Category: Property Law

Steering Committee endorses national business model of electronic conveyancing

The National Electronic Conveyance Office (NECO) has announced the development of a new body called the National Steering Committee the 6-US meeting on 30 March 2007.

Committee chairman Les Taylor, in a statement dated 18 March 2007, reinforced the need for the committee to have a national business model to ensure “common view” on the way toward electronic conveyancing (e-conveyancing).

About electronic conveyancing

Mr Taylor explained that E-conveyancing hopes to provide a “shared electronic workspace” for legal practitioners, conveyances, financial representatives and mortgage processors to:

* Prepare all necessary instruments to register changes in ownership and interests;
* Settle financial transactions (including payment of duties, taxes and any disbursements);
* Lodge their dealings with the appropriate Land Registry; and
* Receive confirmation of dealing lodgement and registration.

Every party to the transaction will provide information about transaction electronically rather than the paper-based approach.

The NECS model seeks to ensure that parties adhere to “strict security checks” and meet “certain threshold requirements” in order to use the new system. This includes the verification of identity via an “Australia Business Number Digital Signing Certificate” (ABN-DSC).

Digital conveyancing will replace the traditional physical swapping of legal deeds, manual signatures and drawing of bank cheques. Settlement, lodgement and notification of transaction details all occur electronically in one process.

Benefits of electronic conveyancing

According to both NECO and the Department of Land in Victoria, the benefits of e-conveyancing include:

* Eliminating the need to store bulky paper certificate of titles and mortgage documents;
* Eliminating manual drawing or depositing of bank cheques via a new Electronic Funds Transfer option, saving on bank clearance time;
* Easy access to all subscribers regardless of time or place;
* Allows for solicitors, conveyancers and financial institutions to cut down on the need for face-to-face settlements thereby improving efficiency and reducing costs.

The disadvantages of electronic conveyancing

There has been widespread debate over a number of potential concerns, including:
* Whether electronic conveyancing will make land titles registration more vulnerable to fraud;
* Consistency of the NECS model between states and territories; and
* Emerging technology problems such as outages.

The proposed system also does not cover:

* Preparation and exchange of contracts for sale;
* Pre-settlement investigations;
* Procurement of any insurances required by purchasers;
* Creation of loan documents and
* Processes for examining and registering instruments once lodged with a Land Registry;

NECS latest update – the National Business Model

Mr Taylor said in the latest Steering Committee meeting that “he sought and obtained from all the jurisdictions a commitment to the National Business Model as the basis for developing the national system”.

According to NECO, the Committee put its stamp of approval on:

* The National Business Model as the basis for national electronic conveyancing;
* Development of the detail of what is required as quickly as possible; and
* A “National Roadmap” as the basis for defining and implementing NECS, with the updating/republishing of the Roadmap documents with the relevant findings relating to risk, regulation and governance and of national consultation.

“The independent consultancy reports on risk assessment, regulatory review and governance together with the Progress Report on Consultation were well received,” Mr Taylor said. “Their findings will provide guidance in further developing the requirements for NECS and its supporting arrangements.”

The Committee has given its permission to proceed with the next stage of the project.

ASIC reveals latest host of disputes against property spruikers

Property developers around Australia have been at odds with the Australian Securities and Investments Commission (ASIC) recently. We will examine some of the disagreements which will be cautious reminders for developers to seek legal advice to help prevent a conflict with the powerful corporate watchdog.

Victoria

In March of this year Victorian-based property spruiker Henry Kaye fought proceedings in court over an alleged $18 million fraud, following an investigation by ASIC. The proceedings included accusations against Kaye that he unlawfully obtained $17.7 million in finance from St George Bank for property developer, Inkerman Developments. Kaye is alleged to have failed to disclose a letter to GIO in a meeting with St George Bank in June 2000.

According to ASIC, “Kaye’s company Oasis Investments bought 168 off-the-plan apartments to be built in St Kilda from Inkerman at a discounted price. Kaye then sold them at a mark-up to unsuspecting buyers.  He used deposit bonds provided by an agent of GIO Australia called Deposit Bond Australia, instead of a cash deposit apartments”.

He was charged with one count of obtaining financial advantage by deception and faces a committal hearing at the Melbourne Magistrates’ Court on 7 March 2007.
Queensland

On 9 May 2007, ASIC announced that “the Supreme Court of Queensland ordered the winding up of a Brisbane-based company Property Developers Fund Ltd (PDFL) on “just and equitable grounds”, following an application by the ASIC”.

The proceedings arose from PDFL raising capital from members of the public through offers of Cumulative and Participating Redeemable Preference Shares (CPRPS) and providing loans for property development.

ASIC said it’s winding up application “followed a Court ruling in March 2007 that the investors were shareholders, rather than creditors”. The Court was informed that the investor shareholders stood to suffer a “substantial shortfall” on their investment.

“ASIC assisted with the appointment of a liquidator when it became clear that this was the best course of action for investors,” said ASIC deputy executive director of enforcement Allen Turton.

According to ASIC, “the application was supported by the company’s directors and investors”.
NSW

NSW-based property developer Robert John Orehek, pleaded guilty in the Sydney District Court to two charges of fraudulent misappropriation amounting to $170,000, according to the NSW.

Mr Orehek, through a group of private companies he owned and controlled, raised mezzanine finance between February 2000 and November 2002 for prime residential property developments. According to ASIC, “Mr Orehek raised over $20 million by issuing Deeds of Loan to over 200 investors for his failed property development scheme” ASIC also reported that many of the investors were associated with the Hillsong Church in Castle Hill.

None of the proposed developments were ever completed and all of the companies in the Orehek group are now in liquidation. Nearly all of the investors have lost their money, according to the ASIC.

The matter has been continued for sentencing on 12 July 2007 in the District Court of New South Wales. A third offence of fraudulent misappropriation of $20,000 may be taken into account for the purposes of sentencing.

Parties Scramble in the Battle for Votes

A key voter issue in the forthcoming federal election will be housing availability and affordability. Only  a few months out from the election, politicians are battling to gain the upper hand in housing solutions as new figures and a wave of public sentiment support change.

The Housing Industry Association’s (HIA) in its most recent issue of “National Outlook” predicted that “if the affordability crisis is not addressed, it could remain until the end of the decade”.

“It’s time to be smart and fair about housing affordability, particularly with forecast growth in housing starts of only 3% over 2007/08 – a result that will barely touch the sides of the required lift in housing supply” said HIA Chief Economist, Harley Dale.
Did the States cause this Crisis?

A recent survey conducted by the Property Council of Australia found that 80% of respondents want the federal government to intervene in state and local government affairs to remedy the crisis. According to the Property Council, previous poll results announced in May attributed 53% of the blame for the housing affordability crisis to the state and local governments; 19% blamed the federal government.

Federal Treasurer Peter Costello blamed the crises on “delays in the release of land due to state governments. Further local council processes and the costs associated with state taxes and charges, including land tax and stamp duty, are to blame,” he said.

On the country’s east coast, Queensland is the only state to have announced what is purported to be a “Housing Affordability Strategy”.

In a joint statement, Premier Peter Beattie and Deputy Anna Bligh, announced a new Urban Land Development Authority. They say
that  “by next June, all local governments will be required to develop priority plans, which set out councils’ tactics for their key infrastructure networks”.

The Queensland government, they say, plans to designate sites where the Authority will undertake land use planning, amalgamation and acquisition of sites, and then “sell land to the private sector with approvals of the plans subject to affordable housing requirements”.

The government said “Operation of the Authority will be outlined in legislation to be introduced next month and it will begin operating by November”.

What is the part of the Federal Parties?

As soon as Labor concluded its National Housing Affordability Summit, the government acted. Community Services Minister Mal Brough, declared that the Commonwealth State Housing Agreement had “failed to deliver additional housing for those most in need” and that the federal government should “radically alter” its approach to the supply of public housing.

The government, he said, “will immediately invite expressions of interest from all parties, including state and territory governments, the non-government sector and the private sector such as major builders and any other interested individuals, groups or organisations, for their proposals and ideas on new and innovative approaches to using the available funds to increase affordable housing supply.”

The announcement followed one from the Treasurer, Peter Costello in which he revealed that he had written to state governments, the housing industry and land developers, to conduct an audit to identify land that could be released for new housing.
In his pitch to the electorate on the topic, Labor leader Kevin Rudd announced a $500 million Housing Affordability Fund, which included the following:

* Innovative, development specific proposals from state governments that cut development costs will also be considered;
* Local governments will apply through a competitive process to receive grants to cover some of the cost of new housing infrastructure, and
* Local governments, in conjunction with the private sector, will have to outline how their proposals will cut red tape and reform the planning processes.

“Labor would consider expanding the program subject to the private sector’s ability to increase the supply of homes”, said Mr Rudd.

These announcements illustrate that both parties want to claim the vote of the “mortgage belts”.

The Federal Court Rules on Vendor’s Liability for GST on a Forfeited Deposit

In the recent decision of Reliance Carpet Co Pty Limited v Commissioner of Taxation [2007] FCAFC 99 (5th July, 2007 called “the Reliance decision”) the full Federal Court issued a significant ruling on a vendor’s liability to pay GST (Goods and Services Tax) on a forfeited deposit for the sale of real property.

Background to the Reliance Case

In 2001 the seller/vendor entered into an option agreement with the purchaser for consideration of $25,000.00 (“the option fee”) for the purchase of the property for $3,000,000.00 less the option fee. Eventually the purchaser exercised his option to purchase the property. Thereafter the parties agreed to a contract for sale for the sum of $2,975,000.00 plus GST.

The contract for sale provided that the purchaser pay a deposit of $297,500.00 with the balance of $2,677,500.00 to be paid on settlement. The purchaser was also granted an option to defer the settlement date for six months if the purchaser was required to relocate its business. The deposit was released to the vendor after which the purchaser exercised its option to defer settlement for six months.

The purchaser failed to pay the balance of the purchase price by the delayed settlement date and the contract was rescinded with the deposit forfeited by the purchaser.
Objection lodged with the ATO

An objection had been lodged with the Australian Taxation Office (“the ATO”) to an assessment of a GST by the vendor under the contract for sale, with respect to a purchase deposit that was forfeited following the rescission of a property sales contract.

The ATO ruled that a GST-registered vendor, who is selling real property in the course of carrying on an enterprise, will be liable for GST in the case of a forfeited deposit following a default by the purchaser under the contract for sale.

An appeal on the ATO ruling was made to the Administrative Appeals Tribunal (“the AAT”), which upheld the ruling of the ATO.

Subsequently the vendor appealed the decision to the Federal Court which held that the vendor was not liable for GST in respect of a forfeited deposit.
The Legislation

GST by law is payable on “taxable supplies” which are supplies sold as consideration with respect to a contract for sale. Consideration is to include “any payment or any act…in connection with a supply of anything”.

However, Section 99-5(1) of the A New Tax System (Goods and Services Tax) Act 1999 (“GST Act”) states that a deposit will not be treated as consideration unless the deposit:

(a) Is forfeited because of a failure to perform the obligation; or
(b) Is applied as all or part of the consideration for a supply.
The Full Federal Court Decision in the Reliance Case

The ATT held in the Reliance case that the vendor was liable for GST in respect to the forfeited deposit.

The Administrative Appeals Tribunal found that the forfeited deposit was consideration for supplies that the vendor provided when entering into the contract for sale. The supplies that the vendor used were obligations that the vendor had to the purchaser on entry into the contract for sale. The AAT found that these obligations included:

(a) The maintenance of the property in its present condition; and
(b) The payment of all rates, taxes, assessments, fire insurance premiums and other outgoings in respect of the land.

The AAT stated that, upon execution of the contract for sale, the vendor made a supply as it entered into the obligation to take actions under the contract. The payment of the deposit was the consideration the vendor received for this supply.

The full Federal Court found the reasoning of the AAT to be flawed. “When the vendor entered into the contract for sale,” they held, “it entered into a contract for the supply of real property; nothing more and nothing less”.

Consequently, there was no supply of provisional obligations either on the entering of the contract or afterwards, and when the contract was rescinded,  the vendor had not made any supply to the purchaser.

With these findings being considered, the full Federal Court stated that Section 99-5(1) of the GST Act did not obligate the vendor to make a taxable supply to the purchaser and the vendor was not liable for GST with respect to the forfeited deposit.

If this decision of the full Federal Court in Reliance is not appealed to the High Court, it will be possible for vendors who have previously remitted GST in cases of a forfeited deposit may be able to apply to the ATO for a refund.

Reference Article: http://www.hcourt.gov.au/assets/publications/judgment-summaries/2008/hca22-2008-05-22.pdf

Rate rises looming as property market volatile – report

Rising Home Prices

Homebuyers are continuing to pay premium prices for property, despite the impending interest rate rise.

According to a recent report by mortgage insurer PMI Mortgage Insurance and BIS Shrapnel, housing prices have grown at a faster pace in Melbourne, Brisbane, Perth and Hobart in the June quarter of 2007 compared to the previous year.

The mains findings were:
* In Brisbane, property prices rose 12.4 per cent to $366,300;
* In Perth, property prices rose 11.6 per cent to $446,500;
* Prices increased by 11.9 per cent in Hobart to $310,00;
* Prices increased by 8 per cent in Adelaide to $310,000.
* In Canberra, prices rose 12.6 per cent to $428,000; in Darwin price was up to up 12.9 per cent to $395,000.
* The fastest rising prices were in Melbourne, which topped the list with a 13.2 per cent increase to $420,000;
* In Brisbane, property prices rose 12.4 per cent to $366,300;
* In Perth, property prices rose 11.6 per cent to $446,500;
* Prices increased by 11.9 per cent in Hobart to $310,00;
* Prices increased by 8 per cent in Adelaide to $310,000.
* In Canberra, prices rose 12.6 per cent to $428,000; in Darwin price was up to up 12.9 per cent to $395,000.

The only capital city to experience a decine was Sydney, where the median house price fell by 0.2 per cent to $525,500 in the period.

But according to BIS Shrapnel’s “Residential Prospects, 2007-2010” the rising interest rates point to a weakening in property prices, with the first signs appearing to emerge in Perth and Darwin.

According to BIS: “With speculation of further rises to rates in 2007, will this impact on residential markets, or will momentum in price growth overcome the hurdle of higher interest rates?”

Recommendations for Property Purchasers

In the period of increasing interest rises and property market uncertainty, it is of overriding concern to conduct your research thoroughly prior making an investment. A small oversight may cost you thousands of dollars in the long run. It is therefore very important to seek legal advice prior beginning your search.

Before you even begin to search for property, make sure you will be able to obtain financing. Speak to different banks, financial advisors and mortgage brokers and find a mortgage product that conforms to current market conditions.

Also before your property search you will also need the advice of an experienced property lawyer. Chose a solicitor specialising in commercial and residential property transactions. He will explain the purchasing process and your obligations as a purchaser under a contract for sale. A solicitor will also explain the necessary property inspections that must take place such as pest reports, surveys or strata inspections if your property is a unit or townhouse.

When searching for a property, do your homework. To make sure you are making a sound investment study the location, aspect, structure of your property and condition. You may also need to attend a number of auctions to be familiar with the bidding process. Seek legal advice on your obligations as a bidder.

Take your time, work within your budget and seek sound legal and financial advice; this way you can better equip yourself and your family to take on the current volatility in prices and rising interest rates.

States Unveil Planning Reforms

The New South Wales Government has finally come out with an announcement to reform residential developments across the state, pleasing homeowners, developers, builders and local governments.

On 27 November 2007, a discussion paper was issued by Planning Minister Frank Sartor. The report was to announce the improving the NSW Planning System, outlining the major reforms.
According to the NSW department of Planning, the discussion paper proposes at least 90 recommendations to improve the planning system, including:

* The Planning Minister’s oversight will be reduced in the case of development proposals; the use of assessment panels will be increased;
* With respect to the size and complexity of proposals, the new plan will allow adaptation of the development application assessment process including local plan making systems
* Increase the number of developments approved under compliance certificates;
* Proposes to reduce the processing times of development applications and local plans;
* Shortens the time for approval of small scale development, such as home renovations, to within ten days if the new NSW standards are complied with;
* The oversight of the building certification system will be improved;
* Online planning information and support will be increased;
* and
* Miscellaneous recommendations in areas such as strata management, paper subdivisions and dispute resolution.
* Red tape will be reduced, avoiding council bureaucracy.

Major reforms are planned with regard to cutting red tape in the lengthy  development approval processes; the number of developments subject to certifier approval will be expanded.

Building codes will be standardised to apply across council boundaries; “planning arbitrators” will be appointed to help manage and administer the development applications more effectively.

Stakeholders and members can comment on the NSW paper until February 8 2008.

For more information visit http://www.planning.nsw.gov.au/.

Queensland’s Reform Package

The report issued by the NSW follows both Victoria’s and Queensland’s recent announcements to modernise their planning and development systems.

In September 2007, the Queensland Government released a report that called “Planning for a Prosperous Queensland a reform agenda for planning and development in the Smart State”. Set to become operational in late 2008, the report made 80 recommendations of reform to planning legislation.

The intent of the reform is to “move the focus from the planning process to the delivery of sustainable outcomes” the Queensland Government said.  These goals will be delivered by:

* new planning legislation implementing improved tools for State and local government to proactively manage planning and development
* reduced complexity of planning policy through greater standardisation
* adoption a “risk-based” approach to development assessment
* streamlined dispute resolution processes
* encouraging active community participation in the planning and development assessment system.

For more information visit http://www.lgp.qld.gov.au/

Victoria’s Plan

Victoria was next to release its reform proposals, with the release of the “Making Local Policy Stronger” report, and the Government’s “five–point priority action plan” initiated in October 2007.

“This report sets out some of the most important planning reforms in recent years, particularly its recommendation to review residential zones so that they can more clearly reflect state and local policy outcomes,” Victoria Planning Minister Justin Madden said. “Victoria already has a very good planning system, but these new reforms will make a big difference to councils, giving them the tools they need to manage development and change in their municipalities.”

According to Mr Madden, the Making Local Policy Stronger report’s five key recommendations were to:

* Provide more certainty for councils by making it easier and more efficient to implement policy through planning controls;
* Making the State Planning Policy policies clearer about how they should be implemented at the local level;
* Reviewing planning schemes on a regular basis to ensure they accurately express state and local strategic intentions;
* Increasing the effectiveness of local policy by simplifying the way it is presented in planning schemes; and
* Making policy clear as to when prescriptive provisions can be used;

For more information on Victoria’s reforms visit http://www.dpcd.vic.gov.au/planning

Retail tenancy under scrutiny by the Productivity Commission

Concerns in the retail tenancy market applying to small and medium businesses are the focus of a new discussion paper “Issues Affecting the Retail Leasing Industry in NSW” released on 14 April by State Small Business Minister Joe Tripodi.

In releasing the report Mr Tripodi said that: “of particular concern is the imbalance between shopping centre landlords and their tenants”.

“Landlords control rents in shopping centres, and have the potential to exploit their negotiating power when dealing with tenants seeking lease renewals,” he said. “Tenants don’t have a lot of bargaining power when it comes to negotiating a new lease. Sometimes they face the choice of staying and paying an exorbitant rent, or losing their business.”

According to Mr Tripodi, “NSW has one  the best regulatory systems in Australia in resolving disputes when it comes to retail leases. About 80 per cent of disputes are resolved through mediation, with minimal cost to tenants and landlords”.

The Retail Leases Act 1994 (NSW) governs the relationship between tenants and landlords. The main objective of the Act is to ensure fair and efficient dealings between parties to retail leases. The NSW is cognisant of the power imbalance between small to medium businesses and landlords. However, the Act has undergone criticism from business concerns that it does not adequately address the volatile retail leasing market.

Since 2004, amendments have been made in the Act so as to:

* improve access to information;
* improve the effectiveness of rent review provisions;
* create a Retail Bond Scheme;
* streamline the process for assignment of a lease; and
* Increase the effectiveness of the dispute resolution provisions.

In 2007, the Productivity Commission released a Draft Report recommending that the Act gradually be eliminated on the basis that the industry is over-regulated. However, the NSW Government maintained the legislation was needed to provide clear guidelines for the conduct of parties to retail leasing matters and in dispute reduction.

The latest Discussion Paper outlines a number of issues facing the retail leasing industry including:

* remedies for non-disclosure or incomplete disclosure;
* mandatory education for retail tenants;
* statutory appointment of a Retail Advocate;
* the time period for bringing pre-lease misrepresentation claims;
* Registration of leases and lease documentation
* introduction of competition or change of tenancy mix in a shopping centre;
* the provision of disclosure statements when an agreement to lease has been entered into;
* landlord use of advertising or promotional funds contributed by tenants;
* strata schemes causing significant disturbances to a tenant’s business;
* failing businesses in statutory five year leases;
* bank guarantees;
* end of lease issues;
* unconscionable conduct and unfairness;
* the passing on of land tax to tenants;
* the conduct of parties in mediation; and
* The monetary jurisdictional limit of the Administrative Decisions Tribunal.

Among suggested amendments include a rent reduction for tenants facing economic uncertainty at the end of their lease.

“The proposed rent reduction would allow tenants to pay 90 per cent of their original rent during the period between a lease ending and a new lease being agreed to by both parties,” Mr Tripodi said.

The Productivity Commission seeks submissions from interested parties by 26th May 2008.

 

Article Reference: http://www.craddock.com.au/Document/Retail+tenancy+shake_up+to+address+small+business+concerns.aspx