Subdivision plans are not concrete until they've been approved by the council.

How contract misdescriptions can cost your client

Dealing with subdivisions before the lot size is finalised can be risky unless extra thought is put into writing the contract.

In one case, for example, an empty lot that was yet to be subdivided was advertised for sale as an 800-square-metre property *. An eager buyer made an offer on the property and the contract proceeded toward settlement.

However, once the proposed subdivision was assessed and approved by the local council, the buyer discovered that the council had altered the plans in order to leave room for lane access, making the lot 10 square metres smaller than originally advertised.

Such a change not only left the buyer with less land than expected, but also had the potential to impact upon the buyer’s future building applications, which can be influenced by lot size.

The now unhappy buyer requested that the contact be terminated on the basis that there was an error or misdescription of the property, as the plans attached to the contract had described the lot as being 800 square metres. The Joint Form of General Conditions (section 15.1) defines an error or misdescription of the property as “an error or misdescription in the Contract relating to: (a) a physical structure of physical feature of the Property; (b) a boundary of the Property; or (c) the area of the Land.

Even so, section 15.2 of the Joint Form of General Conditions states that an error or misdescription of the property will not entitle the buyer to terminate the contract or delay settlement. Reluctantly, the buyer proceeded to settlement.

Settlement is now completed, but the case isn’t over for the buyer and seller. As per section 15.3 and 15.5 of the Joint Form of General Conditions, the buyer is seeking compensation for the misdescription, which may lead to legal action and arbitration between the two parties.

While real estate agents have no control over council planning decisions, careful contract-writing can reduce the risk of settlement ending in a dispute over lot size.

For example, some land developers include a clause in the Offer and Acceptance specifying that the buyer cannot terminate the contract, delay settlement or make any claim resulting from a reduction of 3% or less in the size of the property. **

By accounting for the possibility of a change of lot size, you can help avoid disputes and extra costs for the seller after settlement.

* Details changed.

** This does not constitute legal advice. Please consult a legal professional for advice on writing complex contracts.

Image by Wyman Laliberte via Flickr.