Client Update: Real Estate – 12 November 2008
PAMDA – a complicated mess
In brief: A Supreme Court of Queensland decision, handed down on 29 October 2008, highlights the complexity of the Property Agents and Motor Dealers Act 2000 (Qld) and how hard it is to comply with it. Partner Tony Davies (view CV) reports why great care has to be taken in PAMDA transactions, especially on large commercial sales.
The facts
In Hedley Commercial Property Services Pty Ltd V BRCP Oasis Land Pty Ltd (2008) QSC 261, BRCP (as seller of the property) entered into a 'put and call' option with Hedley (as buyer) to sell a proposed lot at Cairns. Before the time for exercising its option expired, Hedley decided it wanted to get out of the deal. Its lawyers wrote to BRCP, purporting to terminate the contract on the basis that the seller failed to give the required Property Agents and Motor Dealers Act 2000 (Qld) (PAMDA ) 'first direction' and a 'second direction' (ie a clear statement directing the attention of the buyer to the warning statement and the contract – sections 366A and 365 respectively).
BRCP responded by seeking a declaration from the court that the land sold was not 'residential property' and, as a result, PAMDA did not apply. If BRCP was successful, the contract would be valid and enforceable regardless of any failure to give a 'direction'.
The decision
The court held that the land sold was not residential property because the land fell within the exemption of having a current development approval for non residential purposes. However, the process used to reach this conclusion highlighted the complexity of the definition of residential property. In short, the court held that there was a current development approval in the form of a reconfiguration (ie subdivision) approval, the purpose of which was to simply end up with three lots in place of two. This purpose was not a 'residential purpose'.
Even though this disposed of the matter (ie PAMDA did not apply because the land sold was not 'residential property'), the court made some very interesting observations on a number of matters. Those observations may be relevant if the decision is appealed and the land is held to be residential property.
Was a first direction given?
Although when the contract was dispatched in final form a 'first direction' was not explicitly given as a 'clear statement' (as required by PAMDA), the court held that when the relevant correspondence and circumstances were considered as a whole, it could be inferred that a 'first direction' had been given. As a result, the buyer could not terminate on this basis.
Email protection
The email process for entering into contracts under PAMDA requires the contract to be 'protected against unauthorised change'. The court held that if a contract is sent as a PDF read-only file, it does not satisfy the PAMDA requirement. The court suggested that some form of password protection or equivalent was needed to satisfy PAMDA. However, the court also suggested the repeal of the 'protection' provision, as it benefited no one and may give an unfair advantage to buyers.
Can the need for a direction be waived?
The court felt there was no reason, in principle, why a buyer could not, by its conduct, waive the direction requirement. The fact that a buyer signs the warning statement and may then try to argue it was not given a direction was the 'emptiest formality'.
When are parties bound under PAMDA?
Section 365 of PAMDA provides that the seller and buyer are not bound to the contract until a 'second direction' is given. The court held this section 'is a confused mess .... It is impossible to define the statutory intent with any sense of confidence.'
However, on any viewing of the facts, a second direction was not given. As a result, if the land sold was residential property, as no second direction was given, the buyer was not bound (unless it could be argued it waived the second direction).
The court held that Hedley, by its conduct in giving a consent, as purchaser, to an exemption application under the Land Sales Act 1984 (Qld), intended to convey it was a party to a binding contract. That contract was inconsistent with retaining an option not to be bound by the contract. As a result, Hedley waived its right to withdraw its offer under s365(3) of PAMDA.
What does this decision mean?
- This decision highlights that the consumer protection provisions of PAMDA are incredibly difficult to interpret and, therefore, to comply with. They will continue to provide significant headaches in the sale of 'off the plan' residential products, not to mention multimillion dollar transactions.
- If you use a contracting process based on emails, you are facing significantly greater risks of any PAMDA contracts being non binding. We recommend using only hard copy documents – not emails or faxes.
- This decision is inconsistent with some earlier decisions, making interpretation of PAMDA even more complicated.
- Extreme care needs to be taken to determine whether property sold is 'residential property' (and subject to PAMDA) or not. When in any doubt, assume PAMDA applies.
- The PAMDA contracting process (including first and second directions) needs to be vigorously followed. If there is any uncertainty before the process is completed, the process should be repeated to remove the uncertainty. This is particularly the case in large commercial transactions.
We wait to see if the judgement will be appealed.
For further information, please contact:
- Tony DaviesPartner,
Brisbane
Ph: +61 7 3334 3250
Tony.Davies@aar.com.au - Annabelle AlandSenior Associate,
Brisbane
Ph: +61 7 3334 3312
Annabelle.Aland@aar.com.au - Liam ChambersSenior Associate,
Brisbane
Ph: +61 7 3334 3170
Liam.Chambers@aar.com.au
