Real estate: 5 Minute Fix 03

New regulations relating to building cladding

Several States have started taking action to address the widespread use of flammable building cladding in high-rise constructions following widely reported building fires both locally and overseas (such as the Grenfell Tower fire in London). We round up the latest in Victoria, New South Wales and Queensland here.

GST withholding obligations arising before settlement

Under the new GST withholding regime for new residential premises or potential residential land which commenced on 1 July 2018, in most cases, a purchaser's obligation to withhold an amount for GST and pay it to the ATO will arise at settlement when the balance of the purchase price is paid and the deposit is released to the vendor.

However, a purchaser's liability to pay the GST amount to the ATO can crystallise prior to settlement when consideration other than a true deposit is paid prior to settlement. Accordingly, caution should be used when dealing with payments purporting to be deposits. In particular:

• if a deposit is released prior to settlement (whether by agreement or under legislation eg. pursuant to section 27 of the Sale of Land Act 1962 (Vic)), the GST withholding liability may arise at the time of the release of the deposit and the purchaser may be liable to pay the GST amount to the ATO at that time and not on settlement;
• if a deposit exceeds 10% of the purchase price, the ATO may not consider this to be a true deposit and a GST withholding liability may crystallise on payment of the deposit; and
• if only part of a deposit is paid or a deposit is paid by instalments, this may not be considered to constitute a true deposit by the ATO and so could crystallise the GST withholding liability.

Further, in respect of options:

• if an option may be characterised as a conditional contract of sale (rather than an irrevocable offer), the payment of the option fee may trigger GST withholding obligations; and
• if an option fee is treated as a deposit upon the exercise of the option, the ATO may also not consider this to be a true deposit.

Restrictions on sunset clauses in Victorian off-the-plan contracts

The Sale of Land Amendment Bill 2018 (Vic) proposes to limit the ability of developers to rescind an off-the-plan contract of sale because either a plan is not registered or an occupancy permit is not issued before a specified sunset date. Before rescinding an off-the-plan contract of sale, a developer will have to first obtain a purchaser's consent. In obtaining that consent, the development must give reasons why the contract of sale is to be rescinded and the reasons for any delays in registering the plan or issuing an occupancy permit. A purchaser will have 28 days to respond to the request and will not be obliged to consent.

In its current form, the restriction will apply to all off-the-plan contracts of sale regardless of when they were entered into and will apply to any attempted rescissions after 23 August 2018.

If a purchaser withholds consent, the Bill proposes to enable developers to seek an order from the Supreme Court of Victoria to rescind a contract of sale pursuant to a sunset clause.

The Bill, when passed, will mean that the treatment of sunset clauses in Victoria will be similar to NSW where limitations on the abilities of developers to rescind under sunset clauses have been in place since later 2015. These developments in Victoria may be indicative of a trend to introduce legislative limitations on developers' rights in those jurisdictions experiencing a surge in off-the-plan contracts for sale.

For more information, see: Riding off into the sunset – what you need to know about changes to the Sale of Land Act 1962 (Vic)

Protections for long-term residential tenancies in Victoria

The Residential Tenancies Amendment (Long-term Tenancy Agreements) Act 2018 (Vic) which will come into force on or before 1 February 2019 will extend the protections afforded to tenants under the Residential Tenancies Act 1997 (Vic) to residential leases for terms which exceed five years. Previously, the Act only applied to residential tenancies of five years or less.

Mandatory electronic lodgement of dealing combinations in Victoria from 1 October 2018 and WA from 1 December 2018

Victoria

As part of the move towards 100% electronic lodgement of land instruments in Victoria, version 5 of the Registrar's Requirements for Paper Conveyancing Transactions provides that from 1 October 2018, the following instruments, whether lodged by themselves or in combination with any other instruments in the following list, must be lodged through PEXA:

• transfers;
• mortgages;
• discharges of mortgage;
• caveats;
• withdrawals of caveat;
• applications by legal personal representatives; and
• applications by a surviving proprietor.

Paper instruments for the above dealings will no longer be accepted by Land Use Victoria after 1 October 2018.

However, the following exceptions will continue to apply:

• where an existing paper instrument has been signed prior to 1 October 2018;
• if in a combination of instruments, a party is not represented by a conveyancer or lawyer;
• if a folio of the Register cannot be dealt with in an electronic lodgement network;
• if an instrument affects more than 20 titles;
• if a transfer is of a type which is not currently available electronically, such as:
  • transfers creating an easement;
  • transfers of an interest (eg. a lease);
  • transfers of part of land in a folio;
  • transfers of a tenant in comment's share; and
  • transfers that cannot be assessed for duty using the Victorian State Revenue Office's Duties Online system (eg. where an exemption is to be applied for); or
• if a survivorship or transmission application is not available electronically, such as a survivorship application by an interest holder.

It is intended that all Victorian land instruments will be lodged electronically from 1 August 2019.

For more information, see: Registrar's Requirements for Paper Conveyancing Transactions (Version 5)

Western Australia

Similarly, in WA from 1 December 2018, all standalone and combinations of transactions available in PEXA (including transfers, mortgages, discharges of mortgage, caveats and withdrawals of caveats) must be lodged electronically through PEXA.

For more information, see: Landgate Bulletin No. 306 - Extension of transition period for electronic lodgement of eligible land title documents

Greater protections for off-the-plan purchasers in NSW

The NSW government has announced an intention to introduce new laws in late 2018 to provide further protections to off-the-plan purchasers. The foreshadowed changes include:

• a vendor disclosure regime that will require developers who sell off-the-plan to provide more detail about the development to purchasers. Off-the-plan contracts will need to attach a Disclosure Statement which must:
  • include a copy of the proposed plan including details of easements and covenants;
  • for strata and community titles, include proposed by-laws; and
  • set out a schedule of finishes where building work is required as part of the contract;
• developers will have to notify purchasers of changes made during construction. If a purchaser will be materially impacted by a change, they will have the right to rescind the contract or claim compensation;
• existing sunset clause protections will be strengthened by widening the definition of "sunset clause";
• the cooling-off period for off-the-plan contracts will be extended to 10 business days and deposits will be required to be held in a controlled account; and
• parties will have greater flexibility to enter into electronic agreements, including signing documents electronically.

For more information, see: Power to the purchaser – what to know before you sell off-the-plan in NSW

NSW Strata Building Bond and Inspection Scheme update

The Strata Schemes Management Amendment (Building Defects Scheme) Bill 2018 (NSW) was passed by Parliament on 19 September 2018 and is now awaiting assent.

The amendments to the strata building bond and inspections scheme include: 

• new investigative powers for Fair Trading NSW to enable verification of the amount of the contract price or building bond;
• developers must lodge a building bond before applying for an occupation certificate (instead of lodging at any time before an occupation certificate is issued);
• developers and owners corporationsare to agree on the amount to be released from a building bond for fixing of identified building defects. Failing agreement, the Commissioner for Fair Trading will determine the amount to be released;
• a proposed offence for developers for providing false or misleading information regarding the amount required to be secured by a building bond; and
• an increased maximum penalty for a developer for failing to lodge a building bond from 200 penalty units ($22,000) to 10,000 penalty units ($1,100,000).

Interim Occupancy Certificates to stay for an extra 12 months in NSW

The ability to obtain interim occupation certificates has been extended by 12 months to 1 September 2019. An amendment to Regulation 18 of the Environmental Planning and Assessment (Savings, Transitional and Other Provisions) Regulation 2017 (NSW) has now been made.