Real Estate 5 Minute Fix 22: residential tenancy, zoning and tax reforms, current market rent

New Register of Foreign Ownership of Australian Assets commenced on 1 July

The new Register of Foreign Ownership of Australian Assets came into effect on 1 July 2023.

To read more on this topic, please see our recent article by Geoff Hoffman and Megan Williams.

Budget changes to impact certain property transactions

The Statutes Amendment (Budget 2023) Bill 2023 (SA) was introduced to Parliament on 15 June 2023. The Bill proposes to amend a range of legislation relating to the States recent budget, including changes to:

• reduce the taxable value of eligible build-to-rent land by 50%;
• increase the threshold for the first home owner grant to $650,000 for agreements commencing after 15 June 2023; and
• provide relief from duty for certain purchases of new homes and land.

Residential Tenancy Minimum Housing Standards to take effect shortly

Changes to the Residential Tenancies and Rooming Accommodation Regulation 2009 (Qld) introduce new minimum standards for rental properties in Queensland. These new minimum standards are aimed at ensuring that rental properties are safe, secure and functional.

The prescribed minimum standards set out a wide scope of factors that landlords must take into consideration, including ensuring that the Property:

• is weatherproof and structurally sound;
• is free from vermin, damp and mould,
• has fixtures and fittings which are in good repair and are not likely to cause injury;
• has locks on all external windows and doors;
• includes privacy coverings for all windows in rooms which tenants are reasonably likely to expect privacy (eg. bedrooms); and
• have a functioning cooktop (where a kitchen is provided).

These minimum standards take effect in a progressive manner and apply to:

• all new leases entered into from 1 September 2023; and
• all leases from 1 September 2024.

Landlords of residential properties should be aware of the new obligations and ensure that their rental properties satisfy the relevant standards.

Queensland Rent Freeze Bill scrapped

The Residential Tenancies and Rooming Accommodation (Rent Freeze) Amendment Bill 2022 (Qld) (Rent Freeze Bill) was introduced in August 2022 and was recently discharged in Parliament.

The Rent Freeze Bill intended to address the steep rent rises across Queensland, particularly in Brisbane by enacting a rent freeze to ensure that no landlord could increase the weekly amount of rent for two years after the commencement of the Rent Freeze Bill.

Committee opposition to Rent Freeze Bill

After reviewing the Rent Freeze Bill, the Community Support and Services Committee (CSS Committee) tabled a report in February 2023, recommending the Bill not be passed. The CSS Committee noted the Rent Freeze Bill did not address the key underlying cause of high rent prices – the supply shortage. Further, it found that studies showed that while rent freezes may provide temporary relief for tenants, landlords were more likely to significantly increase future rents to compensate for the temporary relief period. In essence, the temporary relief would be at the expense of future tenants.

The CSS Committee was also of the opinion that rent freezes would:

• disproportionately affect young and low-income earners;
• penalise landlords by limiting their ability to set rental prices to align with fair market conditions;
• discourage landlords from maintaining and upgrading rental properties; and
• disincentive investment in an already competitive rental market.

The Rent Freeze Bill was discharged on 11 May 2023.

Residential rent increase frequency changes

From 1 July 2023 residential landlords must not increase the rent payable by a tenant within 12 months of:

• the tenant's last rental increase at the premises; or
• if there has not been an increase in rent yet, the first day the tenant was required to pay rent.

This applies to all new and existing tenancies and overrides more frequent rent increases agreed in tenancy agreements in place before 1 July 2023.

These amendments do not prevent a landlord increasing rent more than once a year when tenants change (subject to certain limitations).

There have been some concerns raised about practices emerging in response to the above changes and the Queensland Government has now requested feedback from the industry regarding the effectiveness of these reforms to combat the rental crisis, including seeking comments as to whether the restriction on frequency of rental increases should apply to the actual property instead of the tenant's lease of the property (ie. should Landlord only be able to increase the rent once per year per property, regardless of whether there are new tenants moving in). Industry responses are due on 11 August 2023.

Determining "current market rent" under the Retail Leases Act 1994 (NSW): what standards must a valuer meet?

The Supreme Court of New South Wales has provided the first guidance on the standard of review required of a valuer under the Retail Leases Act 1994 (NSW), particularly the matters to which the valuer must have regard. The decision is significant for all retail landlords and tenants in NSW that have market rent review provisions in their leases (Hanave Pty Ltd v Nomad Sydney Pty Ltd (formerly Wine Nomad Pty Ltd) [2023] NSWSC 265)

To read more on this topic, please see our recent article by David Wilkie and Riley Taylor.

New incentives for affordable housing announced

The NSW Government has announced incentives to combat the housing crisis, focusing on improved pathways for developers who provide affordable housing.

It was announced that:

"Housing developments with a capital investment value over $75 million, which allocate a minimum of 15% of the total gross floor area to affordable housing, will gain access to the State Significant Development (SSD) planning approval pathway; and

These developments will also gain access to a 30% floor space ratio boost, and a height bonus of 30% above local environment plans."

First Home Buyer Legislation Amendment Act 2023

On 1 July 2023, the First Home Buyer Legislation Amendment Act 2023 commenced. The Act effected key changes to the eligibility of first home owners to access the first home owners scheme, and perhaps signals the emphasis that will be placed on addressing the housing crisis ahead of the handing down of the NSW Labor Government's first budget on 19 September 2023.

The key amendments set out by the Act include:

• First home owner duty exemption / concession period – First home buyers will be required to reside in their first home, as their principal place of residence, for a continual period of at least 12 months (increased from 6 months) in order to be eligible for an exemption / concession under the Duties Act 1997 (NSW).
• First home owner grant – The amendment to the First Home Owner Grant and Shared Equity Act 2000 (NSW) will require first home buyers to reside in their first home, as their principal place of residence, for a continuous period of at least 12 months, for them to be eligible for a First Home Owner Grant.
• Election to pay property tax abolished – The amendment to the Property Tax (First Home Buyer Choice) Act 2022 (NSW) will prevent a person from making an election to pay property tax rather than stamp duty on any transfer of land occurring on or after 1 July 2023.
• Increase of dutiable value under First Home Buyers Assistance Scheme – The amendment to the First Home Buyers Assistance Scheme means that the residential duty exemption threshold of an eligible agreement or transfer will increase from $800,000 to $1,000,000.

Land tax exemptions for build to rent developments

The Land Tax Assessment Amendment (Build to Rent) Bill 2023 was introduced to State Parliament in May.

The Bill proposes a 50% land tax exemption for up to 20 years of eligible build-to-rent developments, which will be available from the 2023-2024 assessment year.

An eligible build to rent development must be one or more buildings either constructed or substantially renovated from one use, such as commercial tenancies, for the purposes of build to rent accommodation. It may also be expanded through the building of additional build to rent dwellings.

The exemption applies to a build to rent development that:

• contains at least 40 self-contained dwellings available for three-year residential leases;
• are owned by the same owner or group of owners and will be managed by the same management entity; and
• are completed between 12 May 2022 and 1 July 2032.

There are certain exemptions that apply to the exemption, notably that:

• if parts of a build to rent development are used for unrelated purposes, such as for commercial activities or unrelated residential accommodation, the exemption will be proportionally reduced;
• if a lot or parcel of land contains a build to rent development, the exemption will apply only to the part of the lot or parcel of land containing the development; and
• if a build to rent development ceases to qualify for the exemption within the first 15 years, the owner of the build to rent development will be required to pay the land tax that was not assessed for the years the exemption applied (that is, a retrospective reassessment of land tax will apply).

Additionally, the Bill states that the occupation of the dwellings cannot be restricted to a certain "class of persons", unless:

• it is necessary to ensure public health or safety;
• the dwelling is social housing premises; or
• in prescribed circumstances.

The Bill aims to bolster the supply of rental properties in Western Australia to alleviate the current housing crisis.

Landgate to abolish Paper Duplicate Certificate of Titles on 7 August 2023

Following on from our December 2022 update here, Landgate has confirmed that from 7 August 2023 Duplicate Certificates of Title will be abolished from Western Australia's land titling system. This change comes through the Transfer of Land Amendment Act 2002. All existing Duplicate Titles will cease to be valid legal documents, and Landgate will not create or issue any new Duplicate Titles. To register dealings through Landgate, identity verification and establishing a right to deal on the property will continue to be required. Existing Duplicate Titles can be retained by the owner and do not need to be returned or destroyed.

The abolition of Duplicate Titles demonstrates the WA Government's continual support for electronic land dealings through eConveyancing and reflects the decline in use of Duplicate Titles for property transfers. Duplicate Titles have been optional in Western Australia for over 25 years and in 2021 over 99 per cent of property transfers involving a mortgage did not have a Duplicate Title issued.

These changes also necessitate changes to requirements for mortgagee consents. From 7 August 2023 Mortgagee consent is no longer mandatory for an:

• application by survivor (notice of death of a joint proprietor);
• application by personal representative (transmission by executor/administrator of deceased estate with evidence of probate or letters of administration);
• application to amend name of registered proprietor; and
• transfer changing tenancy only (no change in registered proprietors or shareholding),

although Landgate continues to suggest that owners (or personal representatives) still engage with their mortgagees before making these applications.

Mortgagee consents are still required for strata scheme and subdivisional applications and other land transactions where such consent is required by law.

The Land Regulation Amendments (Fees and Charges) Regulations 2023 (WA)

The Land Regulation Amendments (Fees and Charges) Regulations 2023 (WA) was introduced on 19 May 2023, with its operating provisions commencing on 1 July 2023.

The Regulations amend the schedule of fees and charges in the regulations listed below:

• Transfer of Land Regulations 2004 (WA);
• Community Titles Regulations 2021 (WA);
• Registration of Deeds Regulations 2004 (WA);
• Strata Titles (General) Regulations 2019 (WA); and
• Valuation of Land Regulations 1979 (WA).

Through the amendments, Landgate will increase most of its products relating to the sale of land, information, data imagery and valuation products by approximately 3.25%. Land titling and associated fees will also increase by approximately 8.20%.

Proposed Residential Tenancy Act 1987 (WA) Amendments

In an effort to strike a balance between tenants and landlords, the WA Government will draft major amendments to the Residential Tenancies Act 1987 (WA). These amendments will focus on improving the rights and protections available for renters and provide greater clarity for landlords. In the midst of the current rental crisis, it is hoped that providing this greater clarity on a landlord's rights to manage their own rental property will boost investment in the rental market.

Some of the proposed changes are:

• a prohibition on rent bidding, with landlords and property managers encouraging potential tenants to offer higher than the advertised rate;
• rent increases will be limited to occurring once every 12 months, changing the current rent increase scheme which can occur every six months;
• rentals must be advertised as a fixed amount, and not as a range;
• tenants will be permitted to keep pets in most cases. Landlords may only refuse a tenant keeping a pet if it is reasonable to do so and if they have consent from the Commissioner for Consumer Protection;
• tenants will be permitted to make minor modifications to the rental property, with landlords only being permitted to refuse these minor modifications on certain grounds. Tenants may also be required to rectify any minor modifications to the property;
• the release of security bonds at the end of the tenancy will be streamlined, allowing tenants and landlords to separately apply for how the bond payments should be disbursed; and
• any disputes over bond payments, pets or minor modifications will be referred to the Commissioner for Consumer Protection.

The current "without grounds termination" provisions will not be changed as part of the proposed amendments. This allows landlord to terminate a tenancy agreement for no specific reason at the end of the term, or at any point afterwards. For periodic leases, 60 days' notice is required, and for fixed term only 30 days' notice is required.

At this stage, Consumer Protection will consult with key stakeholders to refine the implementation details of the proposed changes.

Significant changes to the ACT's planning system

The Planning Act 2023, passed on 6 June 2023, represents a significant adjustment to the ACT's planning system as it implements an outcomes-based approach to planning, adopts the use of strategic planning instruments and streamlines the development approval process.

Reforms to ACT residential tenancy laws

The Residential Tenancies Legislation Amendment Act 2023 was passed by the ACT Legislative Assembly in March 2023. The Act introduces a number of changes which commenced on 1 April 2023 including:

• Removal of "no cause" evictions: Landlords are now only permitted to end a tenancy for one of the grounds listed in the Act. All "no cause" notices issued prior to 1 April 2023 remain valid.
• New grounds of termination: The amendment introduces a number of new grounds on which a residential lease may be terminated including:
  • either the tenant or the lessor has engaged in threatening, harassment, intimidation or abusive conduct towards the other party;
  • the landlord requires the property for a lawful non-residential purpose;
  • the landlord fails to comply with minimum housing standards; and
  • specific grounds for public housing, community housing or subsidised housing tenancies.
    
    

  A landlord must provide supporting evidence where it wants to terminate the lease to move in, sell, renovate, or convert the use of the rental property.

  All of the existing grounds of termination continue to apply being:

  • breach of standard residential tenancy terms;
  • significant hardship;
  • damage, injury or intention to injure;
  • false or misleading statements
  • aged care or social housing needs;
  • termination of fixed term agreements if premises is for sale;
  • failure to pay rent;
  • employer provided accommodation;
  • purported co-tenancy, assignment or subletting without consent;
  • repudiation;
  • affected residential premises or eligible impacted property.
    
    
• Minimum housing standards: All landlords must now indicate whether a rental property meets the minimum standard for energy efficiency for ceiling installation in any rental advertisements and lease agreements. Under the transitional arrangements, if between 1 April 2023 and 30 November 2026 the property does not comply, landlords will have 9 months from the commencement of the lease to comply with the standard.
• Prohibiting rent bids: It is a now an offence for landlords and agents to:
  • advertise all properties without a fixed amount listed for rent; and
  • ask or encourage tenants to bid more than the advertised rent for a property.
• Green initiatives: Tenants may now plant vegetables, fruits, flowers, herbs or shrubs (to a max of 2m in height) if existing vegetation or plants (including lawn) do not need to be removed to do so. Removable compost bins are also now permitted on rental properties. The Landlord's consent must still be obtained to these modifications but cannot be unreasonably refused.
• Retaliatory eviction: Tenant supports around retaliatory evictions have been expanded to include circumstances where a tenant has spoken to the media or published information related to their rental property or tenancy agreement. Tenants may now make an application to the ACAT as soon as they receive an eviction notice for an order to disallow the notice if they believe the eviction is retaliatory.

Health Infrastructure Enabling Act 2023

On 10 May 2023, the ACT Government announced that it intended to take over the existing Calvary Hospital site in Bruce ACT. The takeover is occurring by way of new legislation, rather than under the existing compulsory acquisition provisions in the Lands Acquisition Act 1994 (ACT).

The Health Infrastructure Enabling Act 2023 commenced on 3 July 2023. The legislation allows for a transition of the existing Calvary Hospital services to the ACT Government and enables the Territory to remove the public hospital land from the existing Crown Lease by way of variation. The Little Company of Mary will retain the Crown Lease relating to its private hospital facilities.

The Act permits the Territory Government to compulsorily acquire Block 1 Section 1 Bruce for the purposes of building a new public hospital and to expand public hospital services in the ACT. In addition, the Act terminates the existing Calvary Network Agreement. The termination of the Agreement must be on just terms, including provision of reasonable compensation.

Calvary Hospital is challenging the validity of the Act. While an initial Supreme Court decision upheld the validity of the Act, Calvary's challenge remains on foot and is impacting on the transition process. We will provide further updates as they become available.

Updates to ACT Revenue Legislation

The Revenue Legislation Amendment Act 2023 (ACT) was passed on 22 March 2023 and was notified on 11 April 2023.

Parts 1 and 3 of the Act commenced on 12 April 2023, and Part 2 (which amends the Duties Act 1999 (ACT)) and schedule 1 (which makes consequential amendments to the Land Tax Act 2004 (ACT) and Civil Law (Sale of Residential Property) Act 2003 (ACT)) will commence on a day to be notified by the Minister.

Sweeping stamp duty, property tax and debt levy reforms in the Victorian Budget 2023/24

The Victorian Government has announced several major reforms in the Victorian Budget 2023/2024. These include:

• a new property tax to replace stamp duty for commercial and industrial properties; and
• a new "debt levy" (targeted at property investors) for the purposes of paying off the State's substantial COVID-19 debt.

Annual property tax to replace stamp duty for commercial and industrial properties

One of the key components of the major reforms is the replacement of land transfer stamp duty with an annual property tax for commercial and industrial properties.

No draft legislation has yet been tabled, with the Victorian Government advising that it will consult extensively with business and industry over the next few months before the final package is announced at the end of the year.

However, based on the information available, it is anticipated that from 1 July 2024, a purchaser of commercial and industrial property will be able to elect to either pay stamp duty as an upfront lump sum or pay the amount of that stamp duty over a period of 10 years with a Government-facilitated loan (and interest). If an election is made to pay that amount over a 10-year period, then after that 10 year-period has elapsed, an annual property tax will be payable for the property at the rate of 1% on the unimproved value of the property. After a property has transitioned to the annual property tax, stamp duty will not again apply to the property.

The Victorian Treasurer has suggested that these measures are intended to allow businesses to be more flexible and may help businesses manage cash flow more effectively.

Property investors hit with "COVID-19 Debt Levy"

The Victorian Budget 2023/24 also announced the implementation of a "COVID-19 Repayment Plan", which is expected to apply for a period of 10 years. The Plan includes a "COVID-19 Debt Levy" (in the form of temporary land tax changes) which is set to have wide implications for property investors. Of significance is that, from 1 January 2024, it is expected that the following land tax changes will be rolled out and apply for a period of 10 years:

Tax-free threshold: The tax-free threshold for general land tax will temporarily decrease from $300,000 to $50,000. It is expected that the tax-free threshold for trusts will remain the same at $250,000.

Fixed charges for landholdings: Landholdings that are subject to land tax will also attract the following additional charges:

• for landholdings to which general land tax rates apply:
  • $500 for landholdings valued between $50,000 to $100,000; and
  • $975 for landholdings valued between $100,000 to $300,000; and
  • for landholdings valued over $300,000, a $975 fixed charge will apply, together with an increased rate of land tax by 0.1 percentage points; and
• for landholdings to which trust surcharge rates apply:
  • $500 for landholdings valued between $50,000 to $100,000; and
  • $975 for landholdings valued between $100,000 to $250,000; and
  • for landholdings valued over $250,000, a $975 fixed charge will apply, together with an increased rate of land tax by 0.1 percentage points.

It is expected that these measures will apply until 30 June 2033.

Businesses should seek legal and tax advice in advance of these measures taking effect to consider the implications on the business' capital and cash flow.

Reforms considered to "off the plan" sunset provisions

The Queensland Government has indicated it is developing plans to strengthen consumer protections for buyers of residential off the plan properties, by limiting circumstances in which contacts can be terminated under sunset clauses.

Sunset clauses generally allow either party to terminate an "off the plan" contract where settlement does not occur by the fixed sunset date.

Increasing construction costs and delays due to supply chain issues and labour shortages have brought this issue to the forefront, with concerns that developers are utilising these provisions in order to re-sell properties for higher values.

The State Government has invited peak bodies to provide submissions on this issue and now intends to limit the ability of developers to invoke sunset clauses in more limited circumstances.

If these changes are released, we will provide further details of the amendments, timing and potential ramifications.

Crackdown on stamp duty compliance and duty disclosure threshold increased

In its 2023/2024 Budget, the Victorian Government announced an increase in funding for the State Revenue Office in a crackdown on stamp duty compliance. This is expected to lead to increased scrutiny, reviews and audit activity of stamp duty compliance in the context of future commercial transactions.

The State Revenue Office also announced that the threshold for supplying records to the State Revenue Office for high value land transfer transactions on Duties Online has increased from $2.5 million to $3 million. More specifically, from 22 May 2023, for a transaction with a value that exceeds $3 million, copies of all records for that transaction must be provided to the State Revenue Office within 30 days after a transaction has been finalised (and this is without limiting the obligation to keep and retain records). Records for a transaction include supporting SRO forms, statutory declarations and other documents from which information entered into Duties Online was sourced (such as contracts, instructions from the taxpayer or their agents, valuations, wills and copies of grants of probate, and proof of purchase financial documents).