New Legislation to Impact on Developers, Home Buyers and Investors with the Introduction of the Property Occupations Act 2014 (Qld) and the proposed Land Sales & Other Legislation Amendment Bill 2014 (Qld)
Whether you’re a large-scale property developer or thinking of buying your first home, everyone buying or selling property will be affected by new, and proposed, legislation being introduced by the Queensland Parliament this financial year.
The current legislation governing residential transactions, the Property Agents and Motor Dealers Act 2000 (Qld) (PAMDA), imposes a great deal of red tape when buying or selling in Queensland. However, the industry is set to see some relief with the commencement of the Property Occupations Act 2014 (Qld) (POA).
Further, the introduction of the Land Sales & Other Legislation Amendment Bill 2014 (Qld) (Bill) seeks to amend several existing Acts relating to property in Queensland. If passed, the Bill will have a significant affect in reducing red tape for off-the-plan property developments.
Property Occupations Act 2014 (Qld)
The POA was passed on 7 May 2014. Although an exact commencement date is not yet known, it is expected to be in force as early as September this year. A key feature of the POA is it specifically deals with property transactions whereas PAMDA dealt with an array of different transactions along with property including motor vehicles.
Current Rights under PAMDA
It is important to note that when the POA does come into effect, any contract entered into before its commencement date will still be governed by the PAMDA provisions. This means no rights available under PAMDA will be waived if the contract was signed before the commencement date of the POA.
The first notable change is the definition of residential property. Under PAMDA, the definition of residential property can become confusing. The POA simplifies this by providing a more succinct definition:
‘Residential property is real property that is used, or is intended to be used, for residential purposes but does not include real property that is used primarily for the purposes of industry, commerce or primary production’.
In practice, this definition will be clarified by the courts. For the time being however, it is reasonable to assume all property should be treated as residential unless it is primarily used for the purposes of industry, commerce or primary production.
Cooling Off Period
The definition of residential property directly affects the cooling off period as the cooling off period only applies to the transaction of residential properties. While there will still be a five business day statutory cooling off period under the POA it will not apply to a contract where:
- the buyer is a government or statutory body, a listed public company or its subsidiary;
- the buyer is purchasing three or more lots at the same time (whether or not in the same contract); or
- the property was sold at auction or the contract was entered into before 5:00PM on the second clear business day after the property was passed at auction, with a registered bidder for the auction.
Unlike PAMDA, should the buyer choose to waive or shorten the cooling off period, they now only have to do so by giving written notice to the seller. Formerly, the buyer would have to provide a Form 32A. However, a penalty of 0.25% of the purchase price applies if the buyer terminates under this period. The seller is entitled to deduct this from the deposit before returning it to the buyer.
Signing a Contract
Under PAMDA, a Form 30C Warning Statement and Form 14 Information Sheet were to be attached to a contract for the sale of residential property. Under the POA, only a written statement directly above where the buyer signs the contract is required. The POA sets out the appropriate wording to be included:
“The contract may be subject to a 5 business day statutory cooling-off period. A termination penalty of 0.25% of the purchase price applies if the buyer terminates the contract during the statutory cooling-off period. It is recommended the buyer obtain an independent property valuation and independent legal advice about the contract and his or her cooling-off rights, before signing”
The only time it will not be a requirement to include the above wording is where a counteroffer is made by a seller to a buyer who first proposed a contract to that seller.
Penalties for Seller or Seller’s Agent
Under PAMDA, failure to comply with its provisions gave rise to certain penalties for the seller or the seller’s agent, and a right for the buyer to terminate the contract. Under the POA, failure for the seller or seller’s agent (whomever gives the contract to the buyer) to comply with the POA does not give rise to a right of termination. However, non-compliance can still result in a fine.
Under PAMDA there was ambiguity surrounding options to purchase residential land. The POA has clarified this and now, when an option agreement is entered into by the buyer and seller, a cooling off period will apply. It will not apply if the option is exercised by the purchaser but if a third party exercises the option, the cooling off period will still apply.
Property Developer’s Licences
Under PAMDA, a person or corporation who, among other things, completed more than six residential property sales in a twelve month period was deemed to be a property developer and was required to be licenced. The POA abolishes the requirement for Property Developer’s Licences where the property developer is selling their own property.
Vacant Land for Non-Residential Purposes
Previously, if land being sold was not able or lawful to be used for residential purposes, the seller or seller’s agent would have to provide an appropriate notice to the buyer. Under the POA, this is no longer a requirement. Therefore, buyers of vacant land should be prudent to undertake enquiries into the lawful use of the land. It would be advisable to have the contract subject to and conditional upon the relevant enquiries being made by the buyer before the contract becomes unconditional.
Under the POA, commissions charged by a property agent will not be capped. However, the commission must not be more than the actual sale price of the property and is to be disclosed, including other fees and charges, to the seller in an approved form detailing how much it is to be and when it will be payable.
Land Sales & Other Legislation Amendment Bill 2014 (Qld)
The Land Sales & Other Legislation Amendment Bill 2014 (Qld) (Bill) proposes to amend a number of existing Acts including the Property law act 1974 (Qld), the Body Corporate and Community Management Act 1997 (Qld), the Land Sales Act 1984 (Qld) and the Legal Profession Act 2007 (Qld). This means, should the Bill be passed, there will be substantial changes, and further reductions in red tape, for the Queensland property industry: especially for property developers. It was introduced to the Queensland Parliament on 3 June 2014.
Disclosure of Proposed Strata Title Lots
The Bill has transferred the requirements relating to disclosure obligations for the sale of proposed strata lots to the Body Corporate and Community Management Act 1997 (Qld) (BCCM). These were previously in the Land Sales Act 1984 (Qld).
Deposits for Off-the-Plan Contracts
Deposits on contracts for the sale of property usually do not exceed 10% of the purchase price. If they do, they become installment contracts. Installment contracts have a significant number of consequences for both buyers and sellers and are generally avoided. The Bill proposes to extend the deposit limit for proposed off-the-plan lots to 20%. This is only for off-the-plan lots.
This will substantially favour property developers as raising the deposit a developer can request from buyer’s will raise their security and help further finance their development projects.
However, for buyers, a higher deposit can mean a higher loss for a breach of a term contained in the contract. Buyers should always be aware of entering into a contract, and be especially prudent with their understanding their obligation under a contract when a substantial deposit is payable.
Expression of Interest Deposits
For an expression of interest deposit on a proposed off-the-plan lot, the deposit monies must be paid only to a Real Estate Agent, Law Practice Trust Account or The Public Trustee. If a developer holds the deposit monies for an expression of interest they could face a fine. This change means it is insufficient for a developer to receive a deposit and pass it on. Expression of interest deposits must be paid directly to one of the three aforementioned options.
Release of Deposit
Under the Legal Profession Act 2007 (Qld), a Law Practice cannot release deposit monies if the buyer queries the funds held in the Law Practice’s Trust Account. The Bill proposes to enable a Law Practice to be able to disperse deposit monies to the party the Law Practice considers is entitled to the amount. To do so, the Law Practice must give written notice to both parties for a period of no less than 60 days – or earlier if both parties agree in writing to the Law Practices intention. The time limit for notice will allow a party, who disagrees with the Law Practices intention, to begin alternative proceedings in recovering the deposit monies.
Changes to Lot Details
Currently, under the BCCM, buyers of off-the-plan lots are required to be given a disclosure statement outlining levies, by laws, assets and other matters handled by the body corporate. If any of these details change, the seller is required to provide a ‘further statement’ outlining the changes.
The Bill proposes to give a buyer 21 days to terminate the contract if they are unsatisfied with the changes. The former provision was fourteen days.
Along with a ‘further statement’, a seller is also required to provide a ‘rectification statement’. Currently the rectification statement cannot be given by the seller until after the lot creating the survey plan is registered. The Bill proposes to amend this so the developer no longer has to wait for the survey plan to be registered.
Extended Sunset Dates
The Bill proposes to allow a seller to nominate a five-and-a-half year sunset date for settlement. Currently this is three-and-a-half years. The proposed change will provide developers more time if construction is delayed. It also removes the cumbersome process of having to extend the former three-and-a-half year sunset date in these circumstances. However, if the seller fails to nominate the five-and-a-half year sunset date, settlement must occur within three-and-a-half years of the contract being entered into.
The proposed changes are the result of criticism on the current practices in these areas and reflect the intentions of the Queensland Parliament. The reduction of red tape will make for easier property transactions and improved practices which are more easily complied with and understood. However, it is important to be aware of the changes to prevent an unknowing breach of the new legislation once it comes into effect.
For further information, please contact Gavin McInnes at Rostron Carlyle Solicitors on (07) 3009 8444 or email enquiries to email@example.com.