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Funds Management - Real Estate & Superannuation

Focus: Queensland developers and sustainability requirements

4 November 2009

In brief: Queensland developers will need to prepare to disclose more information to buyers in order to comply with the Building and Other Legislation Amendment Bill 2009 when it becomes law. Partner Tony Davies (view CV) outlines the changes.

How does it affect you?

  • Building covenants, community management statements and building management statements will need to be reviewed to ensure they do not contain a prohibition, requirement or restriction of the type that the Bill provides is of no force or effect.
  • Sustainability declarations will be required to be given to potential buyers (or made available for inspection) as part of the sale process for houses, townhouses and units.

Background

In June 2008, the Queensland Government issued a discussion paper, Improving Sustainable Housing Development in Queensland. The paper referred to various housing improvements to promote the use of less water and energy to minimise the impact on the environment.

Following the consideration of submissions on the discussion papier, the Queensland Government has introduced the Building and Other Legislation Amendment Bill 2009 (the Bill) into the Queensland Parliament on 29 October 2009. The Bill makes amendments to a number of Acts to promote awareness and implementation of sustainability regimes for buildings. Of particular interest to developers are the changes to Body Corporate and Community Management Act 1997 (Qld) (the BCCM) and the Property Agents and Motor Dealers Act 2000 (Qld) (the PAMDA), including the requirement for a sustainability declaration to be made available as part of the sale process for houses, townhouses and units.

At this stage, we understand it is proposed that the main provisions of the Bill will apply from 1 January 2010.

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Scope

The Bill:

  • stops bodies corporate and developers from restricting the use of sustainable and affordable design features such as light-coloured roofs, single garages, small houses and solar hot water systems. It does that by making building covenants and by-laws invalid to the extent that they contain such restrictions;
  • introduces mandatory completion of a sustainability declaration at the point of sale for houses, townhouses (Class 1a) and units (Class 2); and
  • makes consequential changes to the BCCM, PAMDA and the Land Title Act 1994 (Qld) to implement the above policies.

Building covenants / community management statements

The Explanatory Notes refers to a 'ban the banners' policy. That is, the Bill aims to stop bodies corporate and developers from restricting the use of sustainable building elements and features by reference to building covenants and body corporate statements / by-laws. Examples are given where restrictions are applied to 'light roof colours, smaller minimum floor areas, fewer bedrooms and bathrooms, types of materials and surface finishes to be used for external walls and roofs, single garages and the appropriate location for solar hot water systems and photovoltaic cells'. Other than solar hot water systems and photovoltaic cells, the provisions do not apply where a contract or other agreement, such as a lease/sub-lease, community management statement or by-law, is either in effect or entered into before the commencement of the relevant sections.

A body corporate will still be able to apply appropriate operational controls over the use of sustainability features to reduce any adverse impacts on affected neighbours. The Explanatory Notes state: 'For example, bodies corporate may require roof finishes to have low reflectivity in cases where neighbours may be affected by glare or they may require that split solar hot water systems be used where the weight of roof storage units may not be supported by roof members'.

There are detailed provisions dealing with the nature of building requirements that are prohibited. In general terms, the amendments prevent prohibitions or requirements in regard of the following matters:

  • the use of a colour for a roof, if using the colour would achieve a solar absorbance value for the upper surface of the roof of not more than 0.55;
  • the use in a prescribed building of a window that is energy efficient;
  • the treatment of a window in a prescribed building to ensure that the window is energy efficient;
  • a person from occupying a house, terrace house and townhouse before particular landscaping, fencing, driveways or similar work is completed;
  • requiring a minimum floor area, minimum number of bathrooms or more than one garage;
  • requiring a minimum pitch for a roof;
  • approving the use of specified material or type of surface finish for the roof or external walls; or
  • approving installation of a solar hot water system or photovoltaic cells on the roof or other external surfaces.

Essentially, any prohibition or requirement in a document dealing with the above is of no force and effect to the extent of the prohibition or requirement. However, if it can be shown that, by not complying with the prohibition or restriction, there are potential adverse effects on the external appearance of the building or they unreasonably prevent or interfere with the person's use and enjoyment of the building or another building, the prohibition or restriction may still apply. Obviously, there will be a need for a detailed examination of all the prohibitions or restrictions in community management statements (CMS), building covenants and by-laws to see whether they are justifiable or not.

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Sustainability declaration

A sustainability declaration will have to be made available by sellers as part of the sale process for houses, townhouses and units. It is intended that this will:

  • increase community awareness of sustainability building features;
  • promote the relevance of sustainability features for the value of homes;
  • encourage sellers to add sustainability features; and
  • provide valuable information about how the features in an existing home compare to energy/water efficiency features of other homes.

Chapter 8A (Sustainability Declarations and Provisions to Support Sustainability Housing) of the Bill amends the Building Act 1975 (Qld) and contains more than 21 detailed sections that deal with the declaration requirements. The main provisions are as follows:

  • A seller of a house or unit, before it proposes to sell, invite an offer to buy or engage another person to sell or invite an offer to buy, must prepare and sign a sustainability declaration in the approved form and have it available to potential buyers. At this stage, the 'approved form' has not been published. It will be interesting to see the detail that is required to be included in the approved form. We can see a significant industry being created to supply sustainability declarations.
  • If a seller becomes aware that information about a 'feature' of the building included in a sustainability declaration is not correct, it must, as soon as practicable, update the declaration and sign it. This is similar to the further disclosure statement regime in the BCCM.
  • The seller must not publish an advertisement regarding the sale of a house/unit unless it includes information about where a copy of a building's current sustainability declaration can be obtained. Similarly, a seller must not give a person advertising material unless they also give a declaration or the person has a copy of a declaration. An exception is made where a property is open for inspection – in that case, a declaration should be clearly available for inspection.
  • If a potential buyer asks for a copy of a building's current sustainability declaration, the seller must give the potential buyer a copy.
  • Importantly, a buyer under a contract for sale cannot terminate the contract merely because the current sustainability declaration is 'incomplete or contains information that is false or misleading'. However, significantly, this 'no contract termination' is not expressed to apply where no declaration is given. That is, it merely refers to a declaration that is incomplete or contains information that is false or misleading. This is inconsistent with the Explanatory Notes, which states 'the sustainability declaration does not complicate the sale as it does not affect the validity of a sale contract when a sustainability declaration has not been completed'.

We have discussed the lack of reference to not giving a declaration in the 'no contract termination' provision with the relevant government department. They indicated that the intention was that non-compliance with the declaration process would not affect sale contracts. There is a provision that states that a breach of the declaration provisions does not 'give rise to an action for breach of statutory duty or another civil right or remedy'. However, we consider the Bill should expressly state that failure to give a declaration does not create a right to terminate a sale contract. In our view, this matter requires urgent clarification and we have requested that the department review the provision.

  • If a declaration is false and misleading in a material way, or otherwise prepared without the exercise of reasonable skill and care, and the buyer incurs loss or expense, the seller is liable to compensate the buyer for the loss through normal court proceedings.

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PAMDA amendments

The amendments to PAMDA substantially mirror the seller-imposed obligations contained in the Building Act, but impose them on the seller's agent. That is, they oblige a seller's agent to:

  • ensure a sustainability declaration is available as part of an advertising process;
  • have a declaration conspicuously displayed at 'open for inspections'; and
  • provide to a potential buyer a copy of the declaration on request.

The 'no contract termination' is the same as appears in the Building Act and does not make it clear as to the impact of not giving a declaration.

Transport noise corridors

Although beyond the scope of this Focus article, provisions are included in the Bill to enable areas of land to be identified as transport noise corridors in order for relevant building assessment provisions to apply. In general terms, land within 100 metres of State-controlled roads or a railway line may be designated as a transport noise corridor. In some cases, this distance may be increased to 250 metres, depending on noise levels generated from the road or rail line.

One of the purposes of designation is that potential buyers making local government searches will receive notice of the designation.

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BCCM amendments

These amendments provide that a CMS (whether in its by-laws or any architectural or landscape code) must not include provisions that are of no force or effect under the relevant provisions of the Building Act, Chapter 8A Part 2 (Provision to support to sustainable housing).

Penalties for non-compliance

Generally, penalties for each non-compliance are:

  • under the Building Act, up to $2000;
  • under PAMDA, up to $10,000.

In addition to the statutory penalties, we are concerned about buyers making compensation claims because of a false or misleading declaration. Misleading and deceptive conduct claims under the Trade Practices Act 1974 (Cth) may also be used by buyers in respect of either failure to give declarations or incomplete/misleading declarations. While the Bill seeks to remove 'an action for breach of statutory duty or other civil right or remedy', that would not provide protection from Commonwealth legislation.

Building management statement

The Land Title Act has been amended to provide that a registered building management statement (BMS) is taken to not be registered to the extent it includes a prohibition, requirement or restriction that, under the Bill, has no force or effect. That only applies to a BMS registered after the commencement of the section.

However, the Registrar of Titles may refuse to register a BMS if it is satisfied that it is in breach of the above provisions. This is of particular concern because it could delay registration of plans and, as a result, settlements.

Our concerns

While the concept of informing buyers about sustainability of buildings is commendable, we have a number of concerns:

  • There needs to be absolute clarity that contracts of sale are not impacted by non-compliance with the amendments.
  • As the amendments generally do apply to relevant instruments (eg CMSs and BMSs) entered into from 1 January 2010, this means that developments being marketed off the plan, but not registered as at that date, will be caught by the new regime. Accordingly, in respect of strata developments, a further disclosure statement will need to be given to buyers due to any required changes to CMSs. If buyers can prove material prejudice, termination rights will exist through no fault of the developer.
  • Until we see the approved form, we cannot comment on how easy it will be to comply with the declaration requirements. However, developers will need to ensure that any required declaration is given, is accurate and does not mislead buyers.

Conclusion

Developers will need to gear up for more disclosure to buyers which, inevitably, will give scope to try to avoid contracts.

For further information, please contact:

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