that the purchaser must take without notice of the rights of the
occupant.
Where the land is under Torrens title s. 42 of the Real Property Act, 1900
provides that the purchaser upon registration of his transfer will take free of
the unregistered interest of the tenant unless the purchaser has been guilty of
fraud or the tenant can bring his case within s. 42(1)(d). The effect of that
paragraph is that the interest of the registered proprietor is subject to any
tenancy the term of which, together with any option for renewal, does not
exceed three years, under which the tenant is in possession or entitled to
immediate possession, and of which the registered proprietor before he
became registered as proprietor had "notice against which he was not
protected". The provision is clearly designed to protect short term
unregistered lessees from eviction at the hands of a registered purchaser.
Section 42(1)(d) applies only where the registered proprietor had notice of
the tenancy and notice received after completion but before registration is
irrelevant. The same result follows even where the tenancy is in respect of
"prescribed premises" under the Landlord and Tenant (Amendment) Act,
1948. In particular, a purchaser, having no notice of a tenancy of
"prescribed premises", takes free of that tenancy under s. 42(1)(d) and is
not bound by the eviction grounds contained in s. 62 of the Landlord and
Tenant (Amendment) Act.
It should also be noted that under s. 88A of the Landlord and Tenant
(Amendment) Act the lessee of prescribed premises has the right of first
refusal should the lessor decide to sell the premises. A sale in contravention
of this section is not invalidated but the lessee is entitled to any injunction to
restrain a sale in breach of the section, provided that completion has not yet
taken place.
The tenant or occupant cannot prevent the vendor from selling the land, but
this does not leave the tenant or occupant without recourse against the
vendor in the event of later eviction by the purchaser. In particular, a tenant
who, without relevant default on his part is evicted by a purchaser prior to
the expiration of the term granted by the vendor has an action in damages
against the vendor for breach of the covenant for quiet enjoyment express or
implied in the lease. Further a vendor faced with such an action by the
tenant cannot call in aid the fact that the property was sold "subject to
existing tenancies".
(e) Remedies for failure to give vacant possession
The three situations which most commonly give rise to breach are where the
vendor vacates but leaves behind a substantial quantity of rubbish, where
the vendor refuses to vacate and where there is a tenant or occupant in the
property. The purchaser is entitled to damages for breach of the obligation
to give vacant possession and these damages may be claimed after
completion as the contractual stipulation that vacant possession will be given
does not merge on completion. The purchaser is not deprived of damages
by the mere fact that he had notice before completion that there was a tenant
or occupant in the premises. Where the contract promises vacant possession
the purchaser is entitled to rely upon the contractual promise. The vendor is
also obliged to hand over the property free of any physical impediment
which substantially prevents or interferes with the enjoyment of the right of
possession of substantial part of the property.
The right to damages is determined by ordinary principles of the law of
contract. The purchaser is entitled to such damages "as may fairly and
reasonably be considered either arising naturally, i.e. according to the usual
course of things, from such breach of contract itself, or such as may
reasonably be supposed to have been in the contemplation of both parties at
the time they made the contract, as the probable result of the breach of
it"140. The following are examples of compensation awarded:-
* Where the breach lay in the vendor's act in leaving on the premises
large quantities of rubbish, the purchaser was entitled to damages
covering the cost of its removal141..
* Where the breach lay in the vendor's failure to vacate the dwelling
house by the date stipulated in the contract the purchaser was
entitled to damages covering temporary accommodation expenses
incurred thereby.
* Where the breach lay in leaving a tenant in the premises which were
required by the purchaser for occupation as a dwelling house, the
purchaser was entitled to damages for the difference in value
between the purchase price and the value of the house subject to the
tenancy, conveyancing costs and stamp duty incurred in purchasing
another house in which to live, and temporary accommodation
expenses.
* Where the vendor's breach lay in leaving a large number of cattle
on part of the property. The vendor left between 250 and 300 cattle
grazing on 1500 acres out of a total area of 1958 acres. The
purchaser claimed that, as a result, he had been unable to bring his
own cattle onto the land and that a number of them died as a
consequence. It was held that the purchaser was not entitled to
damages for the death of this cattle, the losses being too remote142.
* Where a local authority serves notice that a premises may not be
occupied.
* Vacant possession under a contract for the sale of land together
with a house to be constructed requires that the house be
completed.
* For further examples see Butt The Standard Contract for Sale of
Land.143
It has been held that the proper recourse for a purchaser is an action for
"damages" and not a claim for "compensation". The purchaser is not entitled
to refuse to complete unless an appropriate abatement of purchase price be
made, rather he must pay the full purchase price and then seek damages at
common law for the vendor's failure to give vacant possession.
(f) Termination
Where the contract provides for vacant possession completion and the
vendor's breach lies in his remaining in possession and refusing to complete
on the specified date, then unless completion on the specified date is
expressly or impliedly of the essence of the contract or the vendor has
otherwise demonstrated his clear intention to repudiate the contract, the
purchaser cannot terminate for the vendor's breach. The purchaser must go
through the normal conveyancing process of first issuing a notice to
complete making time of the essence for a reasonable date in the future and
thereafter he may terminate and sue for damages.
The position is different where the contract provides for vacant possession
and the vendor's breach lies in the possession of the premises by a tenant or
occupant whom the vendor is not legally entitled to remove or unwilling to
remove or who refuses to move upon or before completion. In such a
situation, it has been held that the purchaser can terminate and claim
damages.
20. Clause 18 - Possession before completion
(a) Generally
Under an open contract, the mere taking of possession before completion
does not amount to a waiver by the purchaser of his right to object to the
vendor's title. Nevertheless the taking of possession is a significant factor in
determining whether there has been waiver of the right to object. In
particular, it has been held that a purchaser who, after receiving an abstract
disclosing the existence of defects in title which the vendor cannot remove,
takes possession of the property without objecting to those defects, is
precluded from objecting to them. This may be even more so if the
purchaser has paid part or the whole of the purchase price or does some act
asserting ownership of the property.
To obviate any argument a purchaser under an open contract should only
take possession on the express condition that the purchaser is not thereby to
be taken to be waiving his right to object to the title. Clause 18.7 confirms
that taking possession does not imply acceptance of the property or title.
Although it is not free from doubt, it appears that in the absence of
agreement to the contrary, a purchaser who goes into exclusive possession
of the property prior to completion becomes at law a tenant at will of the
vendor. There are some dangers for a vendor in permitting a purchaser to
take possession prior to completion. The vendor cannot at his will turn the
purchaser out but rather can only do so upon rescission or termination of the
contract. This principle seems to be based upon the notion that the
purchaser's possession is protected by his equitable right to receive the legal
estate. It may also be that a purchaser would be entitled to reasonable notice
before being required to give up possession.
A tenancy at will under a contract for sale is not subject to the provisions of
the Landlord & Tenant (Amendment) Act, 1948 and the Agricultural
Holdings Act, 1941144. However where the property is a dwelling house
under the Landlord & Tenant Act, 1899145 possession cannot be recovered
from a tenant except under a judgment or order of the court (s. 2AA(5)).
It is common practice for the vendor to insist that a purchaser desirous of
taking possession prior to completion should execute a "licence agreement"
by which he declares the relationship between the parties to be that of
licensor/licensee and not landlord/tenant. But such an agreement will not be
effective to prevent the relationship of landlord/tenant from arising where
the purchaser is in fact given exclusive possession of the property and in
determining this the substance of the agreement is all-important, rather than
its form.
In view of these matters and having regard to the obligations imposed upon
the purchaser and the rights conferred on the vendor by clause 18 it is
generally unnecessary, and may even be unwise, to require the purchaser to
execute a "licence agreement".146
The question that does arise is whether a purchaser who assumes
possession before completion can acquire a possessory title against the
vendor? One situation is where the purchaser has paid the full purchase
price and gone into possession but has never received a formal assurance of
the property. It appears that in due course the purchaser may acquire a
possessory title against the vendor, the vendor in such a situation being a
bare trustee for the purchaser. Where the purchaser has assumed possession
without paying the balance of purchase price and remains in possession
without paying it, in theory the purchaser can acquire a possessory title. But
difficult questions arise as to when time begins to run against the vendor
and whether the purchaser is only in possession as a licensee.
It may be expected in practice that where the purchaser is let into possession
before completion there will be an express agreement between the parties as
to whether the purchaser is to pay interest on the unpaid purchase price or
an occupation fee, or both. The occupation fee could be made payable on
completion or periodically.
Equity implies an obligation of the purchaser to pay interest on the unpaid
purchase price from the date of taking possession. Equity takes the view
that enjoyment of the fruits of the contract should be had by the purchaser
subject to payment of the purchase price or, if that be deferred, payment of
interest on the purchase price. This applies even where the delay in
completion is caused by the vendor and no real benefit has been derived
from occupation. It seems that the purchaser could avoid paying interest by
depositing the outstanding moneys in a separate account and advising the
vendor that it is available for settlement when called for. Clause 18.6
provides that the purchaser is not liable for rent unless there is some
agreement in writing.
(b) The purchaser's obligations
Clause 18 is intended to apply where the purchaser is given the benefit of
possession prior to completion, meaning by "completion" payment of the
balance of purchase money in return for an appropriate assurance of the
property.
The purpose of clause 18.1 is clear. The word "structural" here appears to
govern both "alterations" and "additions". The purchaser is prohibited from
making "structural alterations or additions" to the property. It should also be
noted that the purchaser's liability for contravention of any statutes is
absolute as there is no qualification to the effect that the purchaser shall not
knowingly contravene the relevant statute.
If the purchaser does any of the things prohibited, the vendor can "remedy
the non-compliance" at the purchaser's expense pursuant to clause 18.4.
That is, the vendor could take steps to evict the tenant or other occupier or
undo the alteration or remove the addition.
Clause 18.2.1 imposes upon the purchaser in possession an express
obligation to repair. The purchaser is not entitled to commit waste or
otherwise endanger the vendor's security over the property but it seems that
the vendor cannot sue him for damages for failing to carry out repairs and
equity has no means of compelling him to carry out repairs. Under the law
of landlord and tenant, the obligation under a covenant to "repair" extends to
the repair or replacement of subsidiary parts of the thing demised, but does
not extend to renewal or reconstruction of the whole, or substantially the
whole, of the thing demised.
(c) "18.3 The risk ... passes to the purchaser"
The risk of damage does not usually pass to the purchaser until completion.
In the case of land the right to contract out of s. 66K(1) Conveyancing
(Passing of Risk) Amendments is limited in the case of dwelling-houses147.
Clause 18.3 complies. In the case of furnishings and chattels the risk,
unless otherwise agreed, passes with the title to the furnishings and chattels.
Clause 18.3 includes furnishings and chattels as the property referred to on
the front of the contract includes "the following land and the following
furnishings and chattels".
Although the risk passes under clause 18.3 the vendor should continue the
vendor's insurance, in case the contract is rescinded or terminated, and the
vendor has to take back the property. The vendor also has to comply with
any mortgage affecting the property. The requirement of having an insurable
interest is not relevant, as an interest is not necessary at the time of
insurance or loss148.The purchaser's solicitor should advise the purchaser
to insure when the purchaser takes possession except for strata title.
The exception to the passing of risk to the purchaser contained in clause
A1.5 is because under the Strata Titles Act, 1973 the body corporate is
required to insure the "building"149. The body corporate's insurance covers
improvements but not the furnishings and chattels, the purchaser's own
things and anything not covered by the body corporate's insurance e.g.
paint, wallpaper, temporary wall, floor and ceiling coverings.
(d) "18.4 ... The purchaser does not comply ..."
Clause 18.4 is concerned with the vendor's remedies in the event of breach
by the purchaser of his obligations under clauses 18.1 to 18.2. The vendor
cannot serve a notice to complete for the purchaser's mere breach of his
obligations under clauses 18.1 to 18.2 because these obligations do not
themselves relate to completion of the contract. However the vendor could
issued a notice calling upon the purchaser to comply with his obligations
under clauses 18.1 to 18.2 within a reasonable time thereafter, failing which
the vendor would treat the contract as at an end.
Clause 18.4 gives the vendor the option of recovering the cost of making
good the purchaser's default either on completion or as a debt. The intention
seems to be to permit the vendor to add the amount owing to the balance of
purchase price payable on completion.
The provision for payment of interest at the rate specified by the Supreme
Court on judgments, whilst no doubt intended to compensate the vendor for
interest lost on his own money expended in remedying the purchaser's
breach, may possibly be regarded as in the nature of a penalty and thus
unenforceable.
The definition of "adjustment date" in clause 1 deems the date on which the
benefit of possession is given to the purchaser to be the date for
adjustments. From this it follows that the vendor's right to receive the rents
and profits and his obligation to pay all rates, taxes and outgoings cease at
the end of the day on which the purchaser is given the benefit of
possession, and the purchaser's right and obligation commences thereafter.
The purchaser in possession is required to pay all rates and taxes on the
property as they fall due and in the event of default by the purchaser, a
vendor who has paid the rates, taxes or outgoings, would be entitled to
recover the amount from the purchaser on a simple money count.
(e) Other sub-clauses
The purchaser is required by clause 18.5 to vacate if the contract is
terminated or rescinded. This may not be enough if an occupation fee is
payable, as it should also entitle the vendor to terminate the tenancy.
Under the standard clause 18.6 the purchaser is not liable for rent but that
can be agreed to by altering the clause or by correspondence.
Clause 18.7 confirms that taking possession does not imply acceptance of
the property or title. However, early occupation licence agreements often
contain a provision by which the purchaser expressly agrees to accept the
property as it is at the time the purchaser goes into occupation.
21. Clause 19 - Rescission of contract
(a) Generally
This condition attempts to adjust the rights of vendor and purchaser where
the contract is rescinded pursuant to an express right to rescind. By its terms
it does not apply where the contract is "terminated".
The distinction between "rescission" and "termination" is well settled. The
term "rescission" is apt to describe the bringing to an end of a contract on
the ground of some vitiating element in its formation, such as fraud, duress,
misrepresentation or mistake. The contract is treated as never having come
into existence and the parties are restored so far as possible to their former
position - hence the term rescission "ab initio". "Termination" describes the
bringing to an end of the contract by one party for the breach of contract by
the other. Whilst termination puts an end to prospective duties and liabilities
of both parties under the contract it does not discharge the offending party
from liability for his breach.
Although the present clause 19 deems a rescission to which it applies to be
rescission ab initio, there are circumstances when it does not operate as a
true "rescission" ab initio, but rather as a hybrid remedy. An express right
to rescind may be conferred by printed conditions of sale or by added
special conditions e.g. clauses 8 (rescission by vendor), A1.11 (purchaser),
A5.5 (either party) and A5.8 (either party).
(b) The paragraphs
Clause 19 is a backup provision, in case a special condition fails to specify
the manner of exercising the right. A special condition can impose additional
requirements in a particular case.
The provision in clause 19.1.2 applies only to a right given by the contract.
Where a right to rescind is given by legislation, the legislation and judicial
interpretation of it will have to be considered as to the manner of exercise of
the right or the possible loss of it.
The word "normally" in clause 19.1 refers clauses 11.3 (purchaser's
expense in complying with notices) and 23A(e) (finance approval).
Pursuant to clause 19.2.1 all money paid by the purchaser under the
contract is to be refunded to the purchaser. Payments made by the purchaser
otherwise than under the contract, e.g.. by way of improvement of the
property, are not refundable. However, clause 19.2.2 provides that where a
purchaser has been in occupation "a party can claim a just and equitable
adjustment". The purchaser who rescinds a contract for sale under an
express power to rescind acquires an equitable lien over the property for the
amount he has paid under the contract.
Where the contract is rescinded pursuant to an express right to rescind,
clauses 19.2.3 and 19.2.4 provide that neither party is to be liable to the
other for "damages, costs or expenses" except as "arising out of a breach"
of the contract. For example, it was usual for a purchaser who rescinds to
be allowed his expenses incurred in investigating title and conversely, for a
vendor who rescinds to be allowed his expenses incurred in proving his
title, but under the present clause 19 such expenses are not recoverable. The
exoneration from liability in respect of "damages, costs or expenses" does
not apply where the damages, costs or expenses arose out of a breach of an
express or implied term or condition of the contract.
Pursuant to clause 19.2.2 the purchaser may be required to pay an
occupation fee or compensation for deterioration.
(c) Right to rescind given by legislation
The anti-gazumping legislation150, passing of risk legislation151 and vendor
disclosure legislation152 provide that generally there is no claim by one
party against the other, and this overrides clause 11.3.
The anti-gazumping legislation provides for part of the purchase price to be
forfeited to the vendor153 and to be recoverable out of the deposit,154 which
overrides clause 19.2.1. However, an deposit money refundable under this
or any other legislation is also refundable under clause 19.2.1 i.e. it is
money payable to a party "under this contract", and can be paid to the
purchaser's solicitor pursuant to clause 20.5.
The anti-gazumping legislation provides for an adjustment if the purchaser
has been in possession155 which makes it unnecessary to consider clause
19.2.2. On the other hand, the passing of risk legislation156 and the vendor
disclosure legislation157 merely allow the contract to provide for such an
adjustment, and this is done in clause 19.2.2.
22. Clause 20 - Miscellaneous
(a) "20.1 ...anything ... to be attached ..."
Clause 20.1 is not conclusive that the vendor disclosure requirements158
have been complied with and it is only some insubstantial evidence of
compliance. Therefore an incomplete draft contract should not be submitted
to a purchaser. The draft contract should only be submitted when all the
necessary attachments are in fact attached. Alternatively, require some
additional evidence that all documents were attached before the purchaser
signed the contract e.g. a signature on an attachment may be insufficient, as
the attachment and the signature may both have been added after the contract
was signed.
(b) "20.2 ... subject to Crown Lands (Continued Tenures) Act, 1989."
Clause 20.2 is a reminder that a former holding is now classified and
referred to by a new name for the purposes of the legislation, even though
the folio may not have been updated. This heads off a claim under clause 6
for an error or misdescription.
(c) "20.3 ... only an approximate area or dimension."
This is a help with a claim under clause 6 for an error or misdescription.
This may defeat the claim, or it may reduce the claim e.g. if there is a
discrepancy of 5 metres, clause 20.3 may cover the first metre, and clause 6
the remainder.
(d) Joint and separate liability
A clause referring to gender or plural is superfluous in view of s. 181(1) of
the Conveyancing Act, 1919 which provides that in any contract the
masculine includes the feminine and vice versa, and the singular includes
the plural and vice versa.
In the absence of clause 20.4 the general presumption is that the liability of
two or more promisors is joint, and not joint and several.
(e) "20.5 A party's solicitor ..."
The purchaser is not going to pay except to the vendor (under general law),
the vendor's solicitor (clause 20.5) or as directed by the vendor's solicitor
(clause 20.5).
(f) Service
A party to the contract will not be permitted to benefit from deliberately
avoiding the service of notices or documents upon him.
Under s. 170(1) of the Conveyancing Act a notice is sufficiently served:-
(a) if delivered personally;
(b) if left at the last known place of abode or business of the person to
be served;
(c) if sent by post in a registered letter, addressed by name to the
person to be served at his last known place of abode or business,
provided that the letter is not returned through the post-office
undelivered (service being deemed to be made at the time when the
registered letter would in the ordinary course be delivered); or
(d) in such manner as the Supreme Court may direct.
Section 170 now also provides for service by the Document Exchange
(DX)159.
Clause 20.6.4 allows for service by facsimile. The phrase "facsimile
transmission" is not defined in the contract, and is used the Conveyancing
Act, 1919160 without definition. Presumably "transmission" involves not
only sending but also receiving. Therefore an acknowledgement of service
should be asked for e.g. request that the fax be signed when received (with
date and time) and then faxed back to the sender. Under clause 60.6.4 the
service is not effective until the next business day as defined by clause 1.
After all, a fax may be transmitted after normal office hours.
The normal rule of law is that there is no binding contract until acceptance of
the offer has been communicated to the offeror. To this is the exception in
the case of an acceptance advised by post, namely, that the offer is accepted
as soon as the document advising acceptance is put into the post even
though the document never in fact reaches the offeror. This has come to be
known as the "postal acceptance rule".
It has been doubted whether the postal acceptance rule can ever apply to
exchange by post of contracts for the sale of land. If the rule does apply the
contract comes into existence at the time when the later of the two
documents to be put into the post is actually put into the post.
The present condition does not have the effect that the postal acceptance rule
should apply but rather, that if the rule would have applied had the parties
used the ordinary post, the same result is to follow where the parties use the
document exchange.
If a vendor or purchaser dies, the time limits in the contract continue to
apply e.g. clause 15.1 (completion date). There is no particular reason the
other party should be allowed to rescind (and the estate lose the benefit of
the contract) or be confined to rescinding (and the other party lose the
benefit of remedies for breach). The other party can serve a notice to
complete or other document under clause 20.6.5, and if the estate can
complete in time (e.g. by a special grant of letters of administration for this
purpose), well and good.
(g) Time
Clause 20.7 clarifies what is to happen if something to be done falls on a
non-business day. the term "business day" is defined in clause 1.
Clause 20.8 is a backup provision in case there is an inconsistency between
two times specified e.g. clauses 4.1 (service of transfer) and A6.3
(unregistered plans) and provides that the latest of the two times applies.
The fact that a party can do something only within a certain time does not
mean the party gets that full time in which to think about it. For example, if
an abstract is served after four weeks, and the purchaser under clause 5.1.2
has only 21 days to make objections or requisitions, this does not extend the
completion date of six weeks specified in clause 15.1 and on page 1. This is
the effect of clause 20.9.
The contract may provide that a party must do one thing within one time,
and another thing within another time. Then the words "of itself" in clause
20.9 become significant. For example, if the completion date is three weeks
after the date of the contract, neither time "of itself" affects the other but the
completion time affects the time for service of the transfer, as the concept of
completion involves the vendor transferring the property using a transfer
served by the purchaser.
Clause 20.10 provides that "within" a period means before or during the
period which may be different to the meaning at general law.
The word "normally" in clause 20.11 refers to clause 2.1 (deposit), which
is stated to be essential. This provision overrides the general law special
cases where time would impliedly be of the essence. The provision does not
apply where a party "can" do something within a time, there the time would
be essential, as no other meaning can be given to it e.g. "can rescind within
14 days" cannot mean within 14 days or some unspecified and
unascertainable further period.
Even a provision that a party "must" do something within a time still means
that exact time but the lack of essentiality affects the remedies for non-
compliance.
(h) Annexure page
Clause 21.12 is a backup provision in case the clauses A1-A6 are not
attached when they should be. This provision means that the clauses operate
only in the cases specified in the clauses.
The word "normally" refers to any special condition included in the contract
as a substitute for one of the clauses A1-A6. If such a special condition is
included in the contract the printed clause is excluded so no-one can argue
that part of the clause lingers on, subject to the special condition.
(i) Merger
Clause 20.13 overcomes the doctrine of merger of contract in conveyance in
relation to certain provisions. The doctrine is that certain obligations are
intended to be superseded by the "conveyance", and cannot be sued upon
after conveyance. The doctrine applies to Real Property Act land i.e. it is
really a doctrine of merger in the Real Property Act transfer or old system
conveyance. The case of a Real Property Act transfer, any merger may
occur only when the legal estate passes i.e. on registration. The doctrine
relates to the individual conveyance e.g. if you have 2 lots conveyed on
separate occasions, any merger takes place in relation to each lot at the time
of the conveyance of that lot.
Clause 20.13 provides that some clauses "continue after completion" rather
than "continue after transfer". However, it still overrides the doctrine;-
(a) as regards old system land conveyed on or before completion, the
rights continue after completion (and therefore after that
conveyance)
(b) as regards Real Property Act land transferred on or before
completion, the rights continue after completion (and therefore after
that transfer), and forever after completion (and not just till
registration of the transfer).
The words "whether or not other rights continue" mean that the statement
that certain clauses continue does not imply that all other clauses do not
continue, it is completely neutral on that point.
(j) Open contracts
Under s. 60 of the Conveyancing Act contracts for the sale of land are
deemed to be made subject to the conditions set out in the Third Schedule to
the Act. The Third Schedule contains six conditions of sale, some of which
are more favourable to the vendor and others more favourable to the
purchaser than their respective counterparts in the present form of contract.
In condition 23 of previous editions of the contract the whole of the Third
Schedule was excluded.
The provisions in the Third Schedule are picked up, in one way or another,
in the current standard contract. To the extent that the standard contract is
inconsistent with the Third Schedule the provisions of that Schedule are
excluded.
23. Clause 21 - Auction
(a) Auction Conditions
The standard contract is suitable for a sale following private treaty or public
auction. Usually on a sale by private treaty the vendor's solicitor prepares a
draft contract after receiving full particulars of the sale from the agent. A
draft contract is prepared for a public auction and the draft with addition of
the price and the name of the purchaser to whom the property shall have
been knocked down at the auction will be the contract as exchanged. After
the parties are bound by contract, whether following an auction sale or
private treaty, the conveyancing transaction is identical for either of these
methods of sale.
This clause is set out in the contract because of a concern that s. 49 Property
Stock & Business Agents Act, 1941, when it requires notice of a right to
bid to be in "the conditions of sale", means "in the contract itself" (rather
than separate conditions governing the manner in which the contract will be
made).
The wording of the condition follows closely but not absolutely the wording
of the conditions prescribed pursuant to s. 85B of the Property Stock &
Business Agents Act, 1941 applicable to all sales of land by auction. These
prescribed conditions are to be found in Schedule 3 to the Regulations161 .
These conditions should be notified by the auctioneer prior to and during the
auction as prescribed in reg. 66D Auctioneers & Agents Regulations. The
prescribed conditions cannot be excluded or restricted and apply to auctions
of real or personal property162. An auctioneer is required to give notice in
the prescribed manner and in the prescribed terms of the material parts of ss.
45 & 85C163.
(b) Nature of Auction Sales
A sale by auction involves an invitation to the public to compete for the
purchase of realty or chattels offered for sale by making successive
increasing offers to purchase, the property being knocked down to the
highest bidder. A "Dutch" auction is where property is offered at a certain
price and then successively at a lower price until one is accepted. This form
of auction is not contemplated in the present form of standard contract.
An advertisement by an auctioneer made in good faith that an auction is to
be held does not bind him to hold the auction and intending bidders have no
cause of action if it is not held.
It should be noted that auctioneers are entitled to reimbursement of expenses
(although not commission) on submitting the property to auction as per the
auction agreement and the usual practice is that the auctioneer is appointed
as an exclusive agent for a fixed period after the auction.
(c) The highest bidder is the purchaser
The highest bidder has no claim to be declared the purchaser unless the
reserve price has been reached and even once the reserve has been reached
his bid may be rejected by the vendor (see clause 21.3).
A bid made at an auction is an offer to purchase which offer is accepted by
the fall of the hammer. The offer may be retracted at any time before the fall
of the hammer. The retraction of a bid however must be communicated to
the auctioneer. Conversely the vendor is entitled to withdraw the property
from sale or to refuse to accept a bid at any time up to the fall of the
hammer. Any doubt as to the vendors ability to do this without incurring a
liability to the highest bidder is removed by clause 21.3 which provides that
the auctioneer may refuse to accept any bid which in his opinion is not in the
best interests of the vendor.
A bid need not be by word of mouth and it could be in writing or by a
signal. However it must be communicated to the auctioneer. An auctioneer
who negligently fails to accept a bid properly made is liable to the vendor
for loss suffered thereby. But the auctioneer is not liable to the vendor for
failing to obtain the name and address of the highest bidder where without
lack of care on the auctioneer's part the highest bidder has left the scene of
the auction before the details can be obtained.
(d) Disputed bids
This condition applies to disputes concerning any matter arising in the
course of bidding at the auction, whether as to the identity of the bidder, the
amount of the bid, or whether a bid has been made at all. The auctioneer
must decide whether it is a bona fide dispute and the court will not interfere
with his decision unless it had very strong case that the auctioneer had made
a mistake. It is also within the auctioneers power to refuse an objection
because it was made too late.
As a general rule a bidder to whom the property has been knocked down at
auction is not entitled to resist specific performance on the ground that his
bid was made on a mistaken assumption as to the identity, nature, title or
value of the property. An exception to this is where the mistake was induced
or contributed to by the vendor. Also specific performance will not be
ordered where an auctioneer has snapped up a bid which he must have
known was made by mistake. It would be prudent for an auctioneer who
suspects that a bid has been made by mistake to refuse to accept the bid until
he has satisfied himself that the bidder is not in fact mistaken.
Interesting circumstances arose in Volker v. Antonovic164. There the Court
of Appeal declared a contract void under the Contracts Review Act, 1980
and terminating its operation on the ground that she had been induced to
make the successful bid by undue pressure from the estate agent. The Court
stressed the fact that the purchaser would not have made the bid except for
the "unfair pressure" exerted by the vendor's agent. The bid had been a
"deliberate and voluntary act" by the purchaser, but that it would not have
been made except for the powers of persuasion brought to bear by the
vendor's estate agent after the purchaser, who was in an agitated and
emotional state, had stated that she did not wish to make any further bids.
That conduct "went beyond the limits of acceptable behaviour", being
"professionally and morally improper". This made the contract "unjust" in
the circumstances relating to the contract at the time it was made.
The auctioneer is the person best able to arbitrate up a bona fide dispute.
Earlier forms of contract required the auctioneer to resubmit the property to
auction on the basis of the former bids made. The reason for this is that a
satisfactory method of resolving disputes is to submit the merits of the
dispute to the practical test of a fresh auction. However there is no such
requirement in the present form of standard contract.
If a fresh auction is conducted it appears that under the present condition
that it would be an auction de novo and it is difficult to perceive how a
bidder could be prevented from withdrawing his former unaccepted bid
which in any case was not binding until the fall of the hammer.
The provision that "and his decision shall be final" does not prevent the
court from intervening in a proper case to review the auctioneer's decision.
The auctioneer must observe the rules of natural justice and allow each
disputant a chance to put his case. It appears however that the auctioneer's
decision made honestly and impartially cannot be upset for mistake or error,
unless the mistake or error is of such a kind that the decision was simply not
in accord with the terms of the auction conditions. In particular it is
irrelevant that the auctioneer took into consideration matters which he
should not have taken into account or that had failed to take into account
matters which he should have taken into account165. Also the auctioneer
should be free from bias and have no financial interest in the outcome apart
from his claim for commission.
(e) Auctioneer can refuse to accept bid
Even in the absence of a provision such as that contained in this clause 21.3
the vendor is entitled to refuse to accept any bid or to withdraw the property
from sale at any time before the fall of the hammer. This is because any bid
is nothing more than an offer until such time as it is accepted by the fall of
the hammer. The auctioneer appears to have an absolute discretion which he
should exercise in good faith.
By refusing to accept a bid the auctioneer may prevent a sale taking place.
But a more difficult situation arises where the auctioneer discovers "after"
the fall of the hammer that the purchaser has bought at a price
disadvantageous to the vendor through some unfair bidding practice.
(i) Knock-Out Agreements
Traditionally the law has looked more favourably upon tactics by
prospective bidders designed to keep prices down than it looked upon
tactics by vendors designed to force prices up. At common law a vendor is
not entitled to refuse to complete a sale by auction on the ground that a
"knock-out" agreement existed between prospective bidders i.e. where
bidders agree that one should not bid and may even provide for the
distribution of the spoils. The vendors remedy is to set a realistic reserve
price. The knock-out agreement is not illegal and is enforceable between the
parties to it provided s. 54A Conveyancing Act is satisfied.
The common law position must be considered in the light of a number of
statutory provisions. Section 45 of the Property Stock & Business Agents
Act is not a general proscription of collusive bidding but applies where a
person induces or attempts to induce another to do the acts specified by
means of a promise that he will either give that other the right to elect to take
over as purchaser through the auctioneer or agree to decide "by tossing or
the drawing of lots " who is to become the owner of the property. This
would not seem to apply to a promise of monetary payment or to a promise
of a right of pre-emption over the property.
Knock-out agreements do not breach the common law doctrine of restraint
of trade. It would appear unlikely but knock-out agreements may come
within the ambit of the Trade Practices Act, 1974 ss. 45(2) and 45A.The
Contracts Review Act, 1980 may also be of relevance but it does not follow
that a vendor who finds his property sold cheaply as a result of a knock-
down agreement will be entitled to relief on the ground that the contract
between him and the highest bidder is "unjust". The provisions of the Act
do not apply for the benefit of corporations or where a person enters into a
contract in the course of a trade, business or profession.
It has been held166 that "contract" in the Contracts Review Act includes a
contract in the form of a deed or the parties to the contract are a husband and
wife who are shareholders in a company involved in a business transaction.
A written contract may be unjust if it fails to state important matters agreed
between the parties limiting the liability of the party seeking relief. Where a
business is carried on in the name of a company, the owners of shares in the
company who give a personal guarantee to secure the company's business
indebtedness are not precluded by s. 6(2) of the Act.
(ii) Damping the Sale
In the exercise of its discretion equity will not order specific performance of
a sale by auction where the purchaser has engaged in conduct which
although perhaps falling short of fraud, has prevented or was likely to
prevent the property realising its true value.
(iii) Misrepresentation
A would-be purchaser who dissuades others from competing with him by
misrepresenting the state of the title will not be entitled to specific
performance of his subsequent contract with the vendor. In addition he may
be liable to the vendor for the tort of slander of title. A purchaser who bids
at auction impliedly represents that he will pay the purchase price and if it
can be proved that he had no intention of paying the vendor may rescind for
fraudulent misrepresentation.
(f) Reserve price
(i) Sales Subject to a Reserve Price
The right to fix a reserve price and the right of the vendor to bid at the
auction are governed by s. 65 Conveyancing Act and s. 49 Property Stock
& Business Agents Act. The general effect of these provisions is that at a
sale by auction the vendor shall not bid, employ a person to bid on his
behalf or set a reserve price unless it is notified in the conditions of sale.
Where a sale is expressed to be subject to a reserve price the auctioneer has
no authority to sell for less. Even if the auctioneer mistakenly knocks the
property down below the reserve price to the highest bidder he cannot be
made to sign a memorandum for the purpose of s. 54A Conveyancing Act
as a bid made in such circumstances is conditional upon the reserve price
being reached. Nor is the auctioneer liable to the purchaser for breach of
warranty of authority.
If the auctioneer not only knocks the property down below the reserve price
but also ratifies the sale by signing a memorandum for the purposes by s.
54A he is liable in damages to the highest bidder. But the contract still
cannot be enforced against the vendor.
If the auctioneer had failed to announce that the sale was subject to a
reserve, he would be liable either to the vendor or to the purchaser,
depending on whether the sale can be enforced. His liability to the vendor
would be for the difference between the price secured and the reserve, for
having bound the vendor at a lower price, contrary to instructions. The
liability to the purchaser would be on the basis of breach of warranty of
authority, if the purchaser is unable to enforce the contract.
(ii) Sales Without Reserve
By virtue of clause 21.4 the auction envisaged by the standard contract is
subject to a reserve.
The vendor may wish to offer the property for sale by auction without
fixing a reserve price and the dangers previously inherent in such a practice
have largely disappeared with the introduction of clause 21.3 of the auction
condition under which he may refuse to accept any bid which in his opinion
is not in the best interests of the vendor. In view of this it may be that a
fixing of a reserve price is now generally unnecessary. There is nothing in
the Conveyancing Act or Property Stock & Business Agents Act to prohibit
sales without reserve.
At common law once a sale by auction "without reserve" has commenced
the auctioneer is liable in damages to the highest bidder if he refuses to
knock the property down to him. This is because an auctioneer who puts a
property up for sale without reserve makes an offer to all the world that the
property will be sold to the highest bidder and the highest bidder accepts
that offer by making the highest bid. If the auctioneer refuses to bring the
hammer down he is liable for breach of contract.
Note however it has been held that the vendor (even where the sale is
"without reserve") may withdraw his property at any time before the fall of
the hammer and if the vendor is entitled by law to withdraw the property the
auctioneer cannot be liable for carrying out his principal's lawful
instructions. This is the view adopted in AGC (Advances) Ltd. v.
McWhirter 167.
The liability of the vendor in such circumstances is not clear as it has been
held that the vendor may before the contract is legally complete revoke the
auctioneer's authority but if the auctioneer has contracted any liability he is
entitled to be indemnified by the vendor. It is doubtful whether the standard
form condition clarifies the position. clause 21.3 appears to be open to use
by the auctioneer e.g.. if the bidder is of unsound financial status.
(iii) Reserving the Right to Bid
The vendor must reserve a general right to make one or a specified number
of bids and it is not sufficient merely to reserve a general right to bid. The
purchaser may treat the sale as voidable if the vendor or his agent exceeds
the specified number of bids, even where all such bids are made below the
reserve price. The purchaser may treat the sale as voidable if the auctioneer
has plucked fictitious bids out of the air in an attempt to create an
atmosphere of competitive bidding. Generally the vendor should not be
entitled to take advantage of unfair bidding tactics by those for whose
actions he is responsible.
The present condition does not reserve to the vendor the right to bid beyond
the reserve price and a purchaser who discovers that he has been run up by
the vendor bidding beyond the reserve price would be able to avoid the
purchase.
(g) Bidder is deemed to be principal
Where the bidder discloses both the fact of agency and the name of his
principal the bidder generally is not liable under the contract. Where the
bidder discloses the fact that he is bidding as agent for a principal but
withholds the name of that principal the general rule is that the contract is the
contract of the principal and not of the agent and the agent (bidder) has no
rights or liabilities under the contract.
Where the bidder has authority to contract on behalf of another but contracts
in his own name and conceals the fact that he is acting as agent for another
the doctrine of the "undisclosed principal" comes into operation. That is,
either the bidder or the principal when discovered may be sued on the
contract and either the bidder or the principal may sue the vendor under the
contract.
It would appear however that this doctrine cannot apply to sales by auction
in the light of clause 21.5. The purpose of the requirement seems to be that
the vendor is entitled to know the identity of the person with whom he is
dealing so that he can judge whether or not to accept the bid made on behalf
of that person.
(h) Purchaser to sign on fall of the hammer
The auctioneer's duty is not only to bring the vendor and purchaser together
but he must also conclude a legally binding contract between the parties.
A vendor cannot enforce against a purchaser a contract for the sale or other
disposition of an interest in land unless the purchaser has signed the contract
or note or memorandum to satisfy s. 54A Conveyancing Act. The practical
solution to refusal by the purchaser to sign the agreement for sale is that the
auctioneer may sign the contract on behalf of the purchaser thereby binding
the purchaser to the contract.
The auctioneer's authority arises upon the fall of the hammer and is
irrevocable. Where the auctioneer neglects to exercise his authority to bind
the purchaser he is liable to the vendor for any loss suffered as a result of
his neglect. One limitation to this authority is that it must be exercised as
"part of the transaction of the sale" and it would be outside the auctioneer's
authority to sign one, two or three days after the sale.
The auctioneer's clerk has no authority to sign for the purchaser. The
auctioneer also has no authority to sign a memorandum where he himself is
a party to the contract, as where the auctioneer is selling his own property.
Regulations 63-65 under the Property Stock & Business Agents Act require
the auctioneer to maintain an "auction contract book" which it could be
argued complies with s. 54A Conveyancing Act.
It is also well settled that the auctioneer and perhaps his clerk has authority
to sign on behalf of the vendor. Again this authority arises on the fall of the
hammer and cannot be revoked. Further the vendor will be bound where the
auctioneer enters the vendor's name to a memorandum in anticipation of the
sale at auction, if after the sale, the purchaser signs the memorandum as a
complete and final record of the contract.
Although the auctioneer is authorised by the vendor to accept the highest bid
it appears from a number of decisions that the auctioneer is under no duty to
the highest bidder to exercise his authority to sign on behalf of the vendor.
If the vendor cannot be compelled and a fortiori his agent cannot be forced
to sign a memorandum.
23. The back page
(a) Purchaser's Rescission for Non-Disclosure
(i) Generally
Previous editions of the contract contained a condition 12 the purpose of
which was to confer on the purchaser a right or rescission in the event of
non-disclosure of the matters prescribed by the Conveyancing (Vendor
Disclosure and Warranty) Regulation, 1986. These were matters of which
the vendor might well be aware and which would be regarded as of
significance to the purchaser, but would not necessarily confer a right of
rescission upon the purchaser.
For example, town planning matters and proposals in respect of the
property by a competent authority, but it is doubtful whether they amount to
defects in title such as to entitle the purchaser to rescind for non-disclosure.
(ii) 1982 Contract for Sale of Land
Condition 12 in the 1982 edition of the contract conferred on the purchaser a
right of rescission in the event of non-disclosure (and in the case of the
Fourth Schedule, insufficient disclosure) of the matters listed in the Fourth
and Fifth Schedules. Part I of the Fourth Schedule listed:-
(i) Any instrument, policy or plan as referred to in s. 90(1)(a) of the
Environmental Planning & Assessment Act, 1979.
(ii) Any proposal for re-alignment, widening, siting or alteration of the
level of a road or railway by any competent authority.
(iii) Any mains or pipes of any water, sewerage or drainage authority
passing through the property or any proposal for the same.
(iv) Any proposal of the Department of Education to acquire any part of
the property.
(v) Any proposal of the Electricity Commission to acquire any right or
interest affecting any part of the property.
(vi) Any conservation instrument or order or notice under the Heritage
Act, 1977.
(vii) Any proposal to acquire any right or interest affecting any part of
the property by reason of the Pipelines Act, 1967.
The 1982 edition provided a convenient method of disclosure of the matters
set out in (i) above by the annexure of a certificate under s. 149
Environmental Planning & Assessment Act, 1979. Space was made
available adjacent to items (ii) - (vii) to disclose any matters relating to those
items. Part I of the Fifth Schedule listed the following:-
(i) Any Residential District Proclamation under s. 309 of the Local
Government Act, 1919.
(ii) Any provision of or under the Mines Subsidence Compensation
Act, 1961.
(iii) Any housing area constituted under s. 4D of the Housing Act, 1912
or any proposal for such constitution.
(iv) Any proposal of the Land Commission of New South Wales to
acquire any part of the property.
(v) The operation of ss. 38 or 39 of the Coastal Protection Act, 1979
which has been notified to the Shire or Municipal Council by the
Department of Public Works.
(vi) Any declaration under s. 55 of the Public Health Act, 1902 or any
proposal to make such a declaration.
Interestingly enough not all these items are required to be disclosed by the
Conveyancing (Vendor Disclosure and Warranty) Regulations. The reason
for this is that the local councils are now required to give more information
in a s. 149 certificate which covers some of these topics. There is no
requirement however that the council indicate whether the land is affected by
any Residential District Proclamation under s. 309 of the Local Government
Act and no warranty is given in this regard because it was thought that s.
309 would be repealed before the 1st May, 1986. The section still has not
been repealed.
(iii) Amendments to the Conveyancing Act, 1919
On the 1st May, 1986 amendments to the Conveyancing Act came into
operation. A new section, called s. 52A, has been created which has the
following effect:-
(i) By virtue of subsection (2) a vendor under a contract for sale of
land must attach to the contract certain prescribed documents; in
addition the vendor shall be deemed to have given certain
prescribed warranties - by virtue of their being incorporated into the
contract by legislation. These obligations cannot be excluded and
under the subsection (4) any attempt to exclude, modify or restrict
them is void.
(ii) Under subsection (1) these obligations are also to apply
notwithstanding the provisions of any other Act including the Real
Property Act and Crown Lands Consolidation Act.
(iii) Documents which are required to be attached to the contract must be
so attached by the vendor prior to signature by the Purchaser.
(iv) The purchaser and a mortgagee of the purchaser may rely upon
documents which have been attached to the contract by the vendor
in pursuance of the obligation to do so created by Regulation
Clause 4 or which contain information consistent with a warranty
given under Regulation Clause 5, or which contain information
which has caused the vendor to make a specific disclosure in
relation to a warranty.
(v) The originals of documents need not be attached - copies will
suffice.
(vi) Subsection (5) envisages that there will be certain prescribed
vendors who need not comply with the obligations created under
subsection (2) ie to annex documents and give warranties; in
addition there are certain contracts and land to which subsection (2)
will not apply.
(vii) Subsections (6) and (7) deal with remedies and relief which are
available to a purchaser and the penalties which follow a failure or
refusal to comply with the Regulation. Those are more specifically
described in the Regulation but where the purchaser rescinds he is
not entitled to damages or compensation.
(viii) Subsection (8) addresses the problem of terms, conditions or
warranties which do not merge on completion.
(iv) The Conveyancing (Vendor Disclosure and Warranty) Regulation
Clause 4 of the Regulation prescribes the documents which need to be
annexed to the contract of sale. These are:-
"(a) a certificate issued under section 149(2) of the Environmental
Planning and Assessment Act, 1979 (except where the land is not
within any local government area);
(b) a diagram for the land from the appropriate sewerage authority
where available from the authority in the ordinary course of
administration, indicating the location of the authority's sewer in
relation to the land;
(c) where the contract relates to land under the provisions of the Real
Property Act, 1900 (excluding a lot as defined by the Strata Titles
Act, 1973 but including any land that is the subject of a qualified or
limited folio of the Register) -
(i) a copy of the folio of the Register or an original or a copy
of a computer folio certificate of the land; and
(ii) except in the case of land that is the subject of a limited
folio of the Register, a copy of a plan for the land issued by the
Department of Lands or the council for the local government area
within which the land is situated;
(d) a copy of all deeds, dealings and other instruments lodged or
registered in the office of the Registrar-General which create or
purport to create easements, restrictive covenants or positive
covenants imposed under Division $ of Part VI of the
Conveyancing Act, 1919 burdening or purporting to burden the
land or any part of the land;
(e) Where the contract includes a lot as defined in the Strata Titles Act,
1973:-
(i) a copy of a folio of the Register or an original or a copy of
a computer folio certificate for the lot and common
property; and
(ii) a copy of the strata plan incorporating the lot;
(f) where the contract includes a lot in a development scheme within
the meaning of the Strata Title Act, 1973, a copy of Part I of the
development statement;
(g) where the contract includes Crown land and a tenure card is
maintained for the land by the Registrar-General, a copy of the
tenure card; and
Warning to Purchasers
(h) A copy of a notice in or to the effect of the form set forth in clause
8(1) and complying with the other provisions of that clause."
Where the contract includes land in a proposed subdivision, the prescribed
documents are those as prescribed in Clause 4(1) relating to the land being
subdivided. It should be noted that there is no requirement to annex a
survey or certificate under s. 317A of the Local Government Act, 1919.
A section 149 had normally been annexed to the contract but had proved a
problem firstly because of the time taken by some councils to issue
certificates and secondly because of the variety of information given in the
certificate from one council to another. After the 1st May, 1986 councils
will provide more information as set out in the Regulation.
Clause 68(3) of the Regulation sets out the matters to be included in a s. 149
certificate including, whether a building can be erected on vacant land and
any relevant building ratio, whether demolition of existing buildings require
consent, whether the land is situated in a Coastal Protection area or a mine
subsidence area, whether it is affected by road widening or realignment,
landslip, bush fire, flooding or other risk.
Whilst there is no express requirement for the annexed documents to be
current, it is arguable that an out-dated folio is not "the folio". In respect of
a plan practitioners will need to be aware of the possibility of there being
variations in force affecting the document. The absence of any provision as
to the date of the documents has caused some concern but it is seen as
relatively unimportant bearing in mind that the vendor must stand behind his
or her warranty as at the date of the contract. For example, if a
certificate under section 149 is annexed to the contract which is 12 months
old and is subsequently shown to contain information which has been
superceded. In such a case the purchaser is entitled to an extended period
within which to rescind.
One result of these requirements is that it shifts some expense onto the
vendor, in that he must obtain a s. 149 certificate, drainage diagram and title
search. Providing settlement takes place within a reasonable time the
purchaser would not then apply for a s. 149 certificate and drainage
diagram.
(v) The Warranties Implied
The warranties implied are to the effect that the land is not affected at the
date of the contract by any of the matter listed. A point of discussion is the
meaning of the word "affected". Sub clause 5(2) of the Regulation states
that land is "affected" if the authority or body described in subclause (1) has
issued a statement in writing the substance of which is inconsistent with
there being no proposal.
It is sufficient disclosure by the vendor if the written statement is annexed to
the contract. It is clear then that "affected" does not necessarily mean
adversely affected. Consequently, a purchaser who has, since exchange of
contracts, become unwilling to continue, may relay upon affectation as a
breach of warranty if it is not disclosed, even if it is very minor or
beneficial.
(vi) The Consequences of Failure to Disclose or Breach of Warranty
Clause 7 of the Regulation has been the subject of lengthy negotiations.
Sub-clause (1) provides that where a vendor fails to comply with the
disclosure provisions (ie. title, section 149 certificate, sewerage
diagram and details of restrictive covenants etc.) then the purchaser can
rescind within 14 days of exchange.
That is a short period of time and the service requirement could be difficult
to meet. Practitioners ought to be well aware of this limit bearing in mind
the need for obtaining instructions and giving adequate notice. The vital date
is "the date of making the contract" and the use of that expression should
avoid the many pitfalls which have led to litigation in the past.
Gibson v. Francis168 was a case which arose from a clerical error including
a copy of DP 236966 in a contract for an auction instead instead of a copy
of the appropriate DP 236968. This was an unfortunate result for the
vendors who having sold the property at auction found they did not have a
binding sale. The Court held that the purchasers validly exercised their right
to rescind pursuant to clause 7(1) of the Conveyancing (Vendor Disclosure
& Warranty) Regulation, 1986 and the vendor's action for specific
performance failed.
The question which does arise is, what disclosures have been made and
what warranties are given if the 14 day period elapses without the purchaser
rescinding the contract? It would appear that the prescribed warranties are
still imported into the contract with no disclosures whatsoever. In which
case by merely obtaining a s. 149 certificate or drainage diagram the
purchaser could show that the vendor had breached the warranties.
Clause 7(2) deals with breach of warranty. There is no time limit here other
than the fact that rescission must be made before the sale is completed.
Sub-clause (4) deals with the consequences of rescission for breach of
statutory warranties. The purchaser is entitled to a refund of the deposit and
any other monies paid but nothing for damages, costs or expenses. That
does not preclude damages being awarded consequent to a breach of some
other warranty. Nor does it preclude adjustments for rates and rent if the
purchaser has already gone into possession (see subclause (5)(a)).
(vii) Prescribed Vendors, Contracts and Land Exempt
The Department of Housing and New South Wales Land and Housing
Corporation are exempted. The Law Society argued strongly that rather than
be exempted they ought to lead the way in compliance. It is understood this
exemption will be discontinued once landcom has revised its contact.
Contracts for the sale of land to the Department of Main Roads and contracts
for the sale, to the holder of a lease, holding a tenure under the Crown or
Western lands legislation are also exempt.
The exempted contracts comprise contracts between neighbours under
which boundaries are adjusted and contracts between co-owners of
property. Also exempt are certain contracts for the sale of a special purchase
under the Crown Lands Consolidation Act, 1913, the sale to adjoining
landowners of unnecessary roads or closed roads and sales entered into by a
Minister administrating the Environmental Planning and Assessment Act,
1979 or Heritage Act, 1977. Contracts arising from options which are either
entered into before the commencement of the Act or are not exercisable
within three months are outside the Act.169
The exempted interests in land are those created or subsisting by reason of a
mortgage easement permissive occupancy or profit-a-prendre and leases.
Those leases which are caught are long term having lengthy unexpired terms
and are described in Regulation 6(3)(b).
It should be noted that family transactions eg. a sale from father to son, are
not excluded from the requirements.
(viii) Former condition 12(b)
This paragraph 12(b) of the 1988 edition of the contract contained the
warranty in terms of Clause 5 of the Regulation. That clause provided:-
"5(1) For the purposes of section 52A(2)(b) of the Act, the prescribed
warranty is as follows:
The vendor warrants that, except as specifically disclosed in the contract,
the land contained in the contract for sale is not affected at the date of
making of the contract by any of the following:
(a) any matter prescribed by Schedule 2 of the Environmental Planning
and Assessment Regulation, 1980;
(b) any sewer or any sewerage authority passing through the land;
(c) any proposal for re-alignment, widening or siting, or alteration of
the level, of a road or railway by the Department of Main Roads or
State Rail Authority;
(d) any proposal by or on behalf of the Minister for Education to
acquire the whole or any part of the land;
(e) any proposal of the Electricity Commission to acquire any right or
interest in the whole or any part of the land;
(f) any conservation instrument or order or notice under the Heritage
Act, 1977.
(g) any proposal to acquire any right or interest in the whole or any part
of the land by reason of the Pipelines Act, 1967;
(h) the constitution of a housing area under section 4D of the Housing
Act, 1912 or any proposal for the constitution of such an area;
(i) any proposal of New South Wales Land and Housing Corporation
to acquire the whole or any part of the land;
(j) any declaration under section 55 of the Public Health Act, 1902 or
any proposal to make such a declaration;
(k) any dispute with, notice to or claim upon the vendor by any person,
evidenced in writing, in relation to -
(i) any common boundary or any boundary fence between the
land and adjoining land;
(ii) any encroachment on to any adjoining land by any building
or structure on the land; or
(iii) any encroachment on to the land by any building
or structure on any adjoining land;
(l) any notice pursuant to the provisions of section 317B of the Local
Government Act, 1919 which has not been fully complied with.
(m) any dispute with, notice to, claim upon or other action against the
vendor by any person, evidence in writing, in relation to a failure or
alleged failure to comply with a positive covenant imposed on the
land under Division 4 of Part VI of the Conveyancing Act, 1919.
Provision was made in the Fifth Schedule to disclose any relevant matters.
The purchaser is required to establish that the property was affected in the
relevant manner "at the date of making of this agreement". He is not entitled
to rescind where the affection arose after the date of the contract. It should
also be noted that it is the affection which must exist at the date of the
agreement, not the proof of it, and it will be sufficient if the purchaser
produces the necessary proof at the date of the hearing.
Special difficulties may be present where the contract is preceded by an
option. Where the option agreement provides for the execution of a formal
contract immediately upon exercise of the option, the "date of this
agreement" for the purpose of the present condition is the date of the
exercise of the option. Where the option agreement provides for the giving
of a period of notice and the entry into a formal contract the date of the
agreement will be the date of entry into the formal contract and not the date
of the giving of the notice of exercise.
It had been held under the 1982 edition of the contract that the time for
disclosure of affections was at the date of the grant of the option 170
The purchaser cannot rescind under this condition unless the property is
directly affected by the relevant matter. Thus there will be no right to
rescind where the contract fails to disclose the existence of a proposal to site
a road which will cut across the road on which the subject property is
situated but which will not require the taking of any part of the subject
property itself. Nor will there be a right to rescind for an undisclosed
environmental planning instrument which permits deleterious development
on the opposite side of the road which does not encompass the subject
property. However a purchaser may rescind for an undisclosed proposal by
the Department of Main Roads to site a road tunnel underneath the surface
of the property on the basis that an owner of land possesses all that which is
above it as far as the heavens and that which is below it to the centre of the
earth.
The mere fact of affection is sufficient to justify rescission and the property
need not be adversely affected or affected to the detriment of the purchaser.
It has also been held, under the 1972 edition of the contract, that a purchaser
could rescind even after the vendor had obtained a decree of specific
performance of the contract 171
The purchaser's right of rescission and its exercise will bring into operation
the provisions of clause 19. Under clause 19 the rescission is a rescission
ab initio, the deposit and all moneys paid by the purchaser must be refunded
and (subject to the provisos in clause 19) neither party to the contract is
liable to pay the other any sum for damages, costs or expenses.
The purchaser's motive for rescinding is irrelevant. His real motive may be
fear of a falling market, or difficulties in obtaining finance, or simply the
fact that the price is too high.
The purchaser is entitled to rescind where there is a "proposal" of the
authority concerned. This confers on the purchaser a right which he
otherwise would not have, for in the absence of such a provision, a
purchaser generally is not entitled to rescind for the existence of a mere
"proposal" of a statutory body, which if carried into effect, would affect the
property. The proposal would need to have been put into operation by the
acquisition of some right or interest in the property.
Not every plan or scheme for future action amounts to a "proposal" for the
purposes of the contract for sale. There must be some degree of finality
about the plan or scheme before it can be regarded as a "proposal", although
there need be no present detriment to the property.
In this regard clause 4(2) makes the following important provisions:-
"(a) land is affected by a proposal of an authority or body if the
authority or body has issued a statement in writing, the substance
of which is inconsistent with there being no proposal of that
authority or body affecting the land; and
(b) the effect on the land of a proposal of an authority or body is
specifically disclosed in the contract if -
(i) it is specifically disclosed in writing contained in or
annexed to the contract; or
(ii) there is annexed to the contract a statement issued by the
authority or body, whether in answer to an enquiry or
otherwise, stating the effect."
In Arial v. Brigdon172 the Electricity Commission advised the purchaser
that (as the Commission's letter was interpreted by Powell J.) the
Commission had determined to erect a major transmission line between
Tamago and Taree at some future time (there being "no mere concept, but,
rather, a concept in the process of being transformed into action") and
having made that determination had set in train the necessary investigation
needed to be undertaken before a final decision on the site of the line could
be taken; but the investigation had established that there were at least two
possible routes the line could follow, one of which would traverse the
subject property, and whether that route was chosen would depend on final
survey. Powell, J. held that the subject property was not affected in the
sense required by the contract: "as the Commission had not decided whether
or not to adopt, as the route for the contemplated transmission line, that
route which would, or might, involve the line traversing the subject land,
the Commission had not then formed an intention which, if adopted, and
given operative effect, would affect the subject land in the relevant sense." It
was not so much that there was no proposal, but rather that there was no
proposal affecting the property, as the Commission had not formed any
opinion as to whether the line would follow a route which would involve
the line traversing the subject property.
It has been held173 that the purchaser could rescind a contract for the sale of
a lot in a strata plan, where road widening proposals would affect part of the
common property but not the subject lot itself.
It may be that some ambiguity could exist in the relationship of section
52A(2) and the Conveyancing (Vendor Disclosure and Warranty)
Regulation Clause 7(4) in regard to the consequences of a breach of the
statutory warranties. It may be open to argue that a breach of warranty
which is not followed by rescission, would nevertheless give rise to an
action for damages. This was not the intention of the Government draftsmen
and a new paragraph 12(c) was added to the previous standard contract.
Condition 12(d) under previous editions of the contract was designed to
allow a vendor who subsequently discovers after exchange that he or she is
in breach of a warranty, to call upon the purchaser by notice in writing to
decide whether the purchaser will proceed. Under previous conditions
allowing the purchaser to rescind for non-disclosure the purchaser had to
exercise the right to rescind within a reasonable time otherwise he would be
held to have elected to keep the contract on foot. Under the present
condition the purchaser could wait and see and not exercise his right to
rescind until completion.
If the purchaser does not give notice of his election within 21 days of receipt
of the notice then the vendor may rescind. This is a particularly important
condition to note. It is designed to avoid the vendor being placed entirely at
the mercy of the purchaser until completion and to allow the vendor to
clarify his or her position without thereby reducing the rights of the
purchaser. The purchaser is given ample time in which to exercise his or her
right to decide whether or not to proceed. However some doubt has been
expressed as to the effect of section 52A(4) (ie. making void any attempt to
contract out of the provisions) on this condition.
(ix) Purchaser's Right Against Council for Inaccurate s. 149 Certificate.
The present condition of sale regulates rights between vendor and purchaser
only, it does not affect rights which either may have against third parties.
The High Court has held that under the principle in Hedley Byrne & Co.
Ltd. v. Heller & Partners Ltd.174 a council was liable to a purchaser who
suffered loss through reliance upon a misleading s. 342AS certificate175.
There is no reason to think that the council's liability is any less in respect of
certificates under s. 149. Schedule 2 of the regulations under the
Environmental Planning and Assessment Regulation, 1980 sets out the
matters to be specified in a certificate under s. 149.
Section 52A(3) of the Conveyancing (Amendment) Act provides that where
the vendor attaches to the contract a certificate or other documents issued on
or before the date of the contract by a government department, a statutory
authority, the council of a local government area or a prescribed person or
body (or copies of them) and the document is one required pursuant to the
legislation to be so attached, the purchaser or the mortgagee of the
purchaser shall have rights powers and immunities as if it was the person
to whom the enquiry certificate was issued.
This change represents a fundamental change in relation to reliance on
certificates and if accepted and properly implemented will obviously result
in great savings of time and expense in terms of duplication.
(x) Loss of Right of Rescission
The statutory right of rescission may be lost as a result of an election to
affirm the contract notwithstanding the language of the Act and
Regulation176. A solicitor in receipt of written replies from statutory
authorities and other bodies indicative of a "breach" of the statutory
warranty, may be deemed to have constructive knowledge of the contents of
those replies notwithstanding they may have been filed unread. The contents
of replies to enquiries concerning the property should be conveyed to the
purchaser with advice of any rights generated thereby. Advice should be
given to the purchaser promptly in order that the purchaser may consider his
position without unwittingly engaging in conduct that may result in an
affirmation of the contract. The purchaser must be careful not to require the
vendor to take steps on the basis that the contract remains on foot.
Where the purchaser's solicitor negligently fails to advise the purchaser
before completion that the property is affected in a manner entitling the
purchaser to rescind under condition 12, and it can be shown that the
purchaser would have exercised the right to rescind had he been aware of it,
the solicitor will be liable in damages to the purchaser. The measure of
damage is the difference (if any) between the market value of the land as
affected by the matter (or matters) referred to in condition 12 and the
purchase price actually paid. It follows that where the purchase price is less
than that market value, no damages (or at best nominal damages) are
recoverable, the purchaser having suffered no loss.177
(b) Schedule 1
The only reference to Schedule 1 in the main contract is at the top of page 1
(there is also an incidental reference in A1.1). Schedule 1 is stated on page 1
of the contract to be part of the contract. Therefore when clause 10.1.9 says
"disclosed in this contract", this includes a disclosure in Schedule 1. When
clause 14.4.1 says "if this contract indicates", this includes an indication in
Schedule 1. When Schedule 1 says the purchaser cannot require a
contribution to fencing work, or that a certain covenant or easement is to be
included in the transfer, these statements are independent provisions of the
contract.
(c) Documents
Items 7-11 are optional in the sense that the rest are required by legislation,
are in the interests of full disclosure or are necessary to make certain clauses
work. As regards the documents required by the vendor disclosure
legislation there is no express requirement that the attached documents be
current. The vendor warrants that, except as disclosed in the contract, the
land is not affected by certain matters178. So it is always wise to obtain up
to date documents for attachment. Copies of documents may be attached
instead of originals. It may be preferable to attach copies to both copies of
the contract and keep the originals for further use.
As regards enquiries going beyond the items in Schedule 1, the vendor is
likely to instruct the solicitor to obtain only the documents which must be
attached to the contract to comply with the attachment provisions and rely on
the vendor's own knowledge that the property is not affected by matters
which fall within the vendor disclosure warranty or the general law. There
are dangers in doing this for the vendor, especially if the vendor is also
wishing to enter a contract to purchase another property, and the solicitor
should give full advice and perhaps get confirmation of his instructions in
writing.
If in a manual folio or computer folio certificate the estate or interest of a
registered proprietor is expressed to be subject to an estate or interest
evidenced by an instrument, a provision of an instrument, or an enumerated
provision of an Act (N.S.W. or Commonwealth), the contents of the
instrument, provision or enumerated provision are deemed to be set forth at
length in the folio or certificate179. However, this is only for the purposes
of the Real Property Act.and it does not count for vendor disclosure as an
attachment of a copy of a document. Although, it counts as a disclosure for
the purpose of item 4 in Schedule 1 it is not a disclosure in "substance" for
the purposes of clauses 10.1.8 and 10.1.9.
The practice is to attach a survey report if the vendor has one (or access to
one) whether or not the survey shows a problem. In order to make the
purchaser put up with an encroachment (apart from a dividing fence) or a
non-compliance with the Local Government Act or Ordinances the contract
must specifically disclose and clearly describe the problem and have an
express term precluding an objection, requisition or claim. This is done for
the vendor by clause 10.1.9, as long as the substance of the problem is
disclosed in the contract. If the survey report discloses the problem it is
sufficient to attach a copy to the contract. If the report does not do this a
clear description of the problem would have to be included in the contract.
(d) Choices
The choices in Schedule 1 should be marked with a tick, a "x" or any other
mark will do. If a choice is not marked the choice in block capitals applies.
In the schedule there should be inserted details of existing tenancies or
occupancies under the vendor subject to which the property is sold. It is
suggested that the vendor should annex a copy of the lease to the contract in
order to ensure that the duty of disclosure is fully complied with.
If the contract fails to disclose the existence of an option to renew or an
option to purchase, the purchaser will be entitled to compensation under
clause 6. Clause 6 is not restricted to errors or misdescriptions of the
physical subject matter. It is thought that the vendor is obliged to disclose
whether or not the operation of the Landlord & Tenant (Amendment) Act,
1948 is excluded.
(e) Adjoining land - purchaser cannot require vendor to contribute to
dividing fences
The purpose of this choice is to relieve the vendor from liability to
contribute to the erection or cost of erection of any dividing fence between
the property sold and any adjoining land retained by the vendor. It is open
to adjoining landowners to modify or negative their liability under fencing
Acts and the present choice with a special condition of sale takes advantage
of that right. It should be noted however that this applies only to the erection
of dividing fences and does not preclude claims against the vendor for
contribution towards the repair of dividing fences.
A contract for sale can only bind the vendor and purchaser and without a
special condition the vendor cannot require the purchaser to enter into a
"common fencing covenant". For a restrictive covenant to effectively bind
successors in title there must be and intention that the covenant should "run
with" the land so as to bind successors in title. The covenant will also need
to comply with s. 88(1) of the Conveyancing Act which requires the
instrument containing the covenant to clearly indicate the land benefited by
the covenant, the land burdened by the covenant and the persons having the
right to release, vary or modify the covenant.
Commonly the requirement by the vendor for the purchaser to enter into a
covenant in this regard will be highlighted by a special condition requiring
the purchaser to submit to the vendor a transfer on the appropriate Real
Property Act form including a specified covenant.
The Real Property (Boundary Determinations) Amendment Act, 1989
commenced on the 1st April, 1990 and has been passed in an attempt to
overcome some of the problems associated with the resolution of disputes
concerning the location of boundaries. The purpose of the legislation is to
provide a simple solution, outside the court system, for determining the
position of disputed title boundaries between adjoining owners. The
registrar General has been vested with the power to determine the position
of such boundaries.
Upon receiving an application for a boundary determination, the Registrar
General will notify all affected parties. Prior to making such determination
the Registrar General must consult with a surveyor registered under the
Surveyors Act, 1929 and it is envisaged that this registered surveyor will be
the Principal Surveyor of the Land Titles Office.
Any person dissatisfied with the determination may request the Registrar
General to refer the matter to the Land and Environment Court. The fee on
lodgement of the application for determination is $ 100.00180.
(f) Foot of page 6
The notice at the foot of page 6 is required by s. 52A Conveyancing Act,
1919. The warning is not required by legislation but is a help to the parties
and may protect a solicitor against an allegation that the solicitor did not
advise as to the matters listed. The notes are also not required by legislation
but are a help to the parties and may protect a solicitor against an allegation
that the solicitor did not advise as to the matters listed.
In relation to the note about stamp duty. The stamp time runs from "first
execution". With regard to note 2, even though the contract has its own way
of resolving some disputes the parties can still agree to adopt alternative
methods.
24. Special clauses
(a) Annexure of clauses A1-A6
(i) Generally
This is an optional insert sheet. Throughout the contract there are various
references to clauses A1-A6 for certain choices. If A1-A6 is not attached
they still apply (clause 20.12) subject to any other provision. A1 relates to
strata and community title. A2 relates to tenancies. A3 to qualified, limited
and old system title. A4 to Crown purchase money. A5 to Ministers consent
to transfer. A6 relates to unregistered plans.
(ii) Clause A1 - Strata & Community Title
This condition applies where the property is held under the provision of the
Strata Titles Act, 1973 or where it is intended to be so held by the time of
completion. The words "strata title" are not strictly correct in that strata title
is really a species of of the genus Torrens title, as all land under the
provisions of the Strata Titles Act is held under the provisions of the Real
Property Act, 1900.
The general affect of the Strata Titles Act was considered under the heading
of Item L of the Particulars to the agreement for sale of land. The provisions
of clause A1 contained in an annexure are imported into the contract for sale
by virtue of clause 21.12. See Butt The Standard Contract for the Sale of
Land181 for a more detailed consideration of the provisions of condition
14A (the equivalent provision under the previous standard contract).
As far as conveyancing practice is concerned clause A1 makes provision for
the adjustment of body corporate levies as part of the outgoings to be
adjusted pursuant to clause 14. Clause A1 also requires a s. 70 certificate
under the Strata Titles Act to be furnished by the vendor at least 7 days
before settlement at the purchasers expense. By virtue of clause A1 on
settlement the purchaser must also receive a notice to the body corporate of
the change of ownership of the lot in the form required by s. 81.
Clause A1 is interesting in the light of the other conditions in the standard
form contract already discussed. Clause A1 specifies that risk does not pass
to the purchaser until completion. This is a protection to the purchaser in
addition to the rights under the Conveyancing (Passing of Risk)
Amendment Act, 1986.
Clause A1 extends a purchasers protection from latent defects to "any
defects (whether patent and latent) in the common property". This cover
does not extend to the strata lot itself and mere disclosure of the nature of
the defect in the contract is sufficient to exclude the vendor's warranty even
though the substance of the defect may not have been disclosed. The
warranty is given at the date of the contract but it would seem that the risk of
defects arising between the date of contract and settlement must be borne by
the vendor. A defect for the purposes of this sub-paragraph is "a deficiency
as to quality or substance which a reasonable owner/occupier of [the
property in question] would not permit to remain unremedied"182. It seems
that a breach of this warranty may be "cured" by rectification of the defect,
thereby depriving the purchaser of the right to damages or rescission.
(ii) A2 - Tenancies
Clause A2.2 is concerned with the apportionment of certain payments made
to the vendor by a tenant of the property. For example, where the lessee
may be obliged to pay the whole of the rates on the property, or perhaps the
increase in the rates on the property, such payments would be encompassed
by the present clause. See Butt The Standard Contract for Sale of Land183
for examples of calculations.
(iii) A3 - qualified, limited & old system title
The purpose of the abstract of title is to "show" the vendor's title and not to
prove it - proof of title follows later when the title shown in the abstract is
verified. If the title as abstracted is defective this is a matter for the
purchaser to raise by requisition or objection under clause 5.
Whether the abstract is a proper abstract is a question of degree and the onus
is upon the purchaser to show that it is not a proper abstract. The obligation
to provide an abstract is not satisfied by delivery of the title deeds
themselves even where the title is relatively simple.
The abstract should enable the purchaser (or his solicitor) to make an
informed assessment of the title to the property. The abstract therefore
should contain the full wording of all the "material" parts of all documents
affecting title, beginning with the good root of title or other agreed starting
point. It should also include any other relevant documents eg. birth, death
or marriage certificates, grants of probate, orders of court.
It is customary not to abstract documents creating or evidencing equitable
interests of which the purchaser would take free from upon completion
pursuant to the doctrine of the bona fide purchaser of the legal estate for
value without notice.
Under s. 183 Conveyancing Act it is an offence for a vendor or his solicitor
to conceal any instrument material to the title or to falsify any pedigree upon
which the title may depend in order to defraud the purchaser by inducing
him to accept the title offered. In addition to the penalty of fine or
imprisonment the offender is liable to proceedings for damages at the suit of
the purchaser for any loss sustained.
The 1972 standard contract first permitted the supplying of reproductions of
documents provided that a chronological index of all facts, events and
documents which comprise such title is also furnished. Where any
reproduction is not legible the vendor has not supplied a proper abstract.
The purchaser cannot call upon the vendor to produce documents in support
of the title or in verification of the abstract which are not in the possession
of the vendor or any mortgagee of the property.
What is a reasonable time depends on the circumstances and a complex old
system title will justify a longer time than a relatively straight-forward one.
A vendor's statement of title must be served upon the purchaser pursuant to
clause 20.6. Time does not run against the purchaser under condition 6 for
the making of objections and requisitions or for the tender of the assurance
until a statement of title has been served.
The expenses of preparing and serving the written statement of title are
borne by the vendor. Where the vendor fails to provide a statement of title
within a reasonable time the purchaser should serve a notice requiring a
statement of title within a reasonable time and indicating that if this is not
done he will terminate the contract. A purchaser who wishes to terminate a
contract on this ground should refuse to accept any abstract served after an
unreasonable time and return it immediately to the vendor.
The service of a proper statement of title is important for the running of time
under clause 5, for considering whether a vendor can serve a valid notice to
complete and normally would be a condition precedent to an action by the
vendor for the purchase price.
For land under qualified and limited title the statement of title will include
both the old and Torrens system components of title. For Crown land the
vendor must provide an abstract of any old system component of his title.
The statement of title should detail any mortgage, lease, charge, writ,
easement or restrictive covenant to which the sale is subject. It is not
necessary to refer to the existence of reservations and conditions contained
in the Crown grant. Also the form of any restrictive covenant, easement or
other interest to be created by the transfer should be included.
Section 57(1)(b) Conveyancing Act provides that the purchaser of Torrens
title land shall be entitled at the cost of the vendor of an abstract of any
instrument forming part of the vendor's title in respect of which a caveat is
registered.
Pursuant to an open contract the vendor is obliged to provide his statement
of title within 21 days after the date of the contract even in the absence of
any request from the purchaser (s. 60 Conveyancing Act and cl. 3 of
Schedule III).
(iv) A4-5 - Crown purchase money & consent to transfer
These clause apply where the land is held under any of the Crown land
statutes or is affected by any provision of those statutes. The general affect
of those statutes was considered previously. See Butt The Standard
Contract for the Sale of Land184 for a more detailed consideration of the
provisions of condition 14A (the equivalent provision under the previous
standard contract).
It has been held that land which had originally been the subject of a
settlement purchase under the Closer Settlement Act, 1904 but in respect of
which a Crown grant had issued and been registered under the Real
Property Act was land held under the Real Property Act notwithstanding
that the Registrar-General had endorsed on the certificate of title a notation
drawing attention to the need for the Minister's consent to transfer. The
present condition of sale would clearly encompass such land as it includes
both land "under any Act relating to Crown lands" and land "affected by any
provision of any such Act".
Where the Crown land had been brought under the provisions of the Real
Property Act it was the practise that item L of the Particulars in earlier
editions of the contract be completed in a manner which discloses that the
land is under both the Real Property Act and under the relevant Crown lands
statute. The fact that it is land under the Crown lands system does not
preclude it form being land under the Real Property Act, and vice versa. The
view currently held185 is that there is no need to refer to the Crown lands
legislation but merely to note that the tenured holding is under the Real
Property Act. This does not mean that the estate or interest in the land is fee
simple or freehold but only that the title to the land is recorded and to be
dealt with under the Torrens Title System.
Gradually the various folios of the register issued by the Land Titles Office
are being amended to make reference to the new Acts for restrictions on
dealings. Clause 20.2 provides that the folios must be read subject to the
Crown Lands (Continued Tenures) Act, 1989.
On the transfer of a Crown land holding the balance of any purchase money
owing to the Crown will have to be paid with 3 months of the transfer. It
has been suggested186 that the failure to disclose in the contract that the
purchaser will be responsible for the payment of any outstanding balance of
purchase monies due to the Crown within 3 months of the date of
registration of the transfer may allow the purchaser a ground for rescission
of the contract. Clause A4.1 provides that if any money is payable to the
Crown the vendor is liable for it.
The important point to be borne in mind in so far as conveyancing practice
is concerned is that the application for Minister's Consent should be
prepared by the vendor's solicitors and submitted to the purchaser's
solicitors with the contract for execution. After exchange of contracts the
application can then be lodged with the Lands Department as soon as the
vendor also signs the application. Clause requires the vendor to apply for
consent and therefore requires the fee for lodging the application for
Minister's Consent to be borne by the vendor.
(b) Annexure clause 2A - deposit guarantee clause
This is an optional insert sheet to make provision for a deposit bond.
(c) Annexure clause 23A - subject to finance clause
This is an optional insert sheet. The clause makes completion conditional
upon the purchaser obtaining finance in accordance with clause 23A and the
Sixth Schedule (a schedule printed with the clause -schedules 2-5 were
omitted in the 1992 edition). There are a number of problems with this
clause but they are largely the same problems that any "subject to finance"
clause has.
(d) Special conditions
At the end of these notes are a number of examples of special conditions
used in contracts.
1 Ss. 66ZP(1), 66Z(1), 170(5) Conveyancing Act, 1919 & s. 135Q(4) Real Property Act,1940. 2 s. 5A(8) Landlord & Tenant (Amendment) Act, 1948 3 (1978) 53 A.L.J.R. 123. 4 Morris v. Duke-Cohan & Co. (1975) 119 Sol. J. 826. 5 Clause 2.4 of standard contract. 6 Brien v. Dwyer (1978) 53 A.L.J.R. 123. This appears to be the case even though s. 16 of the Cheques & Payment Orders Act, 1986 specifically provides that a cheque is not irregular or invalid merely because it is post-dated. 7 Cash Transactions Reports Act (Cth). 8 A purchaser's lien is also a secured debt for the purposes of s. 153(3) of the Bankruptcy Act, 1966: Re Murrell (1984) 57 A.L.R. 85. 9 s. 109, see definition in s. 7(1) - mortgage includes a charge for securing money or money's worth - ignore the reference to "charge" in s. 109, as this confined to a charge under s. 88F - s. 108(2), 10 Bills of Sale Act. 11 Ex pare Lord [1985] 2 Qd R. 198 at 201-202; Ligiru Pty. Ltd v. DGA Investments Pty. Ltd. (1986) NSWConvR ¶ 55-319, 4 BPR 9170. 12 Louinder v. Leis (1982) 56 A.L.J.R. 433. 13 Ibid. 14 Formerly 317B Local Government Act, 1919. 15 Re Ford and Hill (1879) 10 Ch. D. 365. 16 Clause 20.11 which provides that "if a party must do something within a time, the time is not essential" applies to things a party must do, not things a party can do. 17 This was incorporated in Condition 7(b) of the 1988 edition of the contract. 18 (1834) 1 Bing. N.C. 370; 131 E.R. 1160. Also iscussed in relation to latent and patent defects in title. 19 (1973) 129 C.L.R. 1: (1973) 47 A.L.J. 340. 20 See The Standard Contract for Sale of Land in N.S.W. by Butt, Law Book Co., 1985 at p.371. 21 1988 edition. 22 The 1992 Contract for Sale of Land by Andrew Lang, Lexpo '92. 23 1988 edition. 24 (1972) 2 S.A.S.R. 493; noted (1972) 46 A.L.J. 417. 25 (1834) 1 Bing. N.C. 370; 131 E.R. 1160. Also iscussed in relation to latent and patent defects in title. 26 Saunders v. Edwards [1987] 2 All E. R. 651. 27 For a discussion of some cases see 1989 Supplement to the The Standard Contract for Sale of Land in N.S.W. by Butt, Law Book Co., 1985 at p.135. 28 (1988) C.C.H. N.S.W. Conv. R. 55-426. 29 1988 edition. 30 (1834) 1 Bing. N.C. 370; 131 E.R. 1160. 31 Condition 7(c) of 1988 edition. 32 Ibid. 33 (1834) 1 Bing. N.C. 370; 131 E.R. 1160. 34 Similar to condition 8(a) of the 1988 edition. 35 Also condition 8(a) of 1988 edition. 36 Conditions 7(c) & (d) of the 1988 edition. 37 Section 53 of the Commercial Arbitration Act, 1984 governs the power of the Court to order a stay of proceedings. 38 Law Book Co., 1985 at p.379. 39 Pierce Bell Sales Pty. Ltd. v. Frazer(1973) 130 C.L.R. 575. See The Standard Contract for Sale of Land in N.S.W. by Butt, Law Book Co., 1985 at p.395. 40 (1984) C.C.H. N.S.W. Conv. R. 55-216. 41 1982 edition which was the same as in the 1986 and 1988 editions. 42 [1963] 1 W.L.R. 1415. 43 Gardiner v. Orchard (1910) 10 C.L.R. 722.. 44 Grace v. Mitchell (1926) 26 S.R. (N.S.W.) 330. 45 Godfrey Constructions Pty. Ltd. v. Kanangra Park Pty. Ltd. (1972) 128 C.L.R. 529. 46 Pierce Bell Sales Pty. Ltd. v. Frazer (1973) 130 C.L.R. 575. 47 Didsbury v. Griffin (1984) C.C.H. N.S.W. Conv. R. 55-216. 48 Moonking Gee v. Tahos [1963] S.R. (N.S.W.) 935. 49 Mayer v. Vitale (1981) C.C.H. N.S.W. Conv. R. 55-022. 50 (1938) 38 S.R. (N.S.W.) 632 at 641-642. 51 Law Book Co., 1985 at pp. 428-430. 52 Laurinda Pty. Limited v. Capabala Shopping Centre (1989) NSW ConvR ¶ 55-469. 53 Ibid p.441 eg. 5 to 7 weeks for an uncomplicated Torrens title purchase of dwelling house; 6 to 8 weeks for an uncomplicated strata title purchase; 5 to 6 weeks in one case and 6 to 8 weeks in another for vacant land under Torrens title. 54 Adamson v. Barton (1981) 7 N.Z. Recent Law 314. 55 Dainford v. Yulora Pty. Ltd. [1984] 1 N.S.W.L.R. 546. 56 Winchcombe Carson Trustee Co. Ltd. v. Ball-Rand Pty. Ltd. [1974] 1 N.S.W.L.R. 477. 57 Sindel v. Georgiou (1984) CCH. N.S.W. R. 55-209. 58 pp.451-452. 59 O'Brien v. Dawson (1941) 41 S.R. (N.S.W.) 295. 60 At p.486. 61 Wight v. Foran (1987) 11 N.S.W.L.R. 470. 62 Section 160ZZC(12) Income Tax Assessment Act, 1936. 63 (1854) 9 Ex. 341; 156 E.R. 145. 64 Section 55(1) Conveyancing Act, 1919. 65 Section 149 Strata Titles Act, 1973. 66 Section 3 Dividing Fences Act, 1951. 67 Flight v. Booth (1834) 1 bing N.C. 370. 68 Jampco Pty. Ltd. v. Cameron (No. 1) (1985) 3 B.P.R. 9487. 69 Law Book Co. 1985 p. 612-619 and Supplement p. 199-200 70 Payne v. Mellor (1801) 6 Ves 349 at 352; 31 ER 1088. 71 Clarke v. Ramuz (1891) 2 QB 456. 72 Which is substantially the same as condition 4(d) of the 1988 edition of the contract. 73 Condition 11(f) 1988 Edition. 74 Unlike condition 11(f) of the 1988 Edition of the contract. 75 See the opening words of clause 1. 76 Clause 5A Conveyancing (Vendor Disclosure & Warranty) Regulation, 1986 77 This effectively reproduces condition 4(c) in the 1988 edition of the standard contract. 78 Holland v. Goltrans Pty. Ltd. (1984) Qd. Conv. R. 54-149. 79 Sections 169 of Local Government Act, 1993. 80 Ibid s. 171. There is no requirement that the council must inspect the building as soon as practicable as in the former s. 317AD of the Local Government Act, 1919. 81 Ibid s. 171(2). 82 Ibid s. 172(1). 83 Ibid s. 172(2)(a). 84 Ibid s. 172(2)(b). 85 Ibid s. 172(3) & (4). 86 Unreported No. 20459 of 1984. 87 Ibid ss. 169(1) 173(1)(a). 88 Ibid s. 168(1)(a) & (b). 89 Purchaser notice of possibility that work not done in accordance with approval (Long v. Worona Pty. Ltd. (Helsham, J) 20.3.73 unreported; discussed in Maxwell v. Pinheiro and Borthwick v. Walsh). Addition built without approval - purchaser entitled to have removed by work or certificate (Maxwell v. Pinheiro (Powell, J) (1979) ANZ ConvR 350; (1979) 1 BPR 9225). Sale of land "together with the dwelling erected thereon" - even if carport a contravention, not part of dwelling - bush timber carport, could easily be demolished - not a defect in title (Carter v. Hanson (NSWCA) (1979) 1BPR 9241; (1980) ANZ ConvR 354). Carport erected without approval - significant and substantial feature - if demolished, impossible to provide parking without demolishing or altering cabana - a defect in title (Borthwick v. Walsh (McLelland, J) (1980) ANZ ConvR; (1980) 41 LGRA 144). Brochure: "attic bedroom" - representation that lawful use but law not fact - work done without approval, susceptibility to order sufficiently serious to be a defect in title (Lavery v. Nelson (Powell, J) (1984) NSW ConvR ¶55-169). 90 [1984] V.R. 971 91 Sutherland Shire Council v. Heyman (1985) 59 A.L.J.R. 564. 92 Curran v. Northern Ireland Co-ownership Housing Association Ltd. [1987] 2 All E.R. 13. 93 Parramatta City Council v. Lutz (1988) 12 N.S.W.L.R. 293. Other recent discussions of the circumstances in which councils should pursue their powers to order demolition under s. 317B are contained in Sydney City Council v. Danias (1986) 58 L.G.R.A. 387; Woollahra Municipal Council v. Alcaine (1986) 59 L.G.R.A. 40; Giltej Securities Pty. Ltd. v. Warringah Shire Council (1986) 59 L.G.R.A. 158. 94 Section 13 Surveyors Act, 1929. For prescribed form see Reg. 59 Form 4 under Survey Practice Regulations, 1933. 95 Clause 20.10 defines "within" to mean at any time before the end of the period. 96 For examples see cases referred to in discussion of clause 11 above. 97 As per definitions in clause 1. 98 Davisbourne Pty. Ltd. v. Kis (Aust.) Pty. Ltd. [1985] 2 Qd. R. 341. 99 1989 Supplement to the The Standard Contract for Sale of Land in N.S.W. by Butt, Law Book Co., 1985 at p.123. 100 Section 152 Local Government Act, 1919. 101 As at 13th April, 1995. 102 See earlier discussion of Crown Land. 103 The 1986 edition introduced a major change to the conveyancing procedure by requiring the amount of land tax to be adjusted to be specified in Particular J. If no amount is specified then no adjustment can be made. 104 Conditin 13(b). Lynch v. Olympic Bowling Centres Pty. Ltd. (1968) 90 W.N. (Pt. 1) (N.S.W.) 441 see Butt Standard Form Contract for Sale p. 706. 105 Formerly, one method of adjusting land tax in such a situation would be to assign a land value to the subject lot being an appropriate proportion of the land value of the parent subdivision. The sum to be apportioned would be the sum (if any) which the vendor would have been liable to pay as land tax in respect of the subject lot as used by him had the subject lot been of the value assigned and had it been the only land owned by the vendor. 106 Raineri v. Miles (1980) 2 AllER 145. 107 The 1992 Contract for Sale of Land by Andrew Lang, Lexpo '92 paper. 108 Section 41(1) Real Property Act. 109 1989 Supplement to the The Standard Contract for Sale of Land in N.S.W. by Butt, Law Book Co., 1985 at p.119 and A.A. Tarr "Insurable Interest" (1986) 60 A.L.J. 613. 110 Section 66L Conveyancing (Passing of Risk) Amendment Act, 1986. 111 Ibid section 66M. 112 Ibid section 66J(1). 113 Ibid section 66L. 114 Ibid section 66J(2). 115 Ibid section 66L. 116 Ibid section 66M(2). 117 Ibid section 66M(4). 118 Ibid section 66O. 119 Ibid section 66K. 120 Ibid section 66K(2). 121 (1987) C.C.H. N.S.W. Conv. R. 55-383. 122 Section 66M Conveyancing (Passing of Risk) Amendment Act, 1986. 123 Ibid section 66N. 124 1989 Supplement to the The Standard Contract for Sale of Land in N.S.W. by Butt, Law Book Co., 1985 at p.119 125 Section 33A Real Property Act. 126 Davisbourne Pty. Ltd. v. Kis (Aust.) Pty. Ltd. [1985] 2 Qd. R. 341. 127 1989 Supplement to the The Standard Contract for Sale of Land in N.S.W. by Butt, Law Book Co., 1985 at p.123. 128 Section 41(1) Real Property Act; s. 91(3) Conveyancing Act. 129 Section 41(1) Real Property Act. 130 Section 41(1) Real Property Act. 131 s. 91(3) Conveyancing Act. 132 Section 64 Crown Lands Act, 1989. 133 (1969) 89 W.N. (Pt. 1) (N.S.W.) 568. 134 (1974) 131 C.L.R. 286. 135 Clause 20.5. 136 It appears that members of the Australian Bankers Association regard themselves free to withhold payment on bank cheques if the bank cheque is forged or counterfeit, material alteration of the bank cheque, bank cheque stolen or lost, court order restraining payment, failure of consideration for issue of bank cheque. 137 Section 125(1) Conveyancing Act 138 Section.125(2) ibid. 139 [1902] 1 Ch. 428. 140 Hadley v. Baxendale (1854) 9 Ex. 341; 156 E.R. 145. 141 Cumberland Consolidated Holdings Ltd. v. Ireland [1946] K.B. 264 at 271. 142 King v. Poggioli (1932) 32 C.L.R. 222. 143 Law Book Co., 1985 at p. 808. 144 See now Agricultural Tenancies Act, 1990 which commenced on the 1st May, 1991. 145 See now Residential Tenancies Act, 1987. 146 See Butt in The Standard Contract for Sale of Land ibid p. 817. 147 Section 66O(2)(a) Conveyancing Act, 1919. 148 Sections 16 & 17 Insurance Contracts Act, 1984. 149 Section. 83(1) Strata Titles Act, 1973. 150 Section 66V(6) Conveyancing Act, 1919. 151 Section 66L(4) Conveyancing Act, 1919. 152 Clause 7(4)(b) Conveyancing (Vendor Disclosure& Warranty) Regulation, 1986. 153 Section 66V(2) Conveyancing Act, 1919. 154 Section 66V(3) Conveyancing Act, 1919. 155 Section 66V(7)(a) Conveyancing Act, 1919. 156 Section 66L Conveyancing Act, 1919. 157 Clause 7(4)(b) Conveyancing (Vendor Disclosure& Warranty) Regulation, 1986. 158 Section 52A Conveyancing Act, 1919 and cause 4 Conveyancing (Vendor Disclosure& Warranty) Regulation, 1986. 159 Section 170(1)(c) subject to s. 170(1A) Conveyancing Act, 1919. 160 Sections 66U(5) and 66W(4). 161 For excerpts see Lang Estate Agency Law & Practice, 2nd Ed., Law Book Co., p. 74 162 Section 85B of Property Stock & Business Agents Act. 163 See reg. 66E & Sch. 4 of regulations to Property Stock & Business Agents Act. 164 (1986) 7 N.S.W.L.R. 151. 165 From comments of McHugh, J.A. in Legal & General Life of Australia Ltd. v. A. Hudson Pty. Ltd. (1985) 1 N.S.W.L.R. 88. 166 Toscano v. Holland Securities Pty. Ltd (1985) 1 N.S.W.L.R. 145. 167 Refered to in Lang Estate Agency Law & Practice, 2nd Ed., Law Book Co.,at p. 79 168 (1989) N.S.W. Conv. R 55-458. 169 Discussed in detail infra. 170 Petelin v. Deger Investments Pty. Ltd. (1976) 50 A.L.J.R. 417. 171 Stevter Holdings Ltd. v. Katra Constructions Pty. Ltd. [1975] 1 N.S.W.L.R. 459. 172 (1986) C.C.H. N.S.W. Conv. R. 55-278. Subsequently followed in McLelland J. in Korbol Holdings Pty Ltd. v. Johnson (1987) C.C.H. N.S.W. Conv. R. 55-337. 173 Dainford Ltd. v. Lam (1985) 3 N.S.W.L.R. 255 174 [1964] A.C. 465. 175 L. Shaddock & Associates Pty. Ltd. v. Parramatta City Council (1981) 55 A.L.J.R. 713. 176 Uremovic v. PEI Pty. Ltd. ((1986) N.S.W. Conv. R. 55-311 and Zucker v. Straightlace Pty. Ltd. (1986). 177 Kyriakou v. Huges (1985) C.C.H. N.S.W. Conv. R. 55-222. 178 Clause 5 Conveyancing (Vendor Disclosure & Warranty) Regulation, 1986. 179 Section 40(1B) Real Property Act, 1900. 180 As at October, 1990. 181 Ibid at pp. 718-757. 182 Gelski v. Dainford Ltd. (1985) C.C.H. N.S.W. Conv. R. 55-233. 183 Law Book Co., 1985 at p. 716. 184 Ibid at pp. 758-786. 185 The New Crown Land Laws by Ian Benecke published in the N.S.W. Law Society Journal of February, 1990 at p. 62. 186 The New Crown Land Laws by Ian Benecke published in the N.S.W. Law Society Journal of February, 1990 at p. 63.
