Victorian Heritage Laws & the impact on Buying and Selling Property
This review looks at:
1 The vendors’ disclosure requirements under the Heritage Act 1995 (“Heritage Act”) and how these requirements interact with the Sale of Land Act 1962 (Vic) (“Sale of Land Act”)
2 Whether non-disclosure of any notices or restrictions under the Heritage Act gives rise to rescission by the purchaser under either legislation
3 The consequences for solicitors who do not adequately disclose Heritage Act restrictions in Vendor Statements
4 The liability of a purchaser’s solicitor who fails to check the Vendor Statement, or fails to advise a purchaser of the possible remedies for breaches by the Vendor
The Heritage Act came into existence in 1995 to provide protection, registration, and conservation of places and objects with cultural heritage significance. This legislation established the Heritage Council whose task it is to examine nominated places and objects. If a place or object contains cultural heritage significance then the Heritage Council can, under s46, enter the property into the Victorian Heritage Register. The Heritage Council can, under s56 place a property under an interim protection order.
The Heritage Council’s powers can severely limit the owner’s right to interfere with the structures of the land. Section 64 states that property listed in the Heritage Register (or under an interim protection order) have the following prohibitions:
A person must not:
a) Remove or demolish; or
b) Damage or despoil; or
c) Develop or alter; or
All or any part of a registered place
Any breach will incur a financial penalty, imprisonment for 5 years, or both. Certain exemptions apply where the work carried out is in accordance with a permit issued under the Heritage Act, or if the Heritage Council determines that, a permit is not required for specific works. As the restrictions and prohibitions affects subsequent owners of property transferred, the Heritage Act stipulates certain disclosure requirements on vendors when they wish to sell their property.
If a nomination to include a property or object in the Heritage Register arises, the Executive Director of the Heritage Council must, under section 29 notify the owner within 14 days after accepting the nomination.
The owner must section 31 notify a purchaser of the nomination or deferral of consideration of the nomination. Section 31 states an owner of land or an object, which is the subject of a nomination, must before entering a contract for the sale of that land or object inform the purchaser of that nomination and of any deferral of consideration of the nomination. If the owner of land or an object, which is the subject of a nomination, fails to comply, the contract of sale is valid, but voidable, at the purchaser’s option. Section 31(2) gives a purchaser a right of rescission if a vendor fails to notify the purchaser of the nomination before entering a contract of sale. This provision responds to the Victorian Supreme Court decision in Brett v Cumberland Properties (1985) V Conv R 54-175
which deals with the Historic Building Act 1981, the predecessor to the Heritage Act. In that case, it decided that a threat to place the property on the Victorian register did not constitute a restriction on the use of the land or a defect in title, and did not entitle the purchaser to terminate a contract. Section 31(2) allows a purchaser to rescind the contract if the Vendor does not inform him of the threat at the nomination stage.
When the nomination is accepted, the Executive Director can recommend the Heritage Council to place, not place the property, or object on the Heritage Register. The Heritage Act requires the Executive Director to issue a statement about the recommendation to the owner. The owner must, under section 36(11) provide a prospective purchaser with a copy of the Heritage Council decision.
A vendor is guilty of an offence and liable to a penalty if he knowingly or recklessly supplied false information or failed to supply all the required information in the statement. However, the Heritage Act does not specify a right of rescission for a breach of providing a statement of the recommendation to the purchaser. One can assume that notification to the purchaser of a statement of recommendation from the Executive Director is more important than the notification of the nomination and that the right of rescission should equally apply to both. The Act’s silence lends support to the proposition that the right of rescission for failing to supply a statement of recommendation may arise under different legislation.
The Heritage Act does not specify an obligation on the owner to notify a purchaser of the decision of the Heritage Council to include the property on the Heritage Register under section 46. One can assume this an important requirement for a Vendor in any proposed sale. The lack of a disclosure obligation under the Heritage Act in terms of listing on the Heritage Register supports the proposition that other legislation may apply.
SALE OF LAND ACT
Although the Heritage Act makes no specific reference to the Sale of Land Act, disclosure of Heritage Act notices can fall within the disclosure requirements of section 32 Sale of Land Act. The vendor must provide certain particulars. These statutory particulars include particulars of any notice, order declaration, report or recommendation of a public authority or government department or approved proposal affecting the land, notice of intention to acquire served under the Land Acquisition and Compensation Act, being a notice, order, declaration, report, recommendation or approved proposal of which the vendor might reasonably be expected to have knowledge. It is likely the words “particulars of any notice” include a notice under the Heritage Act.
Whilst the Heritage Act does not specifically require the vendor to notify a purchaser of the notice to include the property in the Heritage Register section 32(2), (e) Sale of Land Act requires disclosure of the notice in the Vendor Statement supplied by the vendor before signing a contract. It is apparent that section 32 does not extend its operation to threats of restriction as in Brett v Cumberland Properties. This may explain why the only right of rescission included in the Heritage Act is for non-disclosure of a nomination to the purchaser before signing the contract.
The words “report or recommendation” in section 32(2) (e) gives the vendor a supplementary requirement than that imposed by section 36(11) Heritage Act to disclose to the purchaser the statement of recommendation issued by the Executive Director. Non-compliance with the disclosure obligations under the Sale of Land Act attracts both civil and criminal remedies
If a vendor supplies false information in the Vendor Statement or fails to supply all the required information in the Vendor Statements, the purchaser can rescind the contract entered based on that information any time before accepting title and becoming entitled to possession or rents and profits. Section 32(5)(b) Sale of Land Act complements the Heritage Act by extending this right of rescission to a failure by the vendor to provide a purchaser with the recommendation statement issued by the Executive Director or particulars of the notice of listing on the Heritage Register. It is an offence for a vendor to knowingly, or recklessly supply false information in both the Vendor Statement. Rescission for non-disclosure seems to have wide effect; however, section 32(7) limits the right. The provision says a purchaser cannot rescind the contract, if the court is satisfied that the vendor acted honestly and reasonably and ought fairly to be excused for the contravention, and that the purchaser is substantially in as good a position as if all the relevant provisions had been complied with.
This exemption has been the source of judicial interpretation.
The requirement of honesty imports a subjective inquiry Fifty-Eighth Highwire v Cohen (1996) 2 VR 64.
The requirement to act reasonably involves an objective test, requiring the vendor to act with due care and attention or without negligence Curtain v Aparo (1988) Conv R 54-316
The third limb requires the application of judicial discretion as to whether the vendor ought fairly to be excused.
The fourth requirement involves asking whether the difference between the purchaser’s actual and hypothetical positions is “real or of substance as distinct from ephemeral or nominal”. This requirement is for the Court to decide as to whether or not it accepts the purchaser’s assertions of a real change in position.
The Victorian Supreme Court held in Paterson v Batrouney (2001) V Conv R 54-639
that the complete protection given to a purchaser by the fourth limb of section32 (7) meant that as long as the vendor acted reasonably in preparing the Vendor Statement he is not vicariously liable for his solicitor’s or estate agent’s negligence. This follows Fifty-Eighth Highwire v Cohen (1996) 2 VR 64
that it is inappropriate to impose the negligence of a solicitor on the client.
What does this mean in terms of disclosure of restrictions or notices under the Heritage Act?
a) A vendor must act honestly and reasonably when providing particulars about Heritage Act issue. If he has not acted honestly and reasonably, a court will not find it meets the exemption of section 32(7) even though the non-compliance is small
b) If a vendor has acted fairly and reasonably but there is, a substantial loss of the purchaser’s position then the vendor is not protected by section 32(7)
c) If a vendor instructs a solicitor to prepare the Vendor Statement, he has acted reasonably. If the solicitor is negligent in not providing particulars under the Heritage Act, his negligence is not imposed on the Vendor client
The question untested by the courts is whether the negligence of a solicitor imposes on the vendor when the purchaser’s situation has changed in quite significant terms. It seems that from the decision in Paterson v Batrouney (2001) V Conv R 54-639
a court would not hold a vendor liable in such a situation.
However, the vendor’s solicitor can be liable to the purchaser under a solicitor’s duty to non-clients. The High Court in Hill v Van Erp (1997) 188 CLR 159
held that such a duty was owed by a solicitor to the intended beneficiary who carelessly allowed an intended beneficiary’s husband to witness a will. The Court identified the class to whom the duty is owed and extent of liability was both finite and known to the solicitor. Such a duty was consistent with, and did not conflict with; the solicitor’s duty to the client; and without such a duty, the loss caused by the solicitor’s failure to take care would not have been recoverable by anybody.
Although this duty may extend to a vendor’s solicitor whose negligence adversely affects a purchaser, it is more likely that the duty will not extend to situations where the purchaser has representation. The basis of this argument is on the proposition that a solicitor retained by a purchaser has a duty of care to make adequate inquiries into the contents of the Vendor Statement. There is no specific case law on the liability of the purchaser’s solicitors under the Heritage Act restrictions; there has been some judicial pronouncement on failure to inquire into other breaches of provisions of section 32, which may be useful. The South Australian case of Jennings v Zihali-Kiss (1972) 2 SASR 493
applied the test in Parker v Rolls (1854) 14 CB 691
that a professional is only liable for the use of ordinary care and skill. He is not bound to guarantee all mistakes or omissions, have powers of divination, or exercise extraordinary foresight, learning, or vigilance. This case dealt with the liability of the purchaser’s solicitor for failing to discover matters bearing on the legality of the use of premises, including the use of cooking facilities. The court held that the solicitor was not negligent, as solicitors do not need to know the provisions of the by-laws of all the local government authorities in South Australia, or even inquire into the possible existence of relevant by-laws unless there is something to direct the solicitor’s attention to the desirability of such inquiry.
Although this case seems to provide extensive protection for solicitors when examining Vendor Statements, there are some salient points:
1 No expert evidence was given regarding what a prudent solicitor should do in the situation
2 This was a South Australian decision
3 In the past decade, the standards expected of solicitors and their range of liability has expanded.
Since the decisions in Hawkins v Clayton (1988) 164 CLR 539
and Astley v Antitrust Limited (1999) 161 CLR 155
it is now a settled principle that the duty of a solicitor to exercise reasonable care is founded both in contract and in tort. These developments regarding solicitor liability suggest that a purchaser’s solicitor can be liable in negligence to the purchaser for failing to:
Properly check information provided in the Vendor Statement; or
Advise a purchaser about remedies available under section 32
The 1996 case of Krakowski v Trenorth Ltd; Mallesons Stephens Jacques (third Party) (1996) V Conv R 54-551
supports the above view. The court found that had a solicitor given correct advice as to a company’s duty of disclosure under section 32, the solicitor have been in a position to prevent the vendor from committing fraud.
When looking at these developments in terms of a solicitor’s failure to make appropriate inquiries into Heritage Act restrictions contained in the Vendor Statement it seems the solicitor will be held negligent if it is proven the purchaser’s damages did flow from the solicitor’s breach.
NEED MORE INFORMATION
Behan Legal assists and advises on these important issues. For an appointment, call 03 9646 0344