When Size Matters: In Strata Apartments
Bigger may not be better, but smaller isn't good enough either ...
For strata apartment buyers size does matter: even if developers tell them it’s their designs, layouts and finishes that make all the difference. So, this recent Victorian Supreme Court case that overrode sale contract provisions where some new apartments shrunk before completion and a few other strata changes were made is welcome news for buyers …
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Introduction
In off the plan sales of strata apartments, buyers get a draft strata plan with the layout and size of their new apartment and other development details but there’s also a contract clause that typically says that the developer can make changes to the development and that even if the shape, layout and size of apartments change [within limits] buyers can’t complain and still have to complete the purchase.
For size changes, the limit typically allows a reduction of up to 5% in apartment size.
The contract provision is necessary [for developers] because things change from the design of the building to completion due to approval, construction and certification requirements that can’t always be predicted.
Plus, most state laws about selling property include provisions protecting buyers from changes to a sold property [usually allowing them to cancel the contract without penalty] that need to be negatived or limited.
But a 5% reduction in apartment size is pretty significant for many buyers. It means a 5 sqm reduction in a 100 sqm apartment [which isn’t that big] and can make a big difference in usability depending on where that reduction occurs. And, less obvious changes to the rest of the strata development can also impact on strata owner and resident amenity.
These kinds of changes can cause many issues when completion comes for affected apartments when buyers find out they’re not getting what they thought and can’t do anything about it.
So, a recent decision by the Victorian Supreme Court that overrode contract provisions about size reductions and other changes is a welcome development for strata apartment buyers.
The Burger Case
The Burger case is about the off-the-plan purchase of two 2 bedroom apartments in West Footscray, Victoria where the sale contracts contained a clause that the buyers accepted and agreed that any changes made to the strata subdivision plan which altered the area of a lot by 5% or less would not be regarded as an amendment which materially affected the sale properties.
Section 9AC(2) of the Sale of Land Act 1962 [Vic] operates to:
oblige developers to give buyers written notice of subdivision plan changes within 14 days, and
allows buyers to cancel the contract within 14 further days if the change or changes ‘will materially affect the lot to which the contract relates’.
The developer changed the subdivision plan in a number of ways as follows.
Firstly, because the affected aparments needed a new or different structural wall each apartment was reduced in size from 96 sqm to 92 sqm, with most of the space being lost in the master bedrooms.
Secondly, there was also a change to the light court, reducing its width where it adjoined one of the apartments.
Thirdly, the parking spaces were changed: for one of the apartments from the top rack of the car stacker to the bottom rack which had a lower height; and; for the other apartment, the parking space was reduced in size from 14.35 sqm to 12.74 sqm [by reducing its length].
Fourthly, some of the land in the strata development [a nature reserve alongside the apartments that adjoined a creek] that was to be common property for one of the strata corporations in the development but subject to an easement to Melbourne Water was removed and transferred to Melbourne Water with an easement back to the strata corporation instead.
Fifthly, a common property landscaped area was moved from Owners Corporation 1 to Owners Corporation 2, which these buyers were not members of and, as a result, had no rights to use.
The apartment size reductions were less than the 5% allowed in the contract [actually 4.39%] but the buyers alleged that the reduction materially affected the apartments despite that. And, along with the other changes made to the strata subdivision, the buyers said that allowed them to cancel their contracts, which they did.
But, the developer argued that despite the changes it had made, the reductions in apartment size were acceptable, the other changes were not material and did not detrimentally affect the buyers, and, that the buyers had to proceed with thier purchases.
There was some debate in the case about versions of the subdivision plan that were provided by the developer over time, but the following drawing illustrates the impact of the changes to the subdivision plan on the size of each of the apartments with the yellow shaded areas showing the apartment size and layouts before and after the changes.
The Victorian Supreme Court made the following findings in reaching its decision about this dispute.
A ‘material affect’ under 9AC(2) of the Sale of Land Act 1962 is:
a change that affects the bundle of rights comprised in a property to an important or significant degree,
not necessarily detrimental, deleterious or adverse for there to be a material affect, so can be something less than that,
is a question of fact in the context of each property as to existence and degree, and
more readily found where the change has an adverse impact on the interests of a purchaser.
The changes to the master bedroom which reduced its size by 4 sqm were more than insignificant since it comprised an almost 25% reduction in the bedroom size, the bedroom was already small, the changed entry configuration reduced usability, and, it reduced natural light in the room.
So, the changes to the master bedroom had a material affect on the 2 apartments.
Despite the lack of detail and expert evidence on the effect of the change to the light court on illumination, it was also a change that had a material effect on one of the apartments.
The change to the car stacker location was not a change that had a material affect on the apartment.
Since there was no evidence presented about the impact of a shorter parking space, that was also not a change that had a material affect on the apartment.
The change in the character of the nature reserve was because it changed the buyers’ rights to exclusive use of the area as common property via their strata corporation membership, was also a material affect on thier bundle of rights in the apartments.
Removing the landscaped area from Owners Corporation 1 deprived the buyers of thier rights over that common property and was, therefore, also a material affect on thier bundle of rights in the apartments.
As a result, the Victorian Supreme Court upheld the buyers’ cancellation of the sale contracts and ordered that the developer refund the deposits they paid.
Conclusions
The case highlights how the character of changes to an off the plan apartment is as important as actual size reductions such that even small changes can sometimes permit buyers to get out of contracts. In this case, it was as much about what the developer did when making the apartment changes rather than the size of the apartment itself.
It also illustrates that common property and changes to the development outside the apartment can be relied on by buyers when complaining about changes to a strata development between when they bought off the plan and completion.
So, since most states have property sale laws with provisions that are similar to section 9AC(2) of the Sale of Land Act 1962, it is also a useful guide to the approach unhappy buyers may take when similar issues arise.
Finally, the decision also indicates to me that someone who actually understood how strata buildings, strata plans, common property and strata laws works was advising these buyers when the changes to the development occurred as they identified less obvious changes to the subdivision plan that many buyers and thier legal and other advisors would typically miss. So, it’s a lesson about the value of getting specialist strata advice.
November 08, 2021
Francesco …
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KEY DETAILS OF THE CASE:
Case Name: Burger & Ors v Longboat Holdings Group2 Pty Ltd, [2021] VSC 469
Judgement: http://www8.austlii.edu.au/cgi-bin/viewdoc/au/cases/vic/VSC/2021/469.html?query=
The Parties:
Buyers: Michaela & Jonker Andries Burger and Sylvian Jean-Marie Taupenas & Edwin Alvarez Velasquez
Developer: Longboat Holdings Group2 Pty Ltd