The Victorian government has now passed the Sale of Land Act Amendment Act 2019.

Included in the Act are provisions that:

  • prohibit vendor terms contracts for residential property below a specified price threshold; and
  • prohibit lease option / rent to buy contracts for residential property unless they comply with a schedule of requirements.

In relation to vendor terms contracts, the prescribed threshold has not been published – I expect that the threshold will high enough to prohibit most current residential vendor terms contracts.

In respect of lease options, the schedule of requirements has not been published but the Explanatory Memorandum that accompanied the legislation has. It suggests that it is likely the option fees will be required to be held in an interest bearing account and refunded to the purchaser if the option is not exercised.

The Act provides that these provisions will come into effect on 1 March, 2020 unless the Governor of Victoria announces and earlier start date. I can’t see any evidence of this so far.

The prohibition will not affect terms contracts and lease option agreements that come into existence prior to the commencement of the new provisions.

However, purchasers under existing vendor terms contracts will have the additional right to seek to be relieved of their obligations under terms contracts where they can demonstrate that they were not reasonably able to afford the payments at the outset or were not reasonably likely to be able to refinance within the term of any fixed term vendor terms contract. Given the recent significant tightening of lending standards generally, I am concerned that older contracts may not comply with the new lending standards. 

If the court agrees with the purchaser, the purchaser will be entitled to a refund of all monies paid under the terms contract less a reasonable occupation fee (ie rent). Where the value of the subject property has been increased this may not be attractive to a purchaser.

However, I do consider that if you have current vendor terms contracts in place you should seriously consider encouraging purchasers to refinance before the new provisions come into effect.

If you are unsure of the impact of the new provisions on your activities please email us: info@lewisobrien.com.au