Real estate: 5 Minute Fix 06

Technology and legal services – vendor due diligence

Contracts are at the core of legal relationships, so getting them right is crucial. But that can take a lot of work, so anything that can reduce the time it takes will be a boon to lawyers and our clients.

We have developed a bespoke tool through our Relativity platform which will help our lawyers review contracts more efficiently, thus improving turnaround time and saving our clients' money. The key benefits of the bespoke tool are:

• we can conduct rapid high-level investigations on discrete issues on demand;
• we can break down our review based on topics, rather than a traditional document-by-document basis which means we can respond to our clients' needs with a high level of agility;
• we can provide our clients with a portal which gives them real-time insight into the progress of our review which gives certainty around timeframes to assist with managing the project; and
• our clients have access to the bespoke tool, thus creating a central reference point for all of the disclosure material.

This platform enables our highly experienced team to conduct our legal review more efficiently and flexibly by using search algorithms the Clayton Utz real estate legal team has designed and developed.

Learn more here.

March 2019 CPI Quarter

On 24 April the Australian Bureau of Statistics released the following CPI (All Groups) for the March 2019 quarter:

• no increase for the March 2019 quarter (compared with the rise of 0.5% in the December 2018 quarter); and
• 1.3% rise over the 12 months to the March 2019 quarter (compared with the rise of 1.8% over the 12 months to the December 2018 quarter).

Generally we are seeing a move away from CPI-indexed rents to fixed increases in leases currently being negotiated. This shift may be because of the recent relatively low increases in CPI, and a level of uncertainty as to where CPI will go. 

Proposed first home buyers 5% deposit scheme

Prime Minister Scott Morrison has outlined a major plan to help Australians buy their first home. As the Coalition government was re-elected, it will establish a scheme to offer loan guarantees for first home buyers so they could buy their property with a deposit of just 5% of the purchase price, known as the First Home Loan Deposit Scheme.

The Coalition government intends to borrow $500 million so it can invest money in the National Housing Finance and Investment Corporation (NHFIC), which will offer to guarantee the additional loan amount taken out by the first home buyer(s) to cover the difference between the 5% deposit and 20% of the value of the property.

Once implemented, which is anticipated to be 1 January 2020, the scheme would be available to a first home buyer with an annual income of up to $125,000  or a couple with an annual income of up to $200,000 where they are both first home buyers. The scheme would be capped at 10,000 loans every year, with the value of homes that can be purchased under the scheme to be determined on a regional basis, reflecting the different property markets across Australia. It is anticipated that the guarantee from the NHFIC would stay in place for the life of the loan, however the guarantee would cease should the first home buyer(s) refinance in a few years' time, usually once any equity in the property is created.

NSW: provisions governing rescission of off-the-plan contracts under sunset clauses to apply to existing contracts

On 22 November 2018 the Conveyancing Legislation Amendment Act 2018 received Royal Assent but the new provisions proposed to govern off the plan contracts (the new Division 10 Off the plan contracts, sections 66ZL-66ZU) did not commence and still await proclamation.

More recently the Statute Law (Miscellaneous Provisions) Bill 2019 proposes a further amendment to the (new) section 66ZU to ensure that rescission by a vendor under sunset clauses applies to existing contracts once the Amendment Act is proclaimed.

This means that regardless of when an off the plan contract has exchanged, a vendor may only rescind an off the plan contract under a sunset clause if:

• each purchaser consents in writing to the rescission; or
• the vendor has obtained an order of the Supreme Court permitting the vendor to rescind; or
• the recession is permitted by the regulations. Currently the regulations do not set out circumstances in which a vendor may validly rescind under a sunset clause.

Victoria: land transfers with complex duty assessments to be transacted online from 1 August 2019

Land Use Victoria has mandated that land transfers which involve complex duty assessments, currently managed via paper settlement, must be assessed and transacted online from 1 August 2019. Previously, complex duty assessments were assessed by the State Revenue Office following paper settlement. Following this change, where there is a complex assessment (subject to some exceptions currently not specified), duty must be assessed by the State Revenue Office at least 30 days prior to settlement, after which such land transfers may only be completed online.

This mandate:

• applies to not only lawyers and licensed conveyancers but also self-acting individuals; and
• means that close to 100% of land transfers in Victoria will occur online through e-conveyancing platforms like Property Exchange Australia (PEXA).

Further, in addition to applications to record a section 173 agreement which became available in PEXA on 4 March 2019, from 1 August 2019, the following dealings will be required to be lodged electronically:

• Growth Areas Infrastructure Contribution (GAIC) notices pursuant to section 201UB of the Planning and Environment Act 1987;
• land or work-in-kind agreements pursuant to GAIC provisions in section 201SLB of the Planning and Environment Act 1987;
• applications to amend the Register in accordance with Court or VCAT orders pursuant to section 103 of the Transfer of Land Act 1958; and
• retirement village notices pursuant to section 9 of the Retirement Villages Act 1986. 

Victoria: proposed increased duties on foreign purchasers from 1 July 2019

The State Taxation Acts Amendment Bill 2019 has been introduced to give effect to a number of proposed initiatives announced in the Victorian 2019-20 State budget.

The following two proposed changes will impact foreign purchasers who are looking to purchase land in Victoria:

• increase in the foreign purchaser stamp duty surcharge rate from 7% to 8%  for contracts entered into on or after 1 July 2019 (for residential land only); and
• increase in the absentee owner surcharge rate for land tax from 1.5% to 2% for the 2020 land tax year.

For more information on the Bill and its impact see our Alert "Victorian Budget 2019-20 – significant changes impending for corporate restructures in Victoria". 

Victoria: new stamp duty on development agreements

Currently, no stamp duty is payable on a development agreement where the developer's "economic entitlement" to share in the profits of the development is not 50% or more of the profits.

The State Taxation Acts Amendment Bill 2019  proposes to introduce stamp duty on development agreements (and potentially a broader range of documents). Under the proposal, if a development agreement relates to land with an unencumbered value of $1 million or more, the developer will be treated as acquiring a beneficial ownership in the land and will be required to pay stamp duty calculated on the developer's percentage interest in the profits multiplied by the unencumbered value of the land (even if the developer is not entitled to 50% or more of the profits). Certain deeming provisions are proposed which would, in some circumstances, deem a developer to be acquiring a 100% interest in the land and require the developer to pay stamp duty on the entire encumbered value of the land.

Developers should carefully consider these proposed changes when structuring future development agreements, especially where the development fee is to be calculated by reference to the sale proceeds or profits of the development. 

Victoria: changes to the Sale of Land Act 1962

The Sale of Land Amendment Bill 2019 received Royal Assent on 4 June 2019. The Sale of Land Amendment Act 2019 will amend the Sale of Land Act 1962 including in the following manner.

• In relation to off-the-plan contracts, developers may only rescind a contract pursuant to a sunset clause with written consent from the purchaser or by order of the Supreme Court. This will apply retrospectively from 23 August 2018 to all existing and future off-the-plan contracts.
• The Director of Consumer Affairs Victoria will be able to issue guidelines as to what "material facts" must be disclosed under the existing disclosure requirements of vendors and real estate agents.
• Greater protections will be introduced for purchasers of options to buy land as part of land banking schemes to develop land by subdivision, including:
  • any money paid for the option will be required to be held on trust until the registration of the plan of subdivision or the expiry of the option;
  • the vendor will be required to notify the purchaser of the registration of the plan of subdivision; and
• An option to buy land as part of a land banking scheme will expire if the event triggering the purchaser's right to exercise the option does not occur within five years of entering into the option.
• Terms contracts for residential land (other than residential land that is also agricultural land) for a price that is less than a prescribed amount will be prohibited.
• A vendor will be prohibited from selling residential land under a "rent-to-buy arrangement" unless the vendor complies with certain prescribed requirements. A rent-to-buy arrangement is an arrangement whereby the purchaser has a right or obligation to purchase residential land and pays rent for a period of occupation of that land for more than six months before the right or obligation to purchase that land arises.

Further, the Sale of Land Amendment Act 2019 will amend the ANZAC Day Act 1958 to prohibit auctions of land before 1 pm on ANZAC Day.

The above changes, other than that in relation to sunset clauses (in point 1 above), will be implemented by no later than 1 March 2020. 

Queensland: a paper certificate of title will no longer have legal effect as of 1 October 2019

A bill was passed in the Queensland Parliament on 26 March 2019 amending the Land Title Act 1994 (Qld). The amendments made will have the effect that, as of 1 October 2019, paper certificates of title (CT) for land in Queensland will no longer have any legal effect.

On and from 1 October 2019:

• the electronic title held in the Titles Registry will be the point of truth for ownership of (and other interests in) land in Queensland;
• there will no longer be the option to lodge a Form 19 – Application for Certificate of Title with the Titles Registry to obtain a paper CT;
• a paper CT will become an item of historic or sentimental value only; and
• a paper CT will no longer need to be deposited with the Titles Registry when dealings or instruments are lodged in respect of a lot. 

Queensland: extension of time for owners of buildings to comply with combustible cladding regime

The Building and Other Legislation (Cladding) Amendment Regulation 2018 commenced on 1 October 2018 and placed new obligations regarding combustible cladding on owners of up to an estimated 12,000 Queensland buildings.

Owners of buildings that are:

• privately owned;
• building class 2 to 9;
• type A or B construction; and
• build or modified since 1 January 1994,

are caught by the new QLD regime and are required to register and complete the following three-part combustible cladding checklist:

• Part 1: in order to identify whether a building has combustible cladding, an owner must complete an online Queensland Building and Construction Commission (QBCC) checklist by 29 March 2019;
• Part 2: engage a building industry professional to answer technical questions about the building and to confirm if the material used on the outside of the building is potentially combustible by 29 May 2019 (building owners can bypass this step and move straight to Part 3A if they are aware their building has combustible cladding);
• Part 3A: if a building is identified as having combustible cladding, the owner is then required to engage a fire engineer to prepare a building fire safety risk assessment and provide details of the fire engineer to the QBCC by 27 August 2019; and
• Part 3B: the final engineers report must be given to the QBCC by 3 May 3021.

Due to the delay in owners completing Part 1, the Queensland Government has decided to extend the deadlines for completion of Part 2 from 29 May 2019 to 31 July 2019 and Part 3A from 27 August 2019 to 31 October 2019. 

ACT: Case Update – replacement of roof tiles in a development with Class A and B units – maintenance or capital improvement?

A units plan in the ACT was made up of Class A and Class B units. The Class A units were apartments in a multi-unit building with shared roofs, whereas the Class B units were built as townhouses with their own roofs.

In Brudenall v the Owners Corporation of Units Plan No 202 (Unit Titles) [2018] ACAT 113, the respondent owners corporation commenced replacing old concrete roof tiles, seemingly across the whole strata complex, with Colorbond steel. The applicant, Sue Brudenall, owned one of the units in the units plan. She disputed that the Class A unit owners should be required to contribute to the cost of replacing the roofs on the Class B units.

The applicant argued that the respondent was not responsible for the cost of replacing the roofs on the Class B units because this amounted to capital improvement rather than maintenance, which was not within the scope of the respondent's obligations. The applicant argued that these obligations were limited to the repair of an existing structure and did not include complete replacement of the structure. If the work was not maintenance, there should be no obligation cast on the respondent to undertake it and there should not be a charge spread amongst all owners in the units plan. The applicant referred to a special resolution passed at an AGM in 2002 (Motion 5), which read:

"[t]hat pursuant to Section 51(3)(f) of the Unit Titles Act 2001 the Corporation be responsible to paint all buildings on the Class B units (being Units 1-7 inclusive) and to carry out roofing and structural repairs to all Class B units (being Units 1-7 inclusive) but excluding responsibility for internal painting and minor repairs of Class B units (being Units 1-7 inclusive)."

Section 51(3)(f) of the Unit Titles Act 2001 (ACT) has since been repealed but is replicated in section 24(1)(g) of the Unit Titles (Management) Act 2011 (Act). Section 24(1)(g) provides that an owners corporation must "maintain … all buildings on all class B units on the units plan" as authorised by a special resolution. Motion 5 reproduces the example given in the Act to section 24(1)(g).

The ACT Civil & Administrative Tribunal found that  "maintenance" involves keeping a building in good repair and working order. This would include the repair or replacement of parts of a building when they fell into disrepair or poor working order. The respondent was entitled to replace the roofs as part of its maintenance obligations. Over time, the condition of the roofs had deteriorated and it was no longer efficient to make repairs on an ad hoc basis. Furthermore, technology had advanced since the installation of the concrete roof tiling. The respondent was not limited to the former product in its choice of materials in order to conform to its obligation to maintain. Thus, the Tribunal found that the adoption of the Colorbond was not a capital improvement, and was within the scope of the respondent's maintenance obligations.

Owners corporations are granted significant flexibility when it comes to determining how best to carry out their maintenance obligations. In deciding whether to approve a special resolution, owners should not assume that certain works relating to Class B units will be of a capital nature, rather than maintenance. 

NSW: legislation update - Local Government Amendment Bill 2019 (NSW)

The NSW Government has introduced legislation to make important changes to the way Councils procure goods, materials and services. The changes include:

• lifting the threshold for requiring a tender from $150,000 to $250,000;
• removing the requirement for a rate for the purchase of goods, materials and services to be specified for certain contracts to be exempted from the requirement that a Council invite tenders before entering a contract; and
• exempting Councils from the requirement to invite tenders before entering into a contract if the contract is with an approved disability employment organisation or a prequalified supplier under the National Prequalification System for Civil (Road and Bridge) Construction Contracts.

QLD: Land tax changes announced in Qld Budget 11 June 2019

The Queensland 2019-2020 State budget introduced the following land tax changes which will apply from 30 June 2019:

1.         increased rates for companies and trusts with holdings above $5 million

2.         increased surcharge for foreign individuals

3.         a new surcharge for foreign companies and trusts

4.         Australian citizens and permanent residents living overseas will be assessed as resident individuals rather than absentees