New disclosure regime for sale of freehold land in Queensland

By Leone Costigan

Until now, Queensland has not had a broad disclosure obligation for transactions involving the sale of commercial freehold land. In the second of our series on the Property Law Bill 2023 (the Bill) we look at the new disclosure regime that represents a big change to Queensland’s caveat emptor position.

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Why do we need the change?^[1]

Currently, sellers are required to disclose information to prospective buyers under a complex mix of common law, statutory and contractual obligations. The requirements also differ depending on the nature of the land in question.

The new regime proposes to extend disclosure obligations to all categories of freehold land (other than for proposed lots) and will also consolidate some existing disclosure requirements currently included in other legislation. Although in some cases the changes impose additional disclosure requirements on sellers, on the whole, the changes create a ‘one stop shop’ for almost all freehold land contract disclosure obligations.

Under the new disclosure regime:

• the seller must provide information that is within their knowledge or is readily available by search at reasonable cost to the seller; and
• the buyer will receive information in an accessible and easily understood form, and which should be of value in making their decision to purchase the property (primarily information on impacts on the title to the property and ongoing financial obligations).

Will all freehold sales be captured by the new requirements?

The starting point is that all freehold sales (other than for proposed lots) will be subject to the new rules, whether the land is commercial, residential, or a mix of something else. However, there are exceptions. Some exceptions relate to specific circumstances, and we will not go into those. Notable exceptions include:

• a buyer may waive its right to receive the disclosure documents by written notice before entering into the contract in circumstances where the buyer is related or where the contract price for the property is greater than $10 million (including GST).
• a seller need not comply with the disclosure obligations if the buyer under the contract is the Commonwealth, any state, any local government, any statutory body, any listed corporation, or any subsidiary of any listed corporation.

Community title scheme sales are already subject to disclosure requirements,^[2] but those requirements (other than for proposed lots) are moving to the new Bill and will also be updated. For example, the body corporate manager will issue a certificate to prospective purchasers rather than giving them copies of the body corporate reports to search through.^[3]

As noted, the Bill does not apply to proposed lots. This means that 'off-the-plan' sales will not be affected by this Bill but will remain subject to the extensive statutory disclosure obligations already in place.^[4]

As the disclosure regime only applies to freehold sales, leasehold acquisitions (including long-term leases such as state leasehold land) are not subject to the new requirements.

How and when must the disclosure be given?

Form of disclosure

Disclosure comes in the form of a prescribed statement and prescribed certificates, to be given with the statement, which must include the information prescribed by regulation and be signed by the seller.^[5] The disclosure must be accurate at the time it is given.

The new regulation is in the process of being finalised and will contain the proposed content of the disclosure statements.

Disclosure statements will be able to be given either as hard copy, by fax/email, or by electronic repository (eg being included as a document in a data room).

Disclosure to be given before contract entered into

The disclosure statement must be given to the buyer before a contract for the sale of the property is entered into – that is, either before or at the same time as the buyer signs the contract. For a typical sale by private treaty this timing is easy to identify. But for options and auctions there are some special rules due to their complexity.

Double disclosure for sale under an options?

If a property is being purchased under an option (call options, put options, or put and call options), disclosure must be given at the time the option agreement is entered into.

If the grantee who entered into the option is also the buyer at the time the actual contract is entered into, there’s no need to give disclosure again. But if the buyer is a different person (for example, the grantee nominates someone else to complete the purchase) then disclosure must be given again. This requirement will apply to options entered into after the introduction of the Bill and the option document will need to address this requirement.

Special rules for sale by auction?

The Bill proposes a modified regime for sale by auction, separating out buyers that register as bidders before the start of an auction from buyers that register after an auction has started.

Buyers who register before an auction starts should receive the usual prescribed disclosure statement. However, the explanatory note to the Bill proposes a simplified procedure (including displaying a physical copy of disclosure documents or displaying a link to an electronic copy) for a buyer that registered as a bidder after an auction has started and has not previously been provided with the disclosure documents.

For an in-person auction where a link to an electronic copy has been displayed, a buyer may request a physical copy of the disclosure statement and prescribed certificates at the auction before the auction finishes.

The Government will engage with stakeholders following the introduction of the Bill (within 12 months) to further review the provision of disclosure documents to buyers registering before and during an auction.^[6]

Can parties choose not to follow the disclosure regime?^[7]

Contracting out is prohibited. However, there are limited exceptions, and the buyer may also agree to waive the requirements in certain circumstances.

Automatic exemptions

There are other exceptions which will apply without the need for buyer waiver. For example, where a State or local authority is a seller or an existing tenant who satisfies the listed requirements is either selling or buying.

Waiver

There are categories of ‘exceptions’ which require the buyer to actually waive the seller disclosure requirement. As mentioned above, examples of these categories include where the seller and buyer are related parties or where the contract price is more than $10 million including GST (or such other amount as may be prescribed by regulation).

What happens if the disclosure is not given?

It will be important for sellers to comply with the disclosure regime, as the buyer gets the right to terminate the contract if no disclosure statement (together with any applicable prescribed certificate) is given (assuming there is no available exemption). The buyer can also terminate the contract if the disclosure statement or a prescribed certificate is inaccurate or incomplete and that inaccuracy or incompleteness relates to a ‘material’ matter affecting the property. [8] The right to terminate exists all the way up until settlement.

In cases where the seller has failed to comply with disclosure requirements under two different statutory regimes, the arrangements under the other regime will apply to resolve any conflict.  For example, say a seller fails to disclose contamination issues before the buyer signs the contract. At the point disclosure about the contamination is given, the buyer will have 21 days to decide whether to terminate (as provided for in section 408 of the Environmental Protection Act 1994 (Qld)), rather than the unrestricted right to termination right up until settlement provided in the Bill.

A welcome change – for the most part

The introduction of disclosure requirements to commercial land sales will no doubt add to the complexity and cost of transactions. On the flip side, the attempt to consolidate the seller disclosure requirements for all types of freehold land into one place should help with transparency.

Given the consolidation into the Bill of the community management lot disclosure for existing community title lots, it would also seem like a good idea to consolidate all disclosure requirements– including those for proposed or ‘off-the-plan’ lots. This will be something for future consideration.

The Bill is expected to be passed in the upcoming months.

As well as the changes outlined above, the Bill makes significant changes to other areas of property law. Read our first instalment in this series outlining the major changes to the rule against perpetuities as well as signing requirements for deeds and agreements, or see our final instalment to see how the Bill impacts on leases.

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^{[1] Inquiry into Property Law Bill 2023, Report No. 45, 57th Parliament, Legal Affairs and Safety Committee (Inquiry), April 2023 at page 3.}

^{[2] Body Corporate and Community Management Act 1997 (Qld) (BCCMA); Building Units and Group Titles Act 1980 (Qld).}

^{[3] Bill, cls 263-266; explanatory notes, pp 48-49.}

^{[4] For community title proposed lots the BCCMA and for ‘flat land’, the Land Sales Act 1994 (Qld)}

^{[5] Sections 4 and 5, draft Property Law Regulation 2023.}

^{[6] Inquiry at page 11.}

^{[7] Section 100, the Bill.}

^{[8] Section 104 the Bill}

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