Nominating a new purchaser under a contract of sale of land is fraught with risk. LPLC continues to see claims where purchaser clients enter into a contract (or option) to purchase land and then nominate a substitute or new purchaser after applying for a planning permit, building permit or undertaking other land development activities.
Subject to limited exemptions and concessions, under s32J of the Duties Act 2000 (Vic) (the Act), nomination after land development results in a sub-sale and a liability to pay a second amount of duty. This second amount of duty (commonly referred to as 'double' duty) would not have otherwise been payable if the nomination was made before the land development activity occurred.
Almost all claims LPLC have seen could have been avoided or defended had the practitioner advised the client at the outset of the retainer or prior to nomination, that double duty would be payable if land development occurred before nominating a new purchaser.
From LPLC’s claims experience, there are still misconceptions amongst some practitioners and purchasers about what land development means. Under section 3(1) of the Act, land development means any one or more of the following:
- preparing a plan of subdivision of the land or taking any steps to have a plan registered
- applying for or obtaining a planning permit
- requesting a planning authority to prepare an amendment to a planning scheme that would affect the land
- applying for or obtaining a building permit or approval
- doing anything in relation to the land for which a permit or approval would be required
- developing or changing the land in any other way that would lead to the enhancement of its value.
The SRO has issued Revenue Ruling DA-064v2 which provides detailed guidance on the activities which the Commissioner of State Revenue considers constitute land development. It is important that all property and conveyancing practitioners read and understand this ruling.
When acting for purchaser clients, there are generally two critical points in the transaction that practitioners can advise of the risks of nomination and double duty.
1. When first given the contract of sale of land by the client
Establish at the outset if the client intends to nominate and/or proposes to develop, renovate or alter the property they are buying in any way before settlement. This includes undertaking any preliminary steps such as lodging an application for a planning or building permit, drafting or re-drafting a plan of subdivision or doing anything in relation to the land for which a permit or approval would be required.
If the contract is already signed and the client is considering developing or renovating the property, it is important that applications for a planning or building permit or other land development activities only occur after nomination. Purchasers should ensure that any nominations are made as soon as possible to help avoid the risk of a second amount of duty being imposed on the transaction. Explain to the client clearly in writing the double duty consequences of nominating after land development activities and explain what land development means. Also warn that additional duty may also be payable if the nominee gives the named purchaser money and/ or some other consideration for the nomination.
While there is no prescribed form of nomination, a nomination form or document should be completed and signed by both the purchaser and nominee before any land development activities are undertaken.
If practitioners are retained before the client has signed the contract of sale of land, recommend that the client signs the contract in the name of the ultimate intended purchaser wherever possible.
2. Before the client nominates another person or entity to take a transfer of the land.
If the client provides instructions to nominate a different person or entity as purchaser, before preparing the nomination documents, practitioners should:
- check with the client whether they or someone on their behalf (such as an architect or town planner) has lodged an application for a planning or building permit or if any other land development activities have taken place
- provide written advice on the potential additional duty consequences of nominating after land development, even if you have previously advised on this issue
- advise the client that as named purchaser in the contact they will still remain liable for all obligations in the contract. If the nominated party defaults, the vendor can pursue recovery from them as the original named purchaser and
- ask the client to provide a written acknowledgement of the above advice provided and instructions to proceed.
LPLC encourages all property and conveyancing practitioners to conduct a review of their firm’s processes and precedents for acting for purchaser clients to ensure that clear duty advice and warnings are always provided, and that nominations are actioned early.
