By Mitchell Spurge, Senior Associate, and Andrew Logan, Partner

Strzelecki Holdings Pty Ltd v Jorgensen [2016] WASCA 177

On 25 October 2016, the Western Australian Supreme Court of Appeal delivered its judgment in the matter of Strzelecki Holdings Pty Ltd v Jorgensen [2016] WASCA 177 (Strzelecki Case).  It provides guidance on two significant matters that relate to the purchaser protection provisions under Part V of the Strata Titles Act 1985 (WA) (STA).

Relevantly, the Court was asked to determine whether:

1. an overall 7.7% increase in the size of the strata lot in question was a variation of the strata plan in a “material particular”, and therefore a “notifiable variation” under the STA; and
2. a purchaser’s right to “avoid” an off the plan contract continued after the vendor’s lawful termination of the contract (e.g. due to the purchaser’s repudiation or default).

In essence, the Strzelecki Case provides that a change to a strata plan will not always trigger a notifiable variation.  The Court will look at all objective facts, including the contract terms, in determining whether a change to a strata plan is material (and therefore warranting a disclosure) or not.

However, the Strzelecki Case does not change the position that developers must still be proactive when making proposed changes to off the plan disclosure documents, to give notice when required under the STA and not rely on a termination of the contract as a means of extinguishing a purchaser’s avoidance rights under the STA.

Vendor disclosure obligations and purchaser rights under the STA

A vendor of an off the plan contract must:

1. provide a purchaser with a copy of the proposed strata plan before the purchaser signs the contract (s.69A(b) STA); and
2. inform the purchaser if the proposed strata plan is varied in a material particular or the registered strata plan differs in a material particular from the proposed strata plan (s.69C(3) STA).

A variation of the proposed strata plan in a material particular is a notifiable variation.  Notice of the notifiable variation must be given as soon as the vendor becomes aware of the variation.

If the vendor fails to give the purchase notice of a notifiable variation as soon as the vendor becomes aware of the variation then the purchaser may avoid an off the plan contract at any time before settlement (s.69D(1) STA).

Was the 7.7% increase in the apartment area a variation in a “material particular”?

The contract in the Strzelecki Case attached a strata plan which showed a 91m² strata lot area for the purchasers’ apartment (being Lot 14).  However, the strata plan, when ultimately registered, provided for a 98m² strata lot area for Lot 14, being a 7.7% increase in the area of Lot 14.  The vendor did not give the purchasers notice of the proposed change in area of Lot 14.

The purchasers alleged that the 7.7% increase in the area of Lot 14 was a variation in a material particular and therefore a notifiable variation under the STA.  The purchasers further alleged that they were entitled to avoid the contract at any time before settlement without being required to prove that they were materially prejudiced by the increase in the area of Lot 14 because the vendor didn’t provide the purchasers with notice of the notifiable variation.

The Court held that 7.7% increase in the area of the strata lot was not a material change in the strata plan and therefore was not a notifiable variation of which the vendor was required to notify the purchasers.

In reaching this decision, the Court acknowledged that an increase in a strata lot may constitute a material variation, however the fact that the contract provided an acknowledgement from the purchasers that the purchasers would not object to or terminate the contract where the area of the apartment varied by less than 10%, was a relevant consideration in assessing the objective significance of the 7.7% increase.  The Court found that the 10% threshold in the contract was an objectively significant threshold for the floor area increase.

Does termination of a contract extinguish a purchaser’s avoidance rights?

The vendor’s position on appeal was that the vendor’s lawful termination of the contract extinguished the purchasers’ rights to avoid the contract under s.69D of the STA on the basis that there was nothing to avoid at the time when the contract was validly terminated.

The Court did not agree with the vendor’s position and held that the right to avoid the contract, under s.69D of the STA, is of the same nature as the remedy of rescission.  This meant that from the point of rescission (i.e. avoidance) the rights and liabilities of the parties are determined as if the contract was never made (i.e. from the beginning).  The termination of the contract for breach did not prevent the purchasers from exercising their rights to avoid the contract.

Disclaimer 

This publication is provided in good faith and is for general information purposes only. This publication does not constitute legal advice, and must not be relied upon. You should seek professional legal advice in relation to matters arising out of the publication. No warranty or representation regarding the reliability, quality or accuracy of any information in this publication is given by Mills Oakley or the authors of the publication.