Author: baron + associates

The Retail Leases Amendment (Review) Bill was passed by the NSW Legislative Council on 22 February 2017.

The key amendments were outlined in the December edition of this newsletter. The following points are additional important aspects of the successful bill:

1. Any payments charged for services provided by a landlord are not classified as outgoings
2. With the exception of a few, online transactions will be removed from the calculation of turnover rent, although the term ‘online sales’ is not defined in the Act
3. Landlords are forbidden from accessing and reclaiming mortgagee consent fees
4. The Civil and Administrative Tribunal will also have greater authority regarding disclosure statements and increased monetary threshold limits, in addition to an established civil penalty regime if the amendment is breached

These changes are relevant for retailers across NSW. The bill is awaiting royal assent, and the date of commencement will soon be published in the Government Gazette.

Development consent from Councils may have conditions attached that restrict the user of the title of land, in order to limit potential future development on that land. The recent decision in D’Alterio v Newcastle City Council [2017] by the Land and Environment Court serves as a reminder that restrictions to user will be closely observed, but may not necessarily be an impediment to development on the land.

In the case of D’Alterio v Newcastle City Council [2017], the plaintiff appealed Newcastle City Council’s denial of planning permission for a two-storey residential development plan. The site was to be built on land constrained by a registered covenant operating under Section 88b of the Conveyancing Act 1919. In effect, the registered covenant prohibited construction exceeding one storey.

The Land and Environment Court found that the purpose of the covenant was to protect the views of a local heritage item and certain private properties. After close examination of the evidence, the Court decided that the development would not adversely impact the views of the heritage site, and that the loss of views from private properties was irrelevant to the covenant. Consequently, the Court chose to allow the appeal from the developer.

The importance of the case is that although restrictions to title are generally narrowly construed, the Land and Environment Court will consider the purpose of the restriction when applying it, and may choose to vary it in favour of the development at hand.

In late 2016 the new Strata Schemes Development Regulation 2016 and Strata Schemes Management Regulation 2016 came into effect, requiring owners to review their by-laws. Model by-laws have been provided; these can be directly adopted, or owners can use them as a guide for changing current by-laws.

Once existing by-laws change, a full set of consolidated by-laws must be lodged with the NSW Office of the Registrar-General. The Registrar-General can however exempt owners from this process, but the regulations do not specify what conditions would need to be satisfied to receive that exemption. Once the changes have been lodged, they will be recorded on the common property folio. Owners to whom these laws apply must amend their by-laws by 30 November 2017.

The NSW Government Department of Planning & Environment has recently committed to implementing reforms which will affect both builders and certifiers.  An independent review of the Building Professionals Act 2005 suggested 150 reforms, 72 of which have been supported by the government.

The reforms will increase fire safety of all buildings, amalgamate certain Environmental Planning & Assessment Act 1979 provisions, and amend the rules for certifiers under the Building Professionals Act 2005. It is predicted that the final draft of the Building and Development Certifiers Bill will be introduced to Parliament late this year.

Draft District Plans have been released for each of Greater Sydney’s six districts (Central, North, West Central, West, South West and South) and will be open for public consultation until March 2017.

The plans involve the establishment of three cities, with the CBD forming part of the Eastern City, the Greater Parramatta area forming the Central City and areas surrounding the new Western Sydney Airport forming the Western City.

The plans will have consequences for current and future developers as the Commission’s priorities of productivity, liveability and sustainability will inform how local councils assess building and construction plans over the next 40 years.

A tax payer has lost a claim for repayment of erroneous land tax payments made to the Commissioner of State Revenue. The Victorian Court of Appeal initially ordered the repayment of sums that represented a double land tax payment for the period 1990-2012.

Upon appeal, however, the High Court of Australia held that that under the Land Tax Act 2005 (Vic), the three year limit on recovery of tax paid operates such that once an assessment is made by the Commissioner, this amount would become a debt payable on the date specified in the assessment. Regardless of whether an assessment would be challenged or that an objection was pending, the tax assessed could be recovered.

This is a harsh outcome, as the court acknowledged that the mistake could not have been discovered by a reasonably diligent tax payer as it was not disclosed on the face of the notice.

Where a landlord leases a premises which includes fittings for the tenant to use, these items may give rise to a security interest in favour of the tenant. Registration of a security interest under the Personal Property Securities Register provides notice of the lessor’s interest in the property whilst it is in the possession of the tenant. Personal property covered by the Personal Property Securities Act (‘PPSA’) includes general property other than real estate and fixtures.

In the recent case of Power Rental Op Co Australia LLC v Forge Group Power Pty Ltd (in liq) (receivers and managers appointed), the New South Wales Court of Appeal determined that the test for determining what is a ‘fixture’ under the PPSA incorporated the established common law principles and did not create a new, distinct test.

Under the common law, whether an object has become a fixture depends on the ‘objective intention with which the item was put in place, having regard to the degree of annexation’.

In determining the purpose of annexation, the Court should have regard to:

• whether the attachment was for the better enjoyment of the property generally or for the better enjoyment of the land and/or buildings to which it was attached;
• the nature of the property the subject of affixation;
• whether the item was to be in position either permanently or temporarily; and
• the function to be served by the annexation of the item – e.g. if it is secured in order for ease of operation of the item.

In assessing the degree of annexation, factors to consider are:

• whether removal would cause damage to the land or buildings to which the item is attached;
• the mode and structure of annexation;
• whether removal would destroy or damage the attached item of property; and
• whether the cost of renewal would exceed the value of the attached property.

Landlords should seek advice in determining whether personal property should be registered, as the consequences for failing to do so can be serious, particularly in situations where the tenant is placed in administration.

 

In the case of Kazacos v Shuangling International Development Pty Limited, the vendor, Kazacos, sought to recover the $850k balance of the ‘deposit’ remaining on the sale of a $17m Sydney property. The deposit was stated as $1.7m with a special condition in the contract providing that the first payment of $850k, equating to 5% of the sale price, was to be paid on exchange and the remaining 5% due on the completion date of the contract or the date when the purchaser defaulted under the contract. The purchaser failed to complete the contract and the vendor later sold the property at the higher price of $18m.

The initial 5% was found by the Supreme Court of New South Wales to hold the essential character of a deposit, in that it was “an earnest of the bargain or its performance” and therefore forfeited by the purchaser. The 5% due upon default was not related to binding the purchaser to the bargain as it would be due even when the purchaser had demonstrated it was unable to complete the contract, nor was it a genuine pre-estimate of the damages caused by the breach. This amount was found to be a penalty and not recoverable by the vendor.

A similar ruling has previously been made by the New South Wales Court of Appeal in the case of Luong Dinh Luu v Sovereign Developments Pty Ltd where the front page of the contract of sale stated the deposit payable was less than 10%, however a clause within the contract stated that the full 10% would become payable in the event of default. This was held to amount to a penalty and was therefore unenforceable.

Whilst contracts of sale for which the vendor accepts less than the standard 10% may be drafted with the intention that later payments will constitute an instalment of the initial deposit, there is a risk of similar actions arising where the contract of sale does not proceed to completion and the payment is instead viewed by the courts as a penalty.

A land tax surcharge of 0.75% of the taxable value of residential land owned by a foreign person has commenced on 31 December, 2017. This is in addition to the 4% stamp duty surcharge that has applied to foreign investors in the residential property market since 21 June, 2016.