Question 1:
It’s about the Vacant Possession or Existing Tenancy & Pest and building report issues:
Part 1: Identify key issues arising in existing tenancy and reliance on pest and building report (The
detailed report will be given in the exam).
Part 2: What can you do with respect to recession or termination under the contract.
Existing tenancy:
The Standard Contract for Sale of Land (2022) on page 1 it stipulates whether the contract is subject
to existing tenancy or not. If it is ticked then the contract is subject to existing tenancy, hence the
purchase is taking on the existing tenant and hence won’t be able to move into the property at
immediately after the settlement.
If the property is subject to the vacant possession, then the purchaser is entitled to vacant
possession. It is also noted that there is common law presumption that the vacant possession will be
provided on settlement (Cook v Taylor 1942 case). However, this presumption can be rebutted if it
can be demonstrated that the purchaser had actual knowledge prior to entering into the contract.
Clause 17 of the standard contract states that the vendor must give the purchaser vacant possession
of the property on completion (Clause 17.1), unless the contract states that it is subject to existing
tenancy (Clause 17.2.1), or the contract discloses the provision of the tenancy (for example, by
attaching a copy of and any relevant memorandum or variation).
If there is a registered lease then that should be on the title, however, it is the case mostly in the
commercial property and not the residential property.
If in case any of the land of the property is affected by the protected tenancy under Schedule 2, Part
7 of the Residential Tenancies Act 2010 (NSW), then the purchaser can claim compensation before
or after the completion of contract; or rescind the contract.
Also, there will be an adjustment of rent as per the required adjustments that if the property is
subject to existing tenancy, then the vendor is entitled to the rent and profits until the date of
settlement.
A lease as such, is not of the prescribed documents listed under schedule 1 of the Conveyancing
(Sale of Land) Regulation 2022.
Where, a lease is not registered then the copy should be provided to the purchaser’s solicitor prior
to the exchange of the contract.
Clause 24 of the standard contract provides various obligations relating to the tenancies.
Where property is sold to the existing tenancy, the vendor must give the purchaser on settlement a
notice which directs the tenant to pay all future rent to the new owner.
Schedule 1 of Conveyancing (Sale of Land) regulation 2022 does not require disclosure of registered
lease.
Pest & Building report:
A pest and building inspector will look for pests, in particular termites, the structure of the building,
as well as any other additions to the house such as retaining walls. One should always get it done
prior to entering a contract when you’re in a position when you can do that. if you are not in a
position where you can get a building and pest inspection done prior to entering a contract, then
you must ensure the contract has adequate clause to make it either conditional or allow recission for
the issues related to building and pest inspection.
In case of an auction, the building and pest inspection is done prior to even turning up on the day
because if you are the successful buyer under the hammer, you are unconditional. There’s no
turning back.
If it is just a building inspection report then it won’t include termite detection, however, it includes
interior and exterior of the building, roof and under floor space, and roof exterior.
You may also ask for a particular item or part of the property to be inspected, such as visible signs of
asbestos, existence of an operable electrical safety switch, and operable smoke alarms.
In terms of overall site, the areas would normally be included in a building inspection report are
garage, carport and garden shed, separate laundry or toilet, small retaining walls (ie. non–
structural), steps, fencing, surface water drainage, storm water run-off, and paths and driveways.
Make sure you specify any items or areas on the site that you would like to be inspected.
Question 2:
Part 1: Client buys a property with granny flat, you get the compliance certificate and there is
demolition order to it; Identify key issues; what advice you will give to your client. What remedies
they have available in terms of rescind / recession of the contract?
your client still wants to proceed with the settlement so what advice you have and remedies
available:
Q2 Answer:
Section 1.4 of the EPA act defines what the development means. It is a broad concept, any
development on the building requires consent from the local council. The development could be
erecting of building, carrying out of work, the demolition of building or work, any other act, matter
or things that may be controlled by an environmental planning instrument.
A real concern for the purchaser is that the local council have power to order demolition of a
building work or development that is carried out without council approval.
If there is a blatant unauthorised activity, then purchasers have right to rescind the contract.
If it is just internal development, then you can go to the council or go to the certifier. If there are any
new upgrades to the property, then you must advise your client to check the council records. The
older buildings may not have the certificates; therefore, you must check the details with the local
council or check with the builders. These are the sort of things you must advise your client.
A breach of warranty entitles a purchaser to rescind the contract before settlement unless,
i.
ii.
building certificate in respect of the building is issued after the date of the contract.
subject to the requirements set out in the clause 17 (3) Conveyancing Sale of Land
regulation 2017.
Clause 12.1 and 12.2 of the standard contracts for sale of land requires the vendor to do everything
reasonable to enable the purchaser, subject to the rights of the tenants to.
i.
ii.
iii.
inspect the property and procure building and pest report.
apply in name of vendor for any certificates.
make one inspection of property 3 days before the settlement.
Advise for Client:
Question 3:
You will be given a scenario of buying unregistered land. There are two parts to this question:
Part 1 of the question is to identify the pitfalls, and part 2 is about what protection you advise to
your client before they enter the contract.
Unregistered Land:
Unregistered land; clause 28 of standard contract of sale 2022; keep an eye for sunset clause.
The overall contract process for unregistered land is very much like the registered land however the
lots are not registered with the council yet, and the GST could be applicable to it.
Clouse 28 of the Standard Contract applies to the unregistered land. However, this is not sufficient
from vendors point of view.
Clause 28.2 states, developer must do everything possible to register the land within six months of
the contract, however, developer usually includes special conditions with sunset clause, by which, it
allows rescission of the contract if the land is not registered within the six months.
From purchasers’ point of view, you have paid the deposit, stamp duty etc, and waiting for the
developer to complete the registration process. Although, there is six months’ time limit for the
vendor to get it registered, this +process can take a year or more than that. And due to the sunset
clause, purchaser is usually stuck with it despite the delays. The purchaser can choose to rescind the
contract in case of delays in registration or follow the special conditions in the contract.
Once the land gets registered, the purchaser gets the notice to complete the contract, then you have
21 days to complete the contract. If the purchaser fails to complete the contract, then within
allocated time then there is risk of termination and losing the deposit.
It also has extend the sunset clause??
Question 4:
What Adjustment do you have to cover for both residential and strata? And second part is
importance of s10.7:
Adjustment:
The clause 14 of the standard Contract of Sale of Land (Edition 2022) sets out the key adjustments
that need to be made prior to the settlement. The balance sheet is to be prepared by the purchaser
which includes purchase price less the deposit less various property adjustments as outlined below.
1. Water Rates
Pursuant to Section 66 of Sydney Water Act 1994 (NSW), the certificate to be obtained to
ascertain outstanding payments of water rates. Clause 14.7 of the standard contract
stipulates that the vendor is liable for the last bill of water, sewage, or drainage usage
charge period ending before the adjustment date, the vendor is liable for an amount
calculated by dividing the bill by number of days in that billing period and then multiplying
the unbilled days including the day of adjustment date.
2. Council Rates:
Pursuant to Section 603 of Local Government Act 1993 (NSW), certificate to be obtained to
ascertain outstanding payments of council rates. The purchaser must make sure that it has
been paid from vendors proceed.
3. Land Tax (If it applies):
Pursuant to Section 47 of the Land Tax Management Act 1956 (NSW), the vendor to produce
the certificate for current land tax liability. If there is land tax outstanding, then purchaser
must be made sure it gets paid from vendors proceed. Land tax is calculated based on the
value of the land and not the value of the property. Also, note that there is no land tax
payable for the principal place of residence. Also, the parties must not adjust the surcharge
land tax (clause 14.4).
4. Foreign residence capital gain tax:
If vendor is selling a property worth more than $750,000 and if the vendor if foreign citizen,
then you have withheld 12.5% tax to ATO. This amount should be deducted from vendors
disbarment and paid to the Australian Taxation Office. Clause 31 of the standard contract
stipulates the requirement of clearance certificate served by the vendor regarding the
obligation of payment of foreign residence capital gain tax. If the vendor is the foreign
resident for the purpose of clause 31 then, the purchaser must provide the evidence at least
2 business day before the date of completion regarding the payment to the Australian
Taxation Office.
5. Strata Levies in case of home units.
Prudent to Section 184, it is usually the vendors requirement, however??
6. If property is sold subject to existing tenancy, then the vendor is entitled to the rent and
profits until the date of settlement.
7. Other adjustments:
Clause 14.8 of the standard contract of sale 2022 stipulates that if there is any work started
on the property or adjoining footpath or road before the completion of the contract then
the vendor is liable for any work completed before the completion of the contract.
Note that parties must not adjust any first buyers’ property tax (clause 14.5).
The clause 14.2 stipulates that the above adjustments to be made on completion of the contracts
and the figures to be provided by the purchaser to the vendor at least two business day before the
date of completion, and then clause 14.3 states that the vendor must confirm the adjustment figures
at least one day before the completion of the contract.
One of the adjustments is about the GST which can possibly be applicable for vacant, and sale of
new residential premises not confined to newly built premises. Commercial properties are subject to
the GST, however the going concern clause can be used to adjust the GST payment. Usually it is 10%
GST, however for new built or vacant residential new released blocks it is about 7% GST as margin
scheme which is a part of purchase price to be paid to the ATO.
GST is one of the box on page 3 of the Standard Contract which can be ticked yes or no depending
upon the above condition.
Procedure and Obligations of Settlement:
Clause 16 and 30 of the standard contracts provides for the vendor to direct how payment.
Importance of s10.7 Certificate:
While buying or selling of a property Under the Conveyancing Act 1919 (the Act) and Conveyancing
(Sale of Land) Regulation 2022, there are prescribed documents including s10.7 certificate that must
be included in all contracts for the sale of residential land in NSW.
This certificate is issued under Section 10.7 of Environment Planning and Assessment Act 1979
(NSW) (called as s10.7 Certificate) provides the development potential and any restrictions on the
parcel of land at the date of the certificate. It includes information that relates to but not limited to
the land zone and environmental factors such as risk of bushfires, flooding, mine subsidence, or acid
sulphate soils.
It is obtained from the local council and must be included in a Contract for Sale of Land, for it to be
considered as a legal contract. Before buying a property or starting a construction a 10.7 is one of
the most important legal documents to review, as it contains all the details on the zoning,
development and planning controls, and restrictions that apply to the parcel of land.
It covers the likelihood of road changes and whether the land is positioned in a Local Heritage
Conservation or Biodiversity Areas. It will also include any tree preservation orders as well as the
minimum size for homes built on the land, and the State and local Government policies applicable to
the site.
The request can be made for a part certificate which is known as a Section 10.7(2), or a full
certificate known as a Section 10.7 (2) and (5). It usually takes around a couple of days to obtain the
certificate from the council.
A Section 10.7(2) Certificate shows the zoning of the property, its relevant state, regional and local
planning controls and other information pertaining to other property constraints such as;
permissible and prohibited land uses, Land contamination, Whether prone to flooding or bush fires,
Conservation or environmental heritage areas, Development standards affecting the construction of
a house, and any orders or notices issued under the Trees Act 2006.
While the s10.7 (2&5) Planning Certificate includes additional information (along with s10.7(2)
information) from other authorities that council holds on matters such as dwelling permissibility,
various building/safety codes, environmental hazards and constraints, and fees or charges pertaining
to owning the property.
If the certificate is more than 6 months old, there is the possibility that changes have occurred.
Therefore, purchaser needs to look at obtaining the current document.
Also, note that the local council is only responsible for including information that is required under
relevant legislation. The purchaser may wish to seek information from other professional bodies,
such as a land surveyor, if you need specific or additional information.
Question 5:
Part 1: After exchange of contract, you got the certificates indicating possible road widening so you
must look at the implications of what that means for your client,
Part 2: requisition and there is awning that hasn’t been council approved; what advice you will give
to your client.
Part 3: Survey indication 0.25mm encroachment which is very minor, advise your client:
Part 1: Possible Road widening (Adverse affection):
Schedule 2 Part 3 of the Conveyancing (Sale of Land) Regulations 2022 outlines the adverse affection
that includes road widening (clause 9(a)).
Without limiting the way in which an adverse affectation may be disclosed, an adverse affectation is
taken to be disclosed in a contract if 1 or more of the following is attached to the contract—
•
(a) a document describing the effect of the adverse affectation,
•
(b) a document issued by an authority or other entity to the effect that the authority or
entity, or another authority or entity, has a proposal referred to in this Schedule, Part 3,
•
(c) the order, notice, declaration or other instrument giving rise to the adverse affectation,
•
(d) the page of the Gazette in which the order, notice, declaration or other instrument was
published.
Prescribed warranties :(ii) if the purchaser’s right to rescind arises from the vendor’s breach of
warranty the Purchaser may rescind before the contract is completed provided:
•
breach constitutes failure to disclose existence of a matter.
•
purchaser unaware of matter when contract entered;
•
purchaser would not have entered contract if knew about it; or
•
if rescission is in breach of Sch 2 item 1(d) – a building certificate has not been issued since
the date of contract
The Vendor Disclosure legislation contained in s 52A of the Conveyancing Act 1919, was to overcome
the need for extensive pre-contract inquiries by purchasers and to facilitate the speedier exchange
of contracts.
This legislation deals with two issues.
a. the documents which have to be attached to a contract for the sale of land (s 52A12
a) ("the Prescribed Documents”); and
b. the warranties which are deemed to be included in a contract for the sale of land (s
52A12) (b)) ("the Prescribed Warranties").
This legislation applies to all land in New South Wales, unless the land is exempted from the
operation of the legislation.
If the purchaser’s right to rescind arises from the vendor’s failure to attach the prescribed
documents or a disclosure statement within 14 days after the contract is made, unless the contract
has been completed, (Part 5 Clause 22 Sale of Land Reg ).
Part 2: Illegal Structures:
It could be car port, pergola, major awning etc., so it depends on size of the awning whether it
constitutes a breach that could give rise to claims of compensation or recession of the contract.
Part 3 - Encroachment:
A prescribed term under schedule 3 of sale of land reg 2022 that the Vendor cannot preclude
purchaser making objection, requisition or claim in respect of:
• an encroachment by subject land onto adjoining land other than a dividing fence; or
• encroachment onto subject land by any building/structure other than dividing fence on adjoining,
UNLESS, it has been clearly described and the clause expressly precludes the purchaser from making
an objection, requisition or claim.
It is vital before entering into the contract to ensure if there is any encroachment online or if it is
built on neighbouring land. The way to find about encroachment is to go through the survey report.
If there is copy of survey attached to the contract, then it can indicate if the property is squarely
built within the boundaries of the land.
The survey report is not a prescribed document, therefore the purchaser need to request one and if
not available or not the recent one then the purchaser can order one. Also, the purchaser can make
inquiries with the local council about the improvements made to the property. Note that the survey
completed more than six months ago is generally useless as there might be other development
happened.
In the survey report, if you find any error or misdescription then it can give rise to compensation or
claims on the basis of;
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misdescription of the land
Survey error
Encroachment or improvements
Description of the land or improvement completely different to the that space for in the
contract
The fact indicating an encroachment technically gives rise to the claims of termination or
compensation. However, when you look at the degree of the error (0.5mm), which is very minor and
it is unlikely to affect on the way property will be used in the case of so and so justice so and so
affirmed minor miss description or error that is unlikely to be affected on the way property will be
used and hence his rejected the claim call termination of compensation.
The survey error gives rise to the compensation claim based on the special conditions in the
contract. It usually limited to few % may be 1% as per the special condition. If there is no special
condition then the claim is as per the standard contract.
The compensation claims are based on the degree of error, description etc. The heigh of the
property is not an issue provided it has been approved by the council and is in the zoning allowance.
This is purchaser enquiry, once the vendor has disclosed all the information in the contract.
Section 4.58 of the EPA Act 1979 provides that the Council must maintain a register of consent and
certifications. If you can review that register, then you can get verify all the relevant consent for that
property.
Reference is made to the High Court decision in Svanosio v McNamara ( this case is about mistake –
as both parties believed that hotel was erected on correct parcel of the land, however, it was in fact
2/3 portion was outside the border. It may also be assumed that if appellant know about it then he
would not have entered the contract. But these facts do not make contract void.)
GENERAL:
In answering that question His Honour said it was necessary to go to “some fundamental principles
of the law of vendor and purchaser” and “one of Sir Owen Dixon’s most celebrated judgments”
in McDonald v Dennys Lascelles Limited (1933) 48 CLR 457 at 477-479. In McDonald the guarantors
of a purchaser’s obligations under a terms contract contended that upon termination by the vendor
the contract was cancelled as to the future and, because there would be no transfer of the property,
the purchaser’s obligation to pay an outstanding instalment of the purchaser price came to an end.
The High Court accepted the guarantors’ contention. Because the guarantors’ obligation was a
secondary one their obligation was also terminated.
His Honour also considered the decision of the New South Wales Court of Appeal in Carpenter v
McGrath(1996) 40 NSWLR 39 which he said accorded with the general principles that emerged
from McDonald. InCarpenter the purchaser failed to complete a contract to buy land and the trial
judge awarded damages to the vendor which included a claim for interest from default until
termination. On appeal the Court of Appeal disallowed the claim for interest from default until
termination. The Court’s reasoning was in effect that once the contract ended the vendor could not
have sued for the purchase price and was relegated to a claim for the loss of the bargain. The
interest operated to increase the amount payable on completion and because the purchase moneys
were not payable interest could not be claimed.
See also Carpenter v McGrath (1996) 40 NSWLR 39 where the lack of formal building approval for a
shed was not a defect in title although there was a risk of a notice being issued by the local
government to have it demolished.
Certificates:
Section 6.3 of the EPA Act 1979 provides the list of certificates required in respect of.
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Building Work – basically the proprietary building work, it’s mostly for the builders to comply
with.
Subdivision work – it includes things such as provisions of utilities to the blocks, but not
limited to only this, size of the block required etc.
Occupation or a use of the building – you need to ensure there is a valid Occupation
Certificate to occupy that building.
Subdivision of the land
Any other development to which part 6 of the Environmental planning and assessment act
1979 (NSW) applies.