'Off The Plan' Contract of Sale Not Enforceable

The decision in Everest Project Developments Pty Ltd v Mendoza & Ors [2008] VSC 366 ("Everest case") is a timely reminder that a vendor cannot receive deposit money under a contract of sale of land before the plan of subdivision is registered.

Section 9AA of the Sale of Land Act 1962 (Vic) ("the Act") provides that the deposit monies payable by a purchaser who buys a lot on an unregistered plan of subdivision must be paid to a legal practitioner, a conveyancer or a licensed estate agent acting for the vendor, or into a special purpose account in an authorised deposit-taking institution in Victoria.

Facts

In the Everest case, the defendants (Mendoza & Ors) purchased apartments off the plan and paid a small holding deposit of either $500 or $1,000 to the vendor at or around the time of signing the contract of sale. The holding deposits were later refunded to the purchasers upon them providing a deposit bond equivalent to ten per cent of the purchase price. Upon the occurrence of certain events, a special condition in the contracts of sale permitted the vendor to receive monies secured by the deposit bonds prior to the registration of the plan of subdivision. The purchasers rescinded the contracts of sale claiming that the vendor had breached section 9AA of the Act.

Decision

Notwithstanding the fact that the holding deposits were repaid to the purchasers and any money received under the deposit bonds was to be held on trust by the vendor's solicitor pending registration of the plan of subdivision, the court found that the contracts of sale contravened section 9AA of the Act and accordingly, the purchasers had validly rescinded the contracts of sale.

The Everest case confirms that vendors selling property off the plan must strictly comply with section 9AA and ensure that any special conditions concerning deposit bonds in the contract of sale are carefully drafted so as not to contravene the requirements of the Act.