Real estate 5 Minute Fix 19: WA significant developments, off-the-plan contracts, ACT residential tenancies, REIQ contracts

The Western Australian Government extend assessment pathway for “significant developments” under Part 17 of the Planning and Development Act 2005 (WA)

Developers will be given until 29 December 2023 to apply directly to the Western Australian Planning Commission (WAPC) for approval of “significant developments.”

In 2020, the Part 17 Pathway was introduced by the Western Australian State Government through the Planning and Development Amendment Act 2020.

In response to the COVID-19 pandemic, closed borders and reduced investment environment, the Pathway was designed to stimulate economic activity during the “recovery period.” This operated for an 18-month period between 7 July 2020 to 7 January 2022, by granting WAPC temporary decision-making powers to approve “significant developments.”

“Significant developments” are those that have an estimated cost of:

• in the case of a development that is wholly or partly in the metropolitan region – $20 million or more; or
• in any other case – $5 million or more.

The Pathway offered significant benefit to applicants, especially those likely to be stalled by contrary decisions of other authorities, including local councils.

The Western Australian State Government has now introduced a new “extended recovery period” through the Planning and Development Amendment Act 2022 (2022 Act).

Developers have from the commencement of the 2022 Act in late June 2022 until 5pm on 29 December 2023 to apply directly to the WAPC for approval of significant developments.

The “extended recovery period” is designed to give developers a greater degree of planning certainty and provide an expediated approvals pathway.

Proponents of developments that have already been approved may apply for a one-off extension to the substantial commencement date. 

Amendments to Residential Tenancies legislation

The ACT Government released an exposure draft of the Residential Tenancies Amendment Bill 2022. Public consultation on the bill closed on 26 August 2022, and the bill is expected to be tabled at the ACT Legislative Assembly in the next couple of months.

If passed, the Residential Tenancies Amendment Bill 2022 will:

• remove “no cause evictions”, including provide a narrower set of circumstances under which a tenancy agreement may be terminated;
• make it an offence for landlords or agents to solicit rent bids or advertise a rental property without a fixed rental rate;
• introduce mandatory minimum standards for rental properties, and permit tenants to terminate, seek a rent amendment or compensation where minimum standards are not met;
• make it easier for tenants to grow food and undertake gardening at their rental property; and
• make minor amendments to the Housing Assistance Act 2004 (ACT) to provide additional temporary housing assistance.

Additional inspection and publishing obligations for the ACT Planning and Land Authority

The final changes proposed by the Planning Legislation Amendment Act 2020 (ACT) came into effect on 27 August 2022. The ACT Planning and Land Authority is now required to:

• ensure the public register and associated documents are available for public inspection during business hours;
• publish on its website:
  • the public register information required under section 28(1)(a),(b) and (c) of the Planning and Development Act 2007 (ACT) on an indefinite basis;
  • all associated documents specified by the Act at clause 29(1)(b)(ii) - for a period of 5 years from the date the development application is publicly notified; and
  • all associated documents specified by the Act at clause 29(1)(b)(iii) - for a period of 5 years from the date the notice of decision of the development application is given; and
• allow persons inspecting the public register and associated documents to make copies of or take extracts from the register and associated documents.

Clarification of the Living Infrastructure Territory Plan changes

The ACT Government is making a technical amendment (TA2022-07) the Territory Plan to clarify the living infrastructure provisions introduced by Territory Plan Variation No. 369.

Territory Plan Variation No. 369 provided that:

• there must be at least 15% tree canopy coverage for multi-unit developments in RZ1-2 zones;
• there must be a minimum of 20% tree canopy cover for multi-unit development in RZ3-5 zones; and
• additional tree canopy obligations will also apply to single residential blocks.

The technical amendment clarifies that developments in established residential areas (including subdivided or consolidated blocks) are required to include more planting space and trees. Blocks purchased in new suburbs or via house and land packages on or after 1 January 2020 are exempt from the new requirements until the new Territory Plan comes into effect in 2023.

The living infrastructure provisions came into force on 1 September 2022.

New REIQ commercial contracts for Queensland

On 21 July 2022, the Queensland Law Society and the Real Estate Institute of Queensland (REIQ) released a new version of the:

• Contract for Commercial Land and Buildings (9^th ed); and
• Contract for Commercial Lots in a Community Titles Scheme (8^th ed).

The updated contracts provide a right for either party to extend the settlement date by up to 5 business days without cause.

Additionally, the new standard conditions impose an obligation on the seller to disclose to buyers (prior to signing the contract) if services to the land that pass through other land and are not protected by a registered easement, building management statement or statutory authority. Failure by a seller to disclose this information to buyers provides buyers with a right of termination.

The updated contracts reflect a substantial redrafting of the previous versions to bring the structure and format in line with the new residential land contract and include a number of other amendments to previous positions under the earlier versions of the REIQ Commercial Contract. The contract terms and conditions should be reviewed carefully by parties before being utilised.

Possible reform to the off-the-plan contracts

As part of the Queensland Government Property Law Review, the Queensland Government is seeking feedback from home buyers and developers regarding possible reforms to contracts for unregistered land (also known as “off-the-plan contracts”).

The two key issues that are being examined are:

• the use of sunset clauses by property developers to terminate contracts, and
• the early release of buyer deposits to sellers.

Sunset clauses

Sunset clauses are generally included in contracts to provide either party the right to terminate the contract if settlement does not occur by the “sunset date”.

Other jurisdictions (New South Wales, Victoria and the Australian Capital Territory) have recently introduced laws to control the termination of contracts under sunset clauses and the Queensland Government is seeking feedback on whether it should introduce similar laws.

Deposits

The current legislation provides that the deposit for an off-the-plan must be paid into a prescribed trust account and some sellers have sought to release the deposit from the trust account after it has been paid. The Queensland Government is seeking feedback on whether the legislation needs to be amended to clarify that a buyer’s deposit for an off-the-plan contract can only be released at settlement (or where the contract is terminated / rescinded).

Have your say

Interested parties are able to provide their feedback on the possible reforms by completing two separate survey forms (one directed at “buyers” and one directed at “developers”) that are accessible on the Office of Fair Trading website.

Residential rent freeze proposed

Dr A MacMahon MP (Greens member of South Brisbane) has introduced to Parliament the Residential Tenancies and Rooming Accommodation (Rent Freeze) Amendment Bill 2022 which is seeking to:

• introduce a two-year rent freeze on residential rents in Queensland; and
• cap annual increases thereafter to no more than 2% every two years.

The bill was referred to the Community Support and Services Committee for inquiry with the closing date for written submissions set for Monday 31 October 2022 at 5pm.

Tax increases for Queensland landholders

The Queensland State Government’s recent changes to the Land Tax Act 2010 (Qld) that will result in land tax being imposed based on the Queensland proportion of the total value of the Australian land owned by the landholder continues to be a hot button topic.

Further details of the reform can be found here.

New Conveyancing (Sale of Land) Regulations 2022 (NSW).

On 1 September 2022, the Conveyancing (Sale of Land) Regulation 2022 (NSW) commenced, replacing the 2017 regulations.

Aside from introducing small amendments to modernise language and remove outdated legislative references, the Regulation makes minor changes to the cooling off notice and several prescribed warnings that are included as part of the standard contract for sale terms. These revised notices can now be included in any contracts for sale exchanged from 1 September 2022 but must be included from 1 March 2023 when the 6-month transitional period ends.

Some additional changes for legal practitioners and real estate agents to note are:

1. the changes to clarify the disclosure requirements in relation to contracts for sale arising from options to purchase land (call options); and
2. the changes to confirm that a cooling off period does not apply to contracts for sale arising from options to sell land (put options), such that they are treated the same as options to purchase land.

On Monday 12 September 2022, the NSW Law Society released the 2022 edition of the contract for the sale and purchase of land, and it is now available to be purchased. The 2019 edition will be withdrawn from sale at the end of October 2022.

Caution! High Court of Australia rules that a third party to a contract can pursue an action for interpretation of the contract's terms

The recent High Court decision of Hobart International Airport Pty Ltd v Clarence City Council [2022] HCA 5 considered the circumstances in which an impacted third party to a contract could pursue an action for the interpretation of the contract's terms. In this case, the Council sought declaratory relief for the interpretation of a lease clause relating to the payment of notional council rates by the tenant.

Despite the established common law principle of privity of contract, the Court held that the Council had a sufficient and real interest in seeking declaratory relief for the construction of the lease clause, indicating that, where a third party to a contract has a strong financial or governmental interest in the operation of a contract, it might be open to the third party to seek a declaration about the meaning of that contract. However, the Court did clarify that a "mere commercial interest" will not be enough for a third party to have standing.

Practical tips

• Parties to a contract should consider the potential consequences of clauses that may confer a benefit on, or create an interest for, a third party.
• Care should be taken when drafting such clauses to ensure they are clear and to avoid unintended consequences.
• Parties to a contract should also consider that because third parties are not subject to the terms of the contract, they are able to bypass any alternative dispute mechanisms that may be set out in the contract and bring an action before the Court.
• If you are a third party, consider whether it is preferable to be a party to the contract, rather than trying to rely on this judgment and the burden of proving that you have standing and a real or sufficient interest in the seeking declaratory relief. The Court will only grant declaratory relief in exceptional circumstances, and a mere commercial interest in a contract will likely not be enough to obtain such relief.

Being diligent with due diligence!

In Mindchamps Preschool Ltd v M & W Zaki Pty Ltd ATF Zaki Group Trust [2022] NSWSC 881, the Supreme Court of New South Wales found that a breach of contract had occurred due to the defendant's failure:

1. to provide “all information reasonably required” and “reasonable access to the records of the Business” in the course of the plaintiff's due diligence process; and
2. to deal exclusively with the plaintiff under the term sheet (the Contract).

The plaintiff and the defendant entered into the Contract whereby the plaintiff had to pay a deposit of $500,000.00 to secure the purchase of various childcare centres owned by the defendant. The deposit was only refundable in the event the defendant’s breached their due diligence obligations and/or their obligation to exclusively deal with the plaintiff.

The Court held that the defendant’s breached their due diligence obligations by failing to provide prompt “access to the records of the business”. The Court commented that access suggested access on day one and not via further requests for information. Further, “reasonable access to the records of the business” was an obligation greater than merely putting into the data room summary information.

In relation the defendant’s obligation to exclusively deal with the plaintiff, the defendant’s advisor negotiating and meeting with third parties after the execution of the contract was deemed by the Court to be a breach of the plaintiff’s obligation to “immediately notify any other interested party that discussions are terminated and cease all further communication.”

In addition, the plaintiff simultaneously brought a misleading and deceptive conduct claim, alleging that the defendant made various representation that the due diligence documents were ready, the accounts for the business were audited and the virtual data room was complete. The misrepresentation case failed, with the Court finding that it was difficult to resolve this issue without a proper digital footprint of meetings and discussions, contemporaneous notes, calendar invites or emails referencing the meetings and discussions alleged.

This decision is a reminder of the importance of a clear paper trail, and undertaking prior due diligence planning and detailed scoping before entering into a commercial agreement. It also emphasises the importance of taking clear and intentional steps to terminate discussions with third parties once bound by exclusivity of dealing obligations.

Land Tax exemptions and refunds for recently built or renovated homes.

The State Taxation and Treasury Legislation Amendment Act 2022 (Vic) has introduced a new exemption for land tax for land on which a principal place residence is being constructed or renovated. It replaces the previous section 61 refund under the Land Tax Act 2005 for the 2023 tax year onwards.

A qualifying homeowner may retrospectively apply for an exemption for any of the 2019-2022 tax years if construction or renovation commenced before 1 January 2022 but finishes after 1 July 2022. A homeowner may also still apply for a refund if construction or renovation was completed before 1 July 2022. To receive the land tax exemption in any land tax year, the qualifying homeowner must satisfy the following conditions as at 31 December in the preceding year:

• the homeowner did not use and occupy the land as their principal place of residence;
• construction or renovation works had started;
• construction or renovation works have not yet completed;
• the homeowner intends to continuously use and occupy the land as their principal place of residence for at least six months commencing on or before the earlier of the date which is:
  • 6 months after the construction or renovation is completed; and
  • 4 years after the start of construction or renovation;
• no income has been derived from the land; and
• the homeowner must not be entitled to another principal place of residence exemption for any other land.

The exemption is available for a maximum period of 4 calendar years after the year in which construction or renovation commences.

Demolition vs redevelopment in retail leases

In Zen Holistic Health Group Pty Ltd v Bacchus March Centre Pty Ltd (Building and Property) [2022] VCAT 716, the Victorian Civil and Administrative Tribunal (VCAT) held that the concept of demolition under the Retail Leases Act 2003 (Vic) is different from the concept of redevelopment.

The case involved a tenant under a retail lease being provided a demolition notice from the landlord notifying the tenant of its intention to redevelop the centre which would involve the termination of the tenant’s lease and the subdivision of the leased premises into two new tenancies.

VCAT held that the landlord’s proposed works did not constitute a demolition within the meaning of section 56(7) of the Retail Leases Act 2003, being a "substantial repair, renovation or reconstruction of the building that cannot practicably be carried out without vacant possession of the premises". The Tribunal considered the dictionary definitions of “demolition”, “renovate” and “reconstruct” and held that a "redevelopment encompasses bringing something to a more advanced or developed state" whereas demolition "is premised on the subject building requiring building work, either because of disrepair or dilapidation, or the requirement to otherwise reinstate it to its original form". It was held that the proposed redevelopment by the landlord, which involved subdividing the leased premises into two separate premises, appeared not to fall within the concept of demolition and the tenant was granted an injunction to prevent the landlord from terminating the lease until the matter could be determined at trial.

In light of this decision:

• landlords of (and purchasers of buildings subject to) leases which include demolition clauses should carefully consider the extent of any proposed future works and consider whether those works constitute "demolition" or "redevelopment" before purporting to invoke any demolition clause; and
• landlords should ensure that any demolition notice provided to a tenant contains sufficient details of the proposed works to show a genuine proposal to carry out a demolition (being a substantial repair, renovation or reconstruction and not a redevelopment) which cannot practicably be carried out without vacant possession of the relevant premises.

When are premises “open to the public” and considered “retail” premises?

A recent decision of the Victorian Civil and Administrative Tribunal (VCAT) considered, among other things, the meaning of “open to the public” for the purposes of determining whether premises were “retail premises” for the purposes of the Retail Leases Act 2003 (“RLA”).

The tenant used premises to sell steel products to customers, including to members of the public from the premises, with the preferred method of selling being through prearranged sales meetings. Members of the public could gain entry to the premises through a security door through an office which was kept locked and also through warehouse doors with customers being escorted by a staff member at all times.

The tenant has asserted that the lease should fall under the application of the RLA on the basis that the premises were open to the public and therefore retail premises. The landlord sought a declaration that the RLA did not apply and an order for payment of arrears of outgoings by the tenant. The tenant sought a declaration that the Act did apply and an order that certain amounts not recoverable under the RLA be repaid.

VCAT held that the lease was not a “retail premises” lease within the meaning of the RLA as the ultimate consumer test was not satisfied and, more importantly, the premises were not “open to the public” in the required sense.

Ultimate Consumer Test: It was found that the ultimate consumer test (from CB Cold Storage Pty Ltd v IMCC Group (Australia) Pty Ltd [2017] VSC 23) was not satisfied on the basis that there was no evidence that the tenant’s sales from the premises were made to ultimate consumers. The tenant acknowledged that it was wholesaling from the premises and the Tribunal was therefore not persuaded that the premises were used wholly or predominantly for retail sales to ultimate consumers.

Open to the public: VCAT also accepted that whilst a member of the public could attend the premises during business hours and make a purchase, for reasons including that:

• the means of access to the premises were restricted;
• a member of the public could not enter the warehouse unaccompanied; and
• there was limited signage at the premises,

it was not persuaded that the premises operated as a retail premises as required by the RLA.

This decision confirms that VCAT will assess whether a premises is “open to the public” in a practical way and that the presence and visibility of business signage, along with open access for customers to freely enter and purchase goods or services from the premises is important in determining if premises are “retail premises” under the RLA.