30 th November Land Sales Act review team Office of Regulatory Policy GPO Box Brisbane QLD 4001

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1 30 th November 2012 Land Sales Act review team Office of Regulatory Policy GPO Box 3111 Brisbane QLD 4001 GPO Box 2279 Brisbane QLD 4001 Level 17, 141 Queen Street Brisbane QLD 4000 T: F: E: ACN ABN BY POST / landsales@justice.qld.gov.au Dear Land Sales Act review team Proposed Amendments to the Land Sales Act 1984 Consultation Paper The Urban Development Institute of Australia (Queensland) (UDIA (Qld)) appreciates the opportunity to respond to the consultation paper on proposed amendments to the Land Sales Act 1984 (the Act). UDIA (Qld) participated in a reference committee formed after a review of the Act was initiated in 2010 and provided detailed feedback on a discussion paper issued in that year. The Institute is pleased to see that a number of our concerns have been reflected in the current consultation paper. The Institute is on the record as being concerned that the Act does not achieve the appropriate balance between the facilitation of development and the achievement of consumer protection through a disclosure regime. Reform of the Act is long overdue and the Institute congratulates the Government for ensuring that the Act is reviewed. The Consultation Paper properly recognises that the Act was introduced in response to a number of significant incidents of consumer detriment in the 1960s and 1970s. At the time the Act was drafted, consumer law was in its relative infancy at both federal and state level in Australia. The Act was also developed prior to the profound changes that have occurred in respect of planning practice and planning law in Queensland today. It was also designed and drafted to address development practices that occurred at that time. As noted in the Consultation Paper, much has changed in respect of all three elements. Consumer protection law is less paternalistic and is able to rely to a greater extent on prohibitions and sanctions rather than becoming intensely involved in microscopic regulatory activity. The complexity of development in contemporary Queensland has been addressed by an assiduous attention to planning law by the Queensland Government and local authorities. Processes and practices have changed significantly. Moreover, the industry has changed substantially at the same time with international development corporations, and interstate and intrastate development corporations, many of which are publicly listed, operating in the Queensland environment. There are also numerous smaller developers operating throughout the state. Further profound changes have occurred as a result of the availability of finance for development projects since the Global Financial Crisis. As such finance for the vast majority of development projects will only be attainable where development approvals are in place and a large percentage of pre-sales have been attained.

2 The following specific comments are made in respect of the policy proposal questions in the consultation paper. Proposal 1 and 2 Proposal 1: The restriction on selling proposed allotments in section 8 of the Act is removed so that a person may sell freehold unregistered land prior to receiving an effective development permit, compliance permit or UDA development permit for reconfiguring a lot for the allotment. This would apply regardless of whether or not there are operational works for the proposed allotment. Proposal 2: Based upon the Queensland Government deciding to remove the restriction in section 8 (see Proposal 1), section 9(2)(a) of the Act is amended so that a disclosure plan must include a copy of any plan for reconfiguring a lot for the allotment forming part of a development permit, compliance permit or UDA development approval only if there is an effective development permit, compliance permit or UDA development approval for the proposed allotment. Queensland is at odds with interstate practice as regards the selling off the plan of noncommunity titled lots. Given the extensive planning controls that are now in place under the Sustainable Planning Act 2009 (SPA), the reality is that it is unlikely that any developer would seek to achieve pre-sales for lots without having had extensive discussion and consultation with the relevant local authority and referral agencies. It would seem that there is no rational reason for developers in Queensland of non-community titled lots to be prohibited from selling land prior to receiving an effective development permit, compliance permit or UDA development permit for reconfiguring a lot for the allotment (regardless of whether or not there are operational works for the proposed allotment). The positives to the development industry in being able to commence pre-sales prior to development approval would be to shorten the development time frame which brings significant benefits also to consumers. Given pre-sales could commence earlier, the timing would then run simultaneously with finalisation of development approvals, projects should be able to be completed within shorter time frames. Shortening the enormous burden both on the industry and consumers of prolonged development time frames has for a long time been a goal of UDIA (Qld). Consumers will continue to have the benefit of protections in terms of delivery time frames and the benefit of the disclosure regime covering significant variations (as proposed). Proposal 3 Proposal 3: The terminology in section 9(2)(b) of the Act is modernised so that the reference to metes and bounds is replaced with the term dimensions. The disclosure plan must therefore include the dimensions of the proposed allotment. 2 P a g e

3 Proposal 4 Proposal 4: Section 9(2)(c) (i.e. disclosure of contours) is amended by replacing the term natural surface contours with the term existing surface contours and that this new term is defined (see Terminology Proposals page 20). The contour maps required to be included in the disclosure plan must therefore show existing surface contours, with appropriate contour intervals. with additional clarification The change to existing surface contours is supported, provided that a plan bearing a date at which date those contours must be existing can be used so that the regime is workable. It cannot be the contours existing at the date of the disclosure statement, as no sales would be possible during operational works as no surveyor could certify that plan as being accurate on a particular date from which works would then have to stop until the sale contract was executed. That would prevent any pre-sales continuing whilst operational works were taking place. Clarification to that effect must be included to avoid that potential consequence. Proposal 5 Proposal 5: The information required to be contained in a disclosure plan under section 9(2) of the Act must also include any proposed interests which will burden the proposed land, for example, easements and covenants and also any retaining walls to be built on the land as part of any operational works. The disclosure plan must also contain proposed infrastructure services, such as sewerage and water supply, drainage, roads, electricity, gas and communication services. Not ed The question of what interests affect (burden) title are matters that are dealt with contractually a purchaser will not take subject to any interests that are not disclosed as encumbrances or prospective encumbrances on title. Were land to be encumbered or proposed to be encumbered in a manner that prevented its use as intended, the purchaser will have rights to avoid the contract in the absence of contractual forecasts of potential encumbrances. Development sequencing is such that detailed design of engineering matters (such as water supply and sewerage) cannot generally (and in the usual course) occur until the reconfiguration of the lots is approved. To undertake such detailed design prior to such approval would result in significant wasted time and costs (of some magnitude). The terms of easements and covenants themselves are not identified by plan but by instrument. Agencies have specific requirements which change over time making initial disclosure of those terms difficult in many cases. 3 P a g e

4 Making disclosure of these matters part of the disclosure plan content will in effect limit the effectiveness of the changes proposed in relation to the restriction on selling in section 8 because details as to proposed interests will not be available at the relevant time. Proposals 6 to 8 Proposal 6: The phrase fill levels, and areas to be filled contained in section 9(2)(d) of the Act is amended so it reads all discoverable fill levels, including those approved by the local authority, completed prior to commencement of operational works for the lot and areas to be filled at the completion of operational works for the lot. Proposal 7: The definition of appropriate contour levels in section 9(7)(b) of the Act for a proposed allotment of more than 2000m2 is amended to mean contour intervals of 1m. Proposal 8: The disclosure plan required to be given to a purchaser by the seller under section 9(1)(a) of the Act must be certified by a cadastral surveyor registered under the Surveyors Act Further, with regards to disclosure requirements under Part 2, the Institute urges the Government to exclude volumetric lots from the requirements for disclosure under section 9 provision of contour plans for such lots is meaningless and forces developers to structure subdivisions to fall within the section 19 exemption regime which should be unnecessary for this type of development. Proposal 9 Proposal 9: The definition of significant variation in section 10(5)(a)(i) of the Act, relating to area, is amended so it provides for a variation of 2% in the area of the proposed land of less than 2000m2 or 5% for proposed land of more than 2000m2. The definition of significant variation in section 10(5)(a)(ii) of the Act is modified so that it means, (as an alternative to section 10(5)(a)(i)): a variation of more than 1% in the length of a boundary line of land where that boundary line is of five metres or more in length; and a variation of 5% in the length of the boundary line where that boundary line is less than five metres. This would be instead of the current words a variation of more than 1% in details of linear dimensions. No supported. Alternative amendment proposed. 4 P a g e

5 The significant variation test proposed remains unnecessarily stringent. For instance, in a typical 600m2 house allotment with dimensions 20m x 30m, a change of just 21cm in width with no change in depth would be deemed a significant variation under proposed section 10(5)(a)(ii). The same variation would be insufficient to trigger section 10(5)(a)(i). The test in section 10(5)(a)(ii) unfairly impacts the seller. In addition, section 10(5)(a)(ii) may present practical difficulties in its application as it is unclear how the test will be will be applied for lots that are not rectangular in shape, which is very common in modern developments. For example, take stage 11 of the Urban Land Development Authority s development of Fitzgibbon Chase shown below. Of 26 lots shown below, there are at least 8 lots which are not rectangular in shape. The Institute submits that a dual test involving area and boundary lines is unnecessary and consumers can be adequately protected with a definition of a significant variation in section 10(5)(a) being based on area alone. Indeed it is the view of the Institute that the likelihood of an area change within the parameters referred to (2% to 5%) having a material impact on the ability to construct a dwelling or otherwise use the lot for its intended purpose is low. Whilst the Institute welcomes proposal 11 in the consultation paper that will remove the automatic right of termination for the consumer in the event of a significant variation, an overly stringent significant variation test remains a concerns as it will present unnecessary legal risks and onerous reporting requirements. The Institute submits the following alternative proposal 5 P a g e

6 Alternative Proposal 9: The definition of significant variation in section 10(5)(a)(i) of the Act, relating to area, is amended so it provides for a variation of 2% in the area of the proposed land of less than 2000m2 or 5% for proposed land of more than 2000m2. Section 10(5)(a)(ii) of the Act is removed Proposal 10: Proposal 10: Section 10(2) of the Land Sales Act 1984 is amended so that the seller is required to give the buyer a significant variation notice within 14 days of the seller becoming aware of the significant variation. Feedback sought: What do you think should trigger the seller becoming aware of the significant variation? For example, should it be when the plan is lodged with a local governmental authority or another similar body? The Institute is of the view that the trigger for the seller becoming aware of the significant variation should be when the relevant authority (ie. Council where applicable) approves the relevant plan (for example a stamped approved reconfiguration plan upon a development approval being given or changed, but before plan sealing of a survey plan). Before this time no significant variation has occurred as the seller cannot know whether any proposed variation will in fact be approved by the relevant authority. A requirement to issue a significant variation at any time prior to the approval of a plan would be onerous as it could result in a seller having to issue multiple variation notices as it is very common for plans to be lodged in various versions as a development approval is sought prior to a final approval by the relevant authority. Proposal 11: Proposal 11: Section 10(3) of the Act is amended so that a buyer must demonstrate material prejudice as a result of the information contained in a significant variation notice given to the buyer. It is important to note that the time frame of 14 days must remain for a buyer to raise a material prejudice. 6 P a g e

7 Proposal 12: Proposal 12: The time period in which an application for exemption must be made, i.e. within 30 days after the event that marks the entry of a purchaser upon the purchase of the proposed allotment will be amended so that the application must be made within 30 days after the contract has been entered into. That is, both parties have fully executed the contract. Not. Alternative amendment proposed Feedback from UDIA (Qld) members who deal with the Act on a daily basis indicates that applications for exemptions under section 19 are almost always approved. In fact most of the Institute s members who were asked for feedback regarding section 19 of the Act could not recall a single application for exemption being refused. Section 19 of the Act therefore appears to be a classic example of unnecessary regulatory burden that wastes both the resources and time of Industry and the Department. The original policy rationale for allowing an exemption was that where vendors were selling small allotments, or families were rationalizing their land holdings, the danger of misdescription was minimal. Clearly, the fact that applications are rarely refused indicates that the Registrar deems the risk to the consumer to be insignificant. The Institute proposes that section 19 of the Act be repealed and replaced with a single clause stating that land that is to be subdivided into not more than 5 allotments is exempt from the provisions of part 2. This proposal would remove two pages from the Act and is consistent with the Government s commitment to eliminate unnecessary regulations and cut red tape by 20%. Proposal 13A Proposal 13A: Part 3 of the Act (i.e. the provisions relating to proposed community title scheme lots) are removed and transferred to the BCCM Act, specifically Chapter 5, Part 2 (Proposed Lots). 7 P a g e

8 Proposals 14 to 18 Proposal 14: The requirement in section 21(1)(a) of the Act is modified so that the seller is required to clearly identify the lot to be purchased by providing a copy of the (pre-approved or approved) plan showing the proposed format plan. The proposed format plan must include, at a minimum and where applicable: proposed lot number proposed lot area plan number identify parts of the lot outside a building or structure (e.g. balconies, courtyards and carports) proposed building floor level on which the proposed lot will be located the other lots, proposed lots and common and proposed common property on that building level orientation of the proposed lot by reference to a north point. These details would be in addition to the details currently required to be disclosed. Proposal 15: The requirement in section 22(1) of the Act is modified so if a change in addresses of either the seller or the buyer, (provided on the initial disclosure statement as required by section 21), arises during the period of development, it is not included in the particulars required for a rectification statement. Proposal 16: Section 21 is amended to require the seller to disclose the time in which a registrable instrument of transfer must be supplied and that there is a right to avoid the contract under section 27. Proposal 17: Sections 11 and 23 of the Act provide for the holding of bank guarantees or performance bonds used for the purchase of a proposed allotment / lot to be held by a law practice at its office in Queensland or a real estate agent licensed under the Property Agents and Motor Dealers Act 2000 (collectively the deposit holder ). The deposit holder must hold the bank guarantee or performance bond pending the performance of both parties as required by their contract. The deposit holder should be the person who is authorised to make a demand for payment under the guarantee or bond and the money received must be paid into the deposit holder s trust account pending the outcome of the contract. Proposal 18: The obligation in sections 11 and 23 for the holding of money (e.g. a deposit) are extended to capture those situations where options, and any other instruments such as (binding and non-binding) expressions of interest, are used. 8 P a g e

9 In relation to proposal 14 the drafting needs to make it clear that not all elements of the information have to be included for example where vacant lots in a Community Titles Scheme are being sold. In relation to proposal 17 it should be clear that the beneficiary of the security is not required to be the stakeholder. The security is for the performance of the obligations of the buyer and those obligations are owed to the seller not to the stakeholder. The stakeholder gives no consideration and has no standing to be paid the proceeds of redemption in a contractual sense. The stakeholder has no legal entitlement to deposit moneys and nor should it be given such an entitlement by being named as the beneficiary of a security. The seller should be the named beneficiary in the security. This does not mean that the stakeholder cannot be the holder of the security pending its application in accordance with the contract or be named in the security as a person entitled to present the security on behalf of the named beneficiary. The object of the section is to ensure that redeemed moneys are not disbursed until entitlement to those funds is determined under the contract. The provisions should be drawn so as to require the contract between the seller and the buyer to provide for the stakeholder to hold the security and to permit the stakeholder to be contractually authorized to present the security on the occurrence of a relevant event in the contract. Proceeds of redemption of the security should be required to be held on trust by the stakeholder until entitlement to those funds is determined in accordance with the contract. Proposal 19 Proposal 19: The remedy for exceeding the 10% maximum level for a deposit on the purchase of land to which Part 2 of the Act applies is removed. In other words section 11A is removed. UDIA (Qld) strongly supports the raising of the maximum deposit level to 30% as an important means of de-risking projects, making them more attractive to financiers and providing consumers with an opportunity to commit to a development at an early stage and provide the funding for it on a staged basis. UDIA (Qld) firmly believes an increase in the deposit amounts developers can accept for off the plan sales will assist with the recovery of the industry from the current downturn and future industry downtowns. Since the Global Financial Crisis financiers have adopted a more conservative approach to lending and it is a widely held view that this more conservative approach to lending will remain for the foreseeable future. Allowing for larger deposits will provide added comfort to financiers. 9 P a g e

10 After a prolonged period of growth, the events of the past four years has served to remind us all that property values can fall and can fall to such a degree that buyers will attempt to walk away from a deposit of 10%. This is particularly so for overseas investors due to the costs and difficulties in enforcing a sale. Overseas investors can represent a significant proportion of sales in a development, however financiers are reportedly disqualifying (or at least discounting ) sales to foreign investors when making lending decisions. UDIA (Qld) members involved in the provision of developer finance have confirmed that this is the case. While the Institute applauds and supports the proposal to allow increased deposits, that step will not be effective if sellers cannot obtain release of the deposit on default. At present any notification from a buyer that it disputes the entitlement to the deposit is sufficient to prevent release of those funds to a seller regardless of the merits of the buyer s position. In such a case a seller is compelled to seek court intervention and in doing so may be required to seek not only a declaration that the contract has been validly terminated but also to prepare and run its damages claim in those proceedings. Input from UDIA (Qld) members is that costs of such a process in the Supreme Court may run to hundreds of thousands of dollars. To prevent this while protecting consumers, the Institute suggests that a buyer that disputes the seller s right to claim deposit funds following termination of a contract for the buyer s default be required to instigate proceedings to support its position within a specified period (this may be days for example) failing which the stakeholder would be authorised to release the deposit to the seller. A buyer with a legitimate claim will not be disadvantaged. Financiers to developers have learnt from default levels in projects during the GFC that a deposit is only an effective security if it can be accessed following default. In many cases buyers simply dispute the entitlement to release of deposit funds as a tactic and without legal basis to support their position. While the Institute supports the proposal to raise maximum deposits for all purchasers, it is also in favour of a policy allowing for greater deposits for foreign buyers only (in recognition of the increased contract enforcement risks involved with such sales). With respect to consultation questions on page 20 of the consultation paper relating to the Property Law Act 1974, the Institute s position is as follows: The statutory trigger for an instalment contract in Division 4 of part 6 of the Property Law Act 1974 should be amended commensurate with any change to the deposit amount permitted under the Act or else the amendment would be useless to the industry. Deposits should be held in a trust account in all cases Enhanced disclosure requirements are unnecessary given that the moneys are to be held in trust Should you require statistics, anecdotal evidence or case studies to support the positions outlined above we are more than willing to provide these. 10 P a g e

11 Proposals 20 to 26 (Terminology) subject to comments above Ongoing Consultation UDIA (Qld) appreciate the opportunity to comment on the proposed amendments to the Act and look forward to seeing and commenting on a Bill to amend the Act in Yours sincerely Urban Development Institute of Australia (Queensland) Marina Vit Chief Executive Officer 11 P a g e