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Risoluzione alternativa delle controversieEdilizia e costruzioniDiritto commercialeNotizieA cautionary tale for developers selling off-the-plan apartments

7 Aprile 2022

In Burger & Ors v Longboat Holdings Group2 Pty Ltd [2021] VSC 469, two young couples entered into off-the-plan contracts of sale in respect of a two-bedroom (95sqm) apartment in an inner-city Melbourne suburb.  Almost three years later when the development was completed, the purchasers discovered that the design and structure of the apartments had been changed multiple times by the developer without them being notified.  The changes made by the developer to the apartments included a reduction in the size of the apartments, in particular, to the master bedroom, reducing the apartments’ overall attractiveness and utility of that space.

SLF Lawyers acted for the purchasers who sought to rescind their contracts on the basis that an amendment to the plan of subdivision had occurred which would materially affect the property.  The developer rejected the basis of the purchases’ rescission notices and argued that the contracts remained on foot and settlement was required to take place.

The purchasers commenced proceedings against the developer by originating motion on 19 April 2021 and asked the Court to determine whether ‘the amendment to the plan of subdivision materially affected the lot to which the contract relates entitling the plaintiffs to rescind the contract pursuant to section 9AC(2) of the Sale of Land Act 1962’

At the heart of these proceedings was whether the changes made by the developer to the  apartments were ‘material changes’.  If the answer to that question was ‘yes’, the purchasers were entitled to rescind their contracts under s 9AC(2) of the Sale of Land Act 1962 (SLA).

The relevant changes to the apartments were:

  • a reduction from 95sqm to ~90sqm, affecting the master bedroom exclusively;
  • a new structural wall in the master bedroom creating a small alcove at the entry to the bedroom (affecting both the utility of the room and the natural light in the room);
  • reduction in the availability of natural light in the master bedroom;
  • reduction of the size (height, length and width) of the car parks; and
  • reduction of the rights of use to common property.

Associate Justice Matthews found that, some of the changes, individually and in combination, materially affected the purchasers’ lots.  Accordingly, her Honour found that purchasers were entitled to declarations that they lawfully rescinded their respective contracts.

A particularly noteworthy comment from Her Honour contained in her written judgment was made in relation to the evidence required in support of an application of this nature.

Her Honour;

  • relied on Justice Judd’s decision in Lockwood v PSP Investments Pty Ltd VSC [2013] VSC at [44] in which His Honour said that the evidentiary burden on an applicant purchaser to establish a change to a plan of subdivision materially affects the lot for which they have contracted may be established by production of the contract, the initial plan of subdivision and the plan as amended;
  • however; stated that where the effect of the change on the property is not apparent from a comparison of the plans themselves, the purchaser may be required to provide further evidence as to the effect of the change in order to discharge its evidentiary burden that a material change has occurred (see paragraph 170).

Some other key take always from the decision:

  • a clause in a contract of sale that purports to define what may or may not be a ‘material change’ will hold little weight in determining materiality for the purposes of the SLA. Materiality will be determined on an objective basis by reference to the facts and circumstances of the matter – and the parties cannot contract of s 9AC of the SLA;
  • changes to common property in a development may be considered material changes to the lots, as it is the bundle of rights attaching to a lot which are affected.

SLF Lawyers are very well placed to assist with advising both purchasers and developers in respect of changes made to plans of subdivisions and off-the-plan contracts of sale.

SLF Lawyers are grateful and thank Jamie Grant of counsel for his involvement in both matters in the lead up to and the running of the trial on behalf of our clients.

Articolo scritto da Patrick Fabris del nostro ufficio di Melbourne.