Author: baron + associates

The Home Building Amendment (Compensation Reform) Bill 2017 amends the home building insurance sections of the Home Building Act 1989. The Bill was assented to on June 27, and will come into effect upon proclamation by Parliament.

The key changes include:

• Prohibiting claims made 10 or more years after the work was completed
• Introducing an indemnity scheme for insolvent licensed insurers
• Creating two separate insurance products, both of which will need to be purchased by builders. The first will cover loss related to non-completion, and the second will cover loss after the work is completed
• Issuing binding insurance guidelines
• Creating a State Insurance Regulatory Authority

The NSW Government has introduced a package to help first home buyers enter the market. However, to offset the concessions made to first home buyers, the package also raises the fees faced by foreign investors. For foreign investors stamp duty will increase from 4 to 8%, and annual land tax will increase from 0.75 to 2%. Additionally, any investors purchasing property off the plan will no longer be entitled to defer stamp duty for 12 months. These changes will be effective July 1 2017.

The Strata Schemes Management Act 2015 (NSW) sets out a new Defects Bond Scheme, which was to come into effect from 1 July 2017. The scheme will apply to the construction of residential strata scheme properties that have four or more stories, and are therefore not addressed in the Home Building Compensation Fund. The new scheme will require developers to lodge a defects bond which covers 2% of the contract price for the development. There are also requirements for two independent inspections, over a two year period.

Although the Bond Scheme was to come into effect from 1 July 2017, the Electronic Transactions Legislation Amendment (Government Transactions) Bill 2017 (NSW) has now been passed by Parliament, and delays commencement of the scheme until 1 January 2018.

A short reminder that the amended Retail Leases Act 2017 (NSW) will commence on 1 July 2017. The key amendments were outlined in our December and February publications, and include:

1. Any payments charged for services provided by a landlord are not classified as outgoings
2. Most online transactions will be removed from the calculation of turnover rent
3. Landlords are prohibited from accessing and reclaiming mortgagee consent fees
4. Authority of the Civil and Administrative Tribunal increased
5. Five-year minimum term for retail shop leases will be removed
6. More onerous responsibilities on lessors in creating a disclosure statement
7. Leases used wholly for certain non-retail purposes will be excluded from the Act
8. New requirements for the return of bank guarantees to lessees

Our earlier articles explain these changes in more detail. Ensure you are prepared for these changes commencing 1 July 2017.

In Spiros Paul Antonatos v Inner West Council [2017], development consent was sought to add a storey to a residential apartment building and convert it into a boarding house. The Council had rejected the development application on the grounds that it was too high, would impact the privacy of neighbours, and was incompatible with character of the area. The Land and Environment Court also concluded that the development would be incompatible with the local area, having regard to: whether the proposal’s impact on the surrounding area was acceptable, and whether it was in harmony with that area.

The Civil and Administrative Tribunal recently decided the case of Lazarevska v Ozturk [2017]. In that case, the landlord built a secondary residence on his land without Council permission. Defects in the construction led to poor habitation conditions, and the tenant sought compensation for distress and inconvenience, and living in uninhabitable conditions in breach of the Residential Tenancies Act. The Tribunal decided that the sewerage overflow, odour, water leaks, and mould rendered the property uninhabitable. However, the tenant had a tangible benefit of occupation and would be unjustly enriched if the court ordered compensation to the value of the total rent paid. Instead, the Court orders the landlord to compensate the tenant for one third of her rent paid.

In Bayside Council v V Corp Constructions Pty Ltd [2017], development consent had been approved by the Council on condition that existing above ground cables be replaced with underground cables. By statute, this could only be done with the permission of Energy Australia. The contract was entered into on these terms. Energy Australia then refused permission to put in underground cables, and Council accepted $10,000 benefit in lieu of the terms of the deed requiring replacement of the cables.

The issue before the NSW Court of Appeal was whether the failure to put in underground cables constituted breach of the development consent. The Court found that there was no breach. It was not possible to put in underground cables without permission from Energy Australia, and the Council had accepted payment in lieu of this condition. The developer was there under no obligation to replace aerial cables with underground cables.

In Denoc Holdings Pty Ltd v Orange City Council [2017] NSWLEC 1271, a developer sought consent to convert a heritage mansion near Orange into a hotel. The developer sought permission to make structural changes to the inside of the building, and to demolish certain outbuildings. The Land and Environment Court accepted the proposed internal changes, with the exceptions of the removal of the original stairwell and a stained glass feature window. However, many of the external changes were not allowed, and the developer was ordered to amend the development proposal to better retain the visual integrity of the heritage building.

Additionally, the Council argued that the conversion of the mansion into a hotel would affect neighbouring properties; the balconies would affect privacy, and the carpark would increase noise. The Court acknowledged this, but decided that the plan of management would sufficiently mitigate the effects on the neighbours. The development proposal was allowed to go ahead, on the condition that the developer amend the plans as requested by the Court.

Information for investors in affordable housing:

• A concessional Managed Investment Trust (MIT) rate will be available on acquiring, redeveloping, or constructing affordable-housing property from 1 July 2017. Affordable-housing property is that which is leased to low-moderate income earners at below-market rent.
• The Capital Gains Tax discount has risen from 50% – 60% for residents who invest in affordable housing managed by a registered community housing provider from 1 Jan 2018.

Information for developers:

• A Commonwealth Property Register will be introduced, providing a mechanism for the private sector to make proposals for development of Commonwealth land.

Information for foreign owners:

• Foreign ownership of new developments will be capped at 50% from 9 May 2017.
• An annual charge on unoccupied property will be introduced from 9 May 2017. Unoccupied property is that which has been either vacant, or not genuinely available for rent, for half of the year. The charge will be equal to the foreign investment application fee imposed at the time the property was acquired.
• Capital Gains Tax (CGT):
  • The main residence exception to the CGT will be abolished from 9 May 2017 for foreign and temporary tax residents. For existing properties, this will take effect as of and from 30 June 2019.
  • The CGT withholding regime has changed, effective 1 July 2017, with the withholding threshold for properties reduced from property sale price of $2 million to only $750,000, and the withholding rate increased from 10% to 12.5%.

Other key measures:

• For purchasers of newly built residential properties, GST must be remitted directly to the ATO a part of settlement from 1 July 2018.
• For landlords who travel to inspect or manage their rental properties, the deductions for travel expense will be removed from 1 July 2017.

In the recent case of Hiep Van Nguyen & Anor v Canterbury-Bankstown Council [2017] NSWLEC 1234, the Land and Environment Court heard an appeal against the Council’s decision to reject a housing development proposal under the Environmental Planning and Assessment Act 1979. The reason for the Council’s decision was that the land was too small for the proposed development, unless an amalgamation with the neighbouring property were to take place. Since the neighbour refused to sell, the developer characterised an amalgamation as impossible.

This, the developer argued, was a sufficient reason for the court to flexibly apply the development standards and allow the development proposal. In support of this argument, the developer highlighted that the development would meet housing needs and introduce new facilities to the area, therefore benefiting the public. The Court rejected this argument, strongly expressing the view that an unsuccessful attempt to purchase property is not a sufficient ground to warrant the flexible application of development standards.