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Terminating a contract of sale!

 

Section 32K of the Sale of Land Act 1962 (Vic) allows the purchaser to terminate the contract of sale on the account of a defective or missing section 32 statement. It is rare for a section 32 statement not to be presented to the purchaser before signing the contract of sale. However, it does happen regularly that a section 32 statement is defective, and not identified during the due diligence process by the purchaser. 

 

Under section 32K the purchaser may rescind the contract where: 

 

(1) The section applies if a vendor -

(a) supplies false information to a purchaser in a section 32 statement or in any certificates, notices, policies or other documents attached to a section 32 statement for the purposes of complying with the requirements of this division; or 

 

The meaning of the word ‘false’ in the Act refers to not true, or the information is incorrect or not correct that has been presented in the section 32 statement. The fact of dishonesty of an individual who purposely manipulated or changed certificates, such as a land tax notice or land information certificate, which states value notice is not relevant. The main point of concern is whether the certificates in the section 32 statement are accurate, or not true, or incorrect or not correct. 

 

(b) fails to supply all the information required to be supplied to a purchaser, either in a section 32 statement or attached to the section 32 statement, as required by this Division; or 

 

The main point about section 32K(1)(b) of the Act is that where the vendor fails to include the necessary certificates that were required by the Act, the purchaser may use the legislative grounds under this section to terminate the contract of sale. 

 

(c) fails to give the purchaser a section 32 statement signed by the vendor before the purchaser signs the contract for the sale of land. 

 

The failure by the vendor to ensure that the purchaser receives a section 32 statement prior to signing the contract of sale is rare to happen, but if it does occur, it allows the purchaser to terminate the contract of sale. 

 

(2) The purchaser may rescind any contract for the sale of land which has been entered into on the basis of information contained in the section 32 statement or attached to the section 32 statement at any time before the purchaser accepts title and becomes entitled to possession or to the receipts of rents and profits. 

 

(3) The purchaser may rescind any contract for the sale of land where the vendor fails to give the purchaser a section 32 statement before the purchaser signs the contract at any time before the purchaser accepts title and becomes entitled to possession or the receipts of rents and profits. 

 

(4) Despite subsection (2) and (3), the purchaser may not rescind a contract for the sale of land if the court is satisfied that - 

(a) the vendor has acted honestly and reasonably and ought fairly to be excused for the contravention; and 

(b) the purchaser is substantially in as good position as if all the relevant provisions of this Division had been complied with. 

 

Where the purchaser rescinds the contract of sale under section 32K of the Act, the purchaser will be entitled to their full deposit, or where there is a dispute as to the release of the deposit, the purchaser may seek a court order under section 49(2) of the Property Law Act 1958 (Vic). 

 

The right of termination under section 32K of the Sale of Land Act 1962 (Vic) also applies to assignees and nominees under the contract of sale. However, there is no right of termination by the vendor under section 32K of the Act. 

 

The right of the purchaser to claim damages from the vendor for breach of section 32K of the Act is limited, meaning there is no entitlement to damages; though, a claim may be brought under section 48A of the Act, or under the Competition and Consumer Act 2010 (Cth). 

 

If the purchaser wants to terminate the contract, the time for exercising that right is before the purchaser accepts the title and is entitled to possession of the real estate. In practical terms that means the purchaser has to terminate the contract before settlement, which is when all payments are due to be finalised on the contract of sale. Once settlement has been completed there is no right by the purchaser to rescind the contract of sale. However, a right of damage may apply by the purchaser even after settlement under the Competition and Consumer Act 2010 (Cth). 

 

Where the purchaser is planning to terminate the contract of sale under section 32K of the Act, a written notice is required, which confirms that the purchaser is terminating the contract under section 32K, and no other details in that notice is necessary, accept for the formal address requirements of the vendor and the purchaser, or the relevant solicitor contact details. Where a notice is going to be issued by the purchaser to the vendor to terminate the contract of sale, section 15 of the Act details the requirements. 

 

When a purchaser is considering to terminate the contract of sale under section 32K of the Act, careful consideration of the matters raised in sub-section (4) need to be addressed. There are four elements under sub-section (4) which could prevent the purchaser from terminating the contract of sale. Though, the onus is on the vendor to prove these elements: the vendor acted honestly; the vendor acted reasonably; the vendor ought to be excused from the contravention; the purchaser is substantially in as good position if the Act had been complied with. If one of the elements is not proved by the vendor, then the purchaser may still terminate the contract of sale. 

 

Where the vendor has engaged a conveyancer to act on their behalf in preparing the section 32 statement and the purchaser rescinds under section 32K of the Act, the vendor may have a right against that conveyancer, subject to the instructions that were issued from the vendor to the conveyancer to prepare the section 32 statement. Thus, if the vendor has provided false information to their conveyancer, it’s arguable that no claim may be raised against the conveyancer by the vendor. 

 

There are many issues in terminating a contract of sale, which both effect the vendor and purchaser under section 32K of the Act. Generally, all the issues that surround section 32K termination can be avoided with careful preparation through proper due diligence in preparing the section 32 statement. The section 32 statement preparation is not just the responsibility of the conveyancer but also the vendor themselves, meaning that the vendor needs to take the time to appreciate the importance and requirements of the section 32 statement to avoid any unnecessary termination of the contract of sale by the purchaser. The prudent step with any property transaction whether as vendor or purchaser, is to obtain that legal advice to protect your legal rights and interests. 

 

The comments in the aforementioned do not constitute legal advice and are general in nature, and if legal advice is required please contact: John Melis at Legal AU Pty Ltd (03) 9999 7799 www.legalau.com 

 

Legal AU Pty Ltd Lawyers are “Liability limited by a Scheme approved under Professional Standards Legislation.”