Land Sales Act Loophole Confirmed By Court

Introduction

The Queensland Supreme Court yesterday handed down a judgment¹ that allowed buyers of an apartment purchased off-the-plan to terminate their contract under section 27 of the Land Sales Act 1984 (Qld) (LSA) (as it stood prior to the February 2012 amendments) after they had failed to attend settlementand then sat on their hands until the statutory period for delivery of the apartment had run.

The buyers were able to avoid the contract under the old form of section 27 because of expiry of the statutory period, even while the seller was seeking specific performance orders in Court.

Our update in February 2012 “Critical Changes to Land Sales Act”, dealt with the amendment of section 27 of the LSA to close this loophole. Norton Rose Australia and its client, Juniper Development Group, played a key role in advocating for the amendment.

Under the amended section 27 the buyer cannot default under the Contract, allow the statutory period to run and then terminate the Contract relying on the expiry of the statutory period.

Section 27 of the LSA requires that a transfer capable of immediate registration be delivered to a buyer under an off-the-plan contract within a set statutory period, being 3¹/3 years or 5½ years if extended by regulation. If the seller has not given a transfer capable of immediate registration to the buyer in that timeframe, and that failure is not due to the buyer’s default, the buyer may avoid the contract.

¹Meridien AB Pty Ltd & anor v Jackson (as Trustee for the Jackson Family Trust) & ors [2012] QSC 260

Impact of market conditions

In recent times, with changing market conditions and higher rates of buyer default, many sellers have been faced with the buyers failing to complete contracts. The seller’s remedies are then to either terminate the contract, forfeit the deposit and claim damages, or to seek specific performance of the contract to compel the defaulting buyer to buy the relevant lot.

Risk to developers

Where a seller seeks specific performance, the contract remains on foot pending the outcome of Court proceedings. In the Meridien case, the LSA time period for delivery of a transfer passed before the matters in dispute were determined by the Court, and the buyers were able to terminate the contract relying on their rights under the LSA as section 27 then stood, notwithstanding the seller’s view that the buyers were in default.

This outcome is inconsistent with the principle that a defaulting party should not be able to rely upon its own default to found a right to avoid the contract. However, the Court held that, as the language of the unamended section 27 was clear and unambiguous, the Court was required to give the section its ordinary and grammatical meaning, even if that allowed a defaulting buyer to terminate.

The amended section 27 effectively excludes a termination right where the buyer’s default is the reason that the seller has not provided a transfer capable of immediate registration. This amendment gives sellers and their financiers protection for all currently on foot contracts where the buyer has not sought to avoid under section 27 before the February 2012 amendments.