Real estate regulation in Australia moved in great leaps in 2016, from strata law reforms to tax changes and identification requirements, and a whole lot more in between. Here is what you need to know.
Contract for Sale NSW
The NSW Law Society released the 2016 edition of the Contract for the Sale and Purchase of Land on 30 May 2016. The 2016 edition is available as an electronic version only, and the revised terms specifically address, amongst other things:
- Land Tax: From 1 July 2016, purchasers of land in NSW have enjoyed the added protection of land tax certificates. Vendors have been required to obtain land tax certificates from the Office of State Revenue stating whether there is any land tax owing on a property. Purchasers now receive disclosure of the land tax liability owing on the land at least 14 days prior to completion of contracts.
- CGT: From 1 July 2016, all purchasers of property for a price greater than $2 million must withhold 10% of the purchase price on account of the vendor's potential capital gains tax liability and pay this amount to the Australian Taxation Office (ATO), unless the vendor provides the purchaser with a clearance certificate from the ATO. Please see our further comments below.
- Swimming Pools: From 29 April 2016, the vendor disclosure requirements relating to sale of properties on which a swimming pool is situated took effect. Vendors of these properties must provide either a certificate of compliance or a certificate of non-compliance (together with detailed reasons for the non-compliance). If a certificate of non-compliance is attached to a contract, rectification obligations shift to the purchaser. Vendors of off-the-plan contracts and lots in a strata or community scheme comprising more than two lots are exempt from this disclosure obligation.
Verification of Identity (VOI)
From 1 May 2016, NSW has new identity verification rules in conveyancing transactions. The new Conveyancing Rules relate, amongst other things, to the requirements for lawyers and conveyancers to verify the identity of their clients and to check that they have authority to deal with the land.
VOI requirements already exist in WA, VIC, SA and Queensland.
NSW Strata law changes
Termination of Strata Schemes: From 30 November 2016, it will become easier for lot owners in a freehold strata schemes to end their strata scheme, so the site can be redeveloped or sold. The policy behind these changes is that since strata laws were first introduced around 50 years ago, more than 75,000 strata schemes have been registered. Of those, nearly 30% of the residential schemes were registered more than 30 years ago, and many were registered over already very old buildings.
The older buildings become, the more work and renovations are required, which is an expensive and undesirable necessity for lot owners. Selling or redeveloping the site is sometimes a more attractive alternative. Under the existing framework 100% of lot owners must agree to terminate or renew a strata scheme. With the changes taking effect from the end of this month, only 75% of lot owners need to agree, subject to a prescribed process that includes approval from the Land and Environment Court.
Inspection and Bonds: In March this year, we commented on the proposed inspection and bond regimes that will apply to the construction of high rise buildings of three or more storeys and with two or more dwellings. These protections are not expected to come into effect until mid-2017. The NSW Government has noted that more than a quarter of the state's population live in, own or manage strata accommodation. Of the strata schemes constructed in the last 10 years 85% are reported to suffer from at least one form of building defect. Owners corporations are often the losers when it comes to building defects in their strata scheme, incurring large costs in order to carry out rectification works.
NSW Priority Notices
On and from 1 October 2016 a person who intends to lodge a dealing, to give effect to a legal or equitable interest in land, may lodge a priority notice. A priority notice is only available in electronic format through the PEXA platform.
A priority notice provides an inexpensive and simple way of preventing new legal interests in the land being registered prior to registration of the relevant dealing on the title for land, and are effective for 60 days. This period may be extended (once only) for an additional 30 days if an application for extension is made while the priority notice is in force. Once expired the priority notice will be removed and will have no further effect. However, a fresh priority notice may be lodged.
Taxation of Foreign Buyers and the introduction of Clearance Certificates
Clearance Certificates: Australian vendors of property should apply online to the ATO to get a clearance certificate immediately a sale of relevant property is contemplated. Foreign vendors may apply to the ATO for a variation to reduce the withholding required to nil or some other amount, where the tax they expect to pay is less than 10% of the purchase price.
Ultimately, the foreign vendor should file an Australian tax return. The amount withheld by the purchaser is a tax credit to the amount otherwise payable by the vendor - so if withholding is made where the vendor has no tax liability, the vendor be entitled to a full refund on filing an Australian tax return.
Significant penalties will apply for a purchaser's failure to do so unless the vendor shows a clearance certificate or a variation certificate. An exemption is available where the vendor is in financial distress.
Additional Taxes: The eastern States have also imposed additional taxes on foreign buyers in 2016
- New South Wales: From 21 June 2016 foreign persons purchasing residential real estate have to pay a duty surcharge and land tax surcharge. Foreign investors will no longer be entitled to the 12 month deferral for the payment of stamp duty for off-the-plan purchases of residential property. Foreign persons will not be provided with a tax-free threshold for the land tax surcharge, nor will there be an exemption for the principal place of residence. This brings New South Wales into line with the other States on the eastern seaboard;
- Victoria: From 1 July 2016 foreign investors have been levied with a 7% investor surcharge on residential stamp duty (increasing from the current 3%). From 1 January 2017, it is also expected that the existing 0.5% land tax surcharge will increase to 1.5%; and
- (Queensland): From 1 October 2016 foreign investors have been levied with a 3% duty surcharge on acquisitions of residential real estate.
Outgoings and recovery of Land Tax: Queensland landlords with commercial leases, and their tenants, should be reviewing outgoings and land tax recovery clauses in leases, following the decision in Vikpro Pty Ltd v Wyuna Court Pty Ltd  QCA 225. There have been changes and rewrites of section 44A of the 1925 Land Tax Act over time, regarding the collection of land tax from tenants. The Queensland Court of Appeal has confirmed that landlords under commercial leases can recover land tax from tenants from 30 June 2010 onwards, even though recovery might not have been lawful at the time the lease was entered into.
Amendments to the Retail Shop Leases Act: From 25 November 2016, regulation of retail leasing in Queensland shifts significantly with amendments to the Retail Shop Leases Act 1994 coming into effect.
- Retail Shop Lease definition: Retail shops with areas greater than 1,000m˛ are no longer caught by the Act regardless of whether the lessee is a listed corporation, and there are other exemptions for non-retail businesses and ATM machine;
- No double dip: compensation for relation and demolition: The potential for lessees to double-dip on relocation/demolition compensation has been removed. Lessors are not liable to pay compensation under the Act when their leases expressly provide for such compensation. Lessors can also avoid paying compensation for disturbance, if the disturbance is within one year of entering into the lease and the lessor provided written details of the disturbance. Leases must now include specific details about the nature, extent and timing of refurbishments;
- Reviving the ratchet: Parties can now agree to rent ratchet clauses and multiple rent review mechanisms (with the provision of waiver certificates). Major lessee no longer need legal or financial advice;
- Marketing plans now required: If lessors wish to collect promotion or marketing levies, then lessors must provide lessees with annual marketing plans detailing proposed spending and activities; and
- Disclosure Statements: The world of disclosure statements has changed as well. Lessees can waive the seven-day disclosure period for the provision of documents (but the disclosure statements must still be provided prior to entering into the lease). Lessees can also waive the requirement to receive a disclosure statement within seven days of exercising an option, and when the disclosure statement for the option period is provided lessees can now withdraw their exercise of option notice for any reason, lessees can also terminate the option term in the first six months if no disclosure statement is provided.
WA Land Tenure reform
The anticipated Rangelands reform was put on hold in September 2016. This was the third attempt in the last 30 years at fundamental reform to tenure in the Western Australian Rangelands including greater diversity in land uses and more secure tenure. It is predicted that Rangelands reform is likely to be high on the agenda of whoever wins government in the March 2017 State election.
Clayton Utz communications are intended to provide commentary and general information. They should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from this bulletin. Persons listed may not be admitted in all states and territories.