NSW Legislative Proposal to Impact Builders and Designers

The NSW government has released draft legislation that seeks to increase compliance in the building and construction industry. The ‘Design and Building Practitioners Bill 2019’ comes as a response to the recommendations provided by Shergold Weir Report, with the proposal addressing the following key points:

  • Requirement of design and building practitioners to issue compliance declarations in accordance with Building Code of Australia (BCA).
  • Implementation of a compliance and enforcement regime involving strict penalties for non-compliance.
  • Increased registration and insurance obligations for designers and builders.
  • Provision of statutory avenues that allow owners to claim against builders for economic loss due to defective building..

The NSW Government intends to present a final Bill to parliament by the end of the year, and is aiming to consult on Regulations which will be introduce alongside the bill in 2020. If you would like to find out more about the proposed Bill, please click here.

The prohibition on “pay when paid” provisions

In Maxcon Constructions v Vadasz [2018] HCA 5, Maxcon entered into a subcontract with Mr Vadasz in relation to piling works. A clause in the contract stated that Maxcon could retain a sum corresponding to 5% of the contract sum that would only be repaid when a certificate of occupancy and other requirements were obtained by the head contractor. The High Court held that this provision constituted a “pay when paid” provision, since it made the release of the retention dependent upon the head contractor obtaining the certificate. A pay when paid clause is a provision that states that the contractor is obliged to pay its subcontractors follow receipt of payment from the owner. The Court stated that a pay when paid provision makes the liability of money owing or the due date to pay money contingent on the operation of another contract. Accordingly, the Court held that the clause was void.

Importance of documenting agreements when investing with family

The recent case of Nguyen v Nguyen demonstrates the importance of written agreements when investing with family members. The case involved two siblings who agreed to purchase a residential property solely in the brother’s name, however with both of them being borrowers under the mortgage. The sister was involved in negotiating the sale price with the seller, and made payments in relation to agent’s fees and stamp duty. The sister also lived on the property with her family, during which time, she made renovations and repairs. After the sister moved out of the property, a tenant moved in.

Following the vacation of the property by the tenant, the brother changed the locks of the property. Subsequently, a matter was brought before the court with the brother arguing the he was the sole registered owner, and that his sister only occupied the property as a tenant. The sister claimed that the siblings were joint owners. Due to the absence of a written agreement, the Court was required to infer what was contained in the agreement made a number of years prior. The Court ultimately held that despite the fact that the brother was the sole registered owner, 40% of the property was held on constructive trust for the sister. In its decision, the Court found that neither party’s claim was correct, instead deciding that a combination of the two arguments was more suitable. This case demonstrates the importance of written agreements, as the proceedings could have been avoided if both party’s intentions had been expressly documented from the beginning.

Importance of checking required documentation for settlement

In a recent NSW case two companies entered a contract of sale for land at an estimated value of almost $2 million. The Seller issued a notice to complete to the buyer for 17 February 2015 specifying that time was of the essence. Due to the fact that the buyer issued the seller with an incorrect form of transfer of the property, the seller could not execute as a company and instead the director executed the transfer in their personal capacity. At settlement on 16 February 2015, the buyer’s agent indicated that the transfer had not been executed properly and consequently settlement was rescheduled for the following day. The Seller’s mortgagee later indicated that settlement would not be effected due to internal policy that necessitated 3 business days to reschedule settlement. The buyer remained ‘ready willing and able’ to complete settlement. On 26 February 2019 the seller served on the buyer a notice of termination, terminating the contract and indicating that the 10% deposit paid by the buyer was forfeited. The buyer commenced proceedings against the seller in order to recover the deposit. The Court held that due to the fact that the seller was not in a position to settle at the specified notice of completion date, they should have withdrawn its notice to complete. Consequently the buyer was able to recover their deposit.

Financial contributions will not necessarily result in an interest in property

The case of Scanlon v McLeay [2018] QDC 17 highlighted the fact that contributions to another person’s mortgage or purchase of property does not automatically give rise to a legal right in that property. In this case, the applicant sought equitable relief for the contributions she had made towards the property of her former partner, namely $49,000 towards a deposit for the property and $86,000 worth of ‘general contributions’ to the mortgage account.

While the respondent strongly argued that all of the payments were a gift, the court ultimately found that the deposit contribution did entitle her to an interest in the property by way of a trust of $49,000. However, the court took the opposite view on the more substantial contributions towards the mortgage, holding that these contributions were given for the applicant and her daughters in consideration to permanently live in the property.

Caution to be exercised when attempting to imply terms to a contract

A recent case involved a failed joint venture relating to the development of a shopping centre in Campbelltown. The plaintiffs were directors of a company involved in the joint venture. In 2008 the joint venture executed an Exclusive Agency Agreement (ELAA) with Savills, which stipulated that Savills was required to locate and introduce potential future tenants to the plaintiffs for its approval. As a result of the unstable economic climate during the time, Savills had trouble finding tenants to fill the centre and on two separate occasions Savills informed the plaintiffs of the difficulties and advised them to defer the opening of the centre. On both occasions the suggestion was rejected. The centre opened with 55% tenant capacity, with the minimal rental income contributing to the failure of the JV to make interest payments.  The Plaintiffs brought a claim against Savills claiming that they were liable in Contract and Tort for failing to secure tenants. The Court ruled that the Plaintiffs failed to establish that a special duty of care was owed by Savills, and also that the terms of the ELAA did not stipulate a requirement for a specific tenancy rate. In finding in favour of Savills the court also held that their conduct did not depart from the reasonable standard of care that a leasing agent owes to their clients. This case illustrates that caution should be taken when attempting to imply terms to a contract.

NSW Landmark Strata Renewal Decision

Part 10 of the Strata Development Act 2015 (‘the Act’) allows owners of Strata Schemes in NSW to instigate a sale or redevelopment of their strata renewal plan, providing 75% or more of the owners, and the NSW Land and Environment Court ensure that the plan is just and equitable. Although, the provision has been in existence for almost 3 years, on 8 August 2019, the first ever application under part 10 of the Act was brought before the Court. The case of Application by the Owners – Strata Plan No 61299 [2019] NSWLEC 111 involved a scheme comprising 159 lots, where all lot owners were investors (except for one apartment and car space) and were leased to a serviced apartment business. The applicant sought an order from the Court to give effect to the strata renewal plan, and the collective sale of the scheme. In giving effect to the plan, the Court was satisfied that for the purpose of the Act, the distribution of proceeds of sale to each lot, was just and equitable in the circumstances. The Court also ordered the owners to sell their lots in accordance with a deed of agreement between the developer and strata renewal committee. The decision of this case is a great outcome for not only the owner group, but also strata owners in NSW, as it provides direction as to the Act’s effect, and acts a guide for Owners Corporations interested in strata renewal.

Off-the-plan reform submissions by REINSW

In 2018, the NSW government introduced the Conveyancing Legislation (Amendment) Act 2018, giving stronger protections to residential purchasers under off the plan contracts. In response, the Real Estate Institute of NSW (REINSW) has called for protective and financial risk provisions to be extended to all parties involved in off-the-plan contracts. In the Government’s Discussion Paper released in July, one of the proposed regulatory changes is that s19A of the Act would allow a purchaser to, rather than rescind an off-the plan contract, claim from the vendor 2% of the property’s purchase price in compensation in the event that a “material particular” changes.

In response to the discussion paper, the REINSW submitted that in some circumstances a purchaser may take issue with changes made to property, particularly where they impact the size of the development, however, such changes are not always necessarily made at the request of the developer. REINSW has recommended that the government considers “how its consumers and developers deal with the circumstance where the built property is not the same as the off the plan contract through no fault of the developer”. They also asked the government to consider the circumstances in which the land of a property increases in size due to changes requested by a council, as it increases the value of the property. In this instance the REINSW is urging the government to include a provision whereby a developer may charge the purchaser for an amount that reflects “any increase in land size.” To read more about REINSW submissions please click here.

NSW Short-term rental accommodation reforms

The Department of Planning, Industry, and Environment and Department of Customer Service are seeking feedback on the draft instruments and regulations that will introduce the state-wide planning framework and mandatory Code of Conduct for short-term rental accommodation (STRA). Proposed changes are outlined here.

The department welcomes feedback from the community and other stakeholders during consultation – which will help them better understand opinions and concerns of those involved or effected, which inform the Government’s decisions. You can submit feedback here.

Be aware of ‘subject to’ conditions in commercial leases

The recent case of Realm Resources Ltd v Aurora Place Investments Pty Ltd in the NSW Supreme Court illustrates the importance of satisfying ‘subject to’ clauses, in order for a lease to become legally binding. The case involved Aurora (sub-lessor) and Realm (sub-lessee) who signed a lease proposal for 300 sq/m in the Aurora Building. The lease proposal prepared by Aurora’s agent included a ‘subject to’ condition stating “the terms and conditions of this proposal are subject to: (i) availability of premises (ii) lessor’s board approval (iii) satisfactory legal documentation being entered into by the parties.” In August 2017 a sublease for the premises was executed on agreed terms by Realm, with Realm’s solicitors sending a certificate of insurance (the final requirement). The next day, Realm had second—thoughts about the sublease, with their solicitors emailing Aurora requesting that they do not arrange the execution of the lease, and that they hold the signed lease in escrow pending further communication. Realm decided to not proceed with the sub-lease and applied for a declaration that no binding sublease existed, relying on the fact that the ‘subject to’ condition wasn’t satisfied. Aurora claimed that the sublease was binding, and that they were entitled to $735,000 for unpaid rent. In making their decision, the Court had regard to the fact that all 3 parts of the ‘subject to’ condition had been satisfied. It also had regard to the fact that the sublease was ‘entered’ into by the parties as it was intended to take effect as a deed, the formal requirements of a deed had been satisfied under s127(1) of the Corporations Act and that the deed was delivered by Realm evincing an intention to be bound. Ultimately, the Court ruled in favour of Aurora, who was awarded damages for loss of rent. This decision demonstrates the importance for commercial leasing agents, landlords and tenants to review their ‘subject to’ conditions to reduce uncertainty and ensuing legal disputes.