Real Estate Matters

    View Authors June 2014

    Property Developers Beware!

    The recent decision of the Western Australia Court of Appeal in Barker v Midstyle Nominees Pty Ltd [2014] WASCA 75 has put property developers on notice that property development contracts executed prior to a developer becoming the registered proprietor of the relevant land are illegal and unenforceable.

    While arguably unsurprising, this decision is likely to impact upon the way property developers do business. No longer will a property developer be able to execute pre-sale contracts if they are not the registered proprietor of the land and rely on pre-sale contracts to help obtain finance for their development.

    A Property Developer’s Predicament

    The facts and circumstances of Barker v Midstyle Nominees Pty Ltd would not be unfamiliar or unusual to a property developer.

    In essence, the case involved Midstyle Nominees Pty Ltd (Midstyle) executing a contract for the sale of strata lots in a proposed strata lot development of apartments in Mandurah, Western Australia. After the contracts were executed but before the development could be completed, two of the purchasers, Mr and Mrs Barker and Mr Jordan (together, the Purchasers), tried to terminate their contracts. Midstyle then sought to enforce the contracts against the Purchasers in the Supreme Court.

    The only thing standing in Midstyle’s way however, was the fact that it had breached section 13(1) of the Sale of Land Act 1970 (WA) (Act). That is, at the time Midstyle executed the contracts with the Purchasers, it was not yet the registered proprietor of the land the subject of the development.

    Success in the Supreme Court

    At first instance the Supreme Court decided in favour of Midstyle. In the Court’s opinion, the fact that Midstyle was not the registered proprietor of the land at the time it executed the contracts with the Purchasers did not mean the contracts were void. All it meant was that the Purchasers had a right to terminate the contracts, but only for so long as Midstyle was not the registered proprietor of the land.

    In the present circumstances therefore, the fact that Midstyle subsequently became the registered proprietor of the land, and the fact that this occurred prior to the Purchasers attempting to terminate their contracts, meant that Midstyle’s contracts were enforceable against the Purchasers.

    A Change in the Winds

    Midstyle’s success in the Supreme Court was short lived however, as the Purchasers appealed the decision of the Supreme Court to the Court of Appeal. On appeal it was held that, as Midstyle had not been the registered proprietor of the land at the time it executed the contracts with the Purchasers, the contracts were illegal and unenforceable.

    What is most alarming about this decision is the reasoning of the court. In particular, the Court of Appeal noted that its decision was based on the fact that section 13 of the Act was:


    • only about protecting purchasers;
    • specifically designed to constrain the business operations of land developers who carry out relatively large subdivision projects; and
    • to be read strictly, such that even if a vendor did subsequently become the registered proprietor of the land (such as occurred in this case), a vendor would still not be able to enforce their contract against a purchaser.

    In light of this decision, we are encouraging our clients to carefully consider whether their property development contracts are enforceable and whether they need to change their property development practices.


    Darwin Update

    Dubai, Khazar Islands and Now Possibly Darwin

    A Darwin based developer has commenced initial feasibility works for an ambitious man-made island development off the coast of Darwin. The scale or design of the proposed project is as yet unknown, but the proponent has secured a 5 year Crown lease over the proposed site and has begun undertaking geotechnical drilling. If those results prove positive, the proponent will progress with environmental assessments. The site of the proposed area is 200m off the northern suburb beach of Nightcliff, and the total area under Crown lease is 98ha.

    The project has sparked considerable community backlash with local residents opposing the location, scale and merits of the proposed project. Opponents have raised issues with the manner in which the Crown lease was granted without public tender or consultation, and whether the terms of the Crown lease in fact permits the initial geotechnical studies or indeed the future proposed development.

    A project of this kind is a reflection of the continuing strength of the NT economy, and in particular the housing market where limited in-fill land supply has seen northern suburb property prices surge. If it proceeds, it will place Darwin within a rare group of cities to undertake similar developments.


    Western Power to Recover Taxation Costs from Developers

    The decision to pass on Western Power’s “tax” liability costs arising from developer contributions to developers will significantly affect the development industry and housing affordability in Western Australia.

    Following a report by the Economic Regulatory Authority (ERA), it was determined that Western Power could no longer feasibly absorb the assessable income tax costs associated with capital contributions.

    Under the ERA “user pays approach”, all applicants that are required to provide gifted assets or capital contributions to Western Power will be charged an additional 13.9% of the value of the contribution to cover Western Power’s liability under the National Tax Equivalents Regime (NTER).

    This includes work completed by a third party and gifted to Western Power, such as:


    • subdivisions;
    • undergrounding;
    • relocations;
    • street lighting;
    • pole to pillar;
    • new revenue projects;
    • built strata;
    • network extensions;
    • substations; and
    • transmission lines.

    Under the proposal, Western Power will determine the value of each gifted asset.

    It should be noted that this is not a tax in the legal sense. The NTER was established as a means to make government owned entities more commercial. Relevant tax laws are applied notionally to NTER entities as if they were subject to those laws. Each NTER entity is assessed annually as to its income tax equivalent liability and is required to pay instalments of the expected liability to the Treasury.

    Each State government has the power to nominate which entities will be on the NTER register and has complete discretion to remove them. So whilst Western Power does have to pay certain liabilities for the assets and capital it is “gifted”, it is not under any taxation legislation.

    Applicants should therefore view the proposal as a fee or additional cost, not as a tax.

    Consequently, industry groups are anticipating significant cost increases per lot, which will potentially delay projects and affect housing affordability.

    The new “tax” was scheduled to come into effect on 1 May 2014 and apply to all new applications. After significant industry backlash, Western Power has delayed the introduction until further notice and is now considering alternative recovery options.

    We are concerned that other government entities on the NTER register may also follow Western Powers lead and pass on income liability to developers.

    Please contact us if you have any queries about how this may affect you, or require assistance in preparing submissions to Western Power.


    Update: E-Conveyancing is Live!

    Since our last Real Estate Matters in February, the Electronic Conveyancing Bill 2013 (WA) received Royal Assent and became the Electronic Conveyancing Act 2014 No.2 (WA). In addition, the Participation Rules which must be observed by all users of e-conveyancing were published on Landgate’s website on 15 April 2014. This represents a significant step for e-conveyancing in Western Australia and enables Western Australia to participate in the roll-out of the national e-conveyancing system (known as PEXA).

    Meanwhile, the roll-out of PEXA in other States continues to gather pace. PEXA is already being used in Victoria, New South Wales and Queensland for transactions involving the big four banks such as mortgages, discharges and refinancing, and this has now been extended to Western Australia, with the first online transaction completed on 18 June 2014..

    From June 2014, the second phase, involving the practitioner roll-out schedule will commence, with Electronic Conveyancing Victoria subscribers migrating to PEXA to begin performing caveats. Further functionality across all States is expected to be deployed as follows:


    Key Milestone  Deployment Date
    Victoria Caveats (pilot) June 2014
    NSW – All functionality October 2014 
    Victoria – All functionality  October 2014
    Queensland – All functionality  February 2015 
     Western Australia – All functionality May 2015 
    South Australia – All functionality  Third quarter 2015 
    Tasmania – All functionality  Third quarter 2015
    Northern Territory – All functionality  TBC 

    While the roll-out for Western Australia is not due to be completed until 2015, you need to be aware of the roll-out schedule and the possibility that your property settlements may occur by way of electronic conveyancing from now on.

    We will continue to keep you updated with the progress of e-conveyancing in Western Australia. Please contact us if you would like more information on PEXA or e-conveyancing.


    Reforms to Commonwealth Environmental Regulation – New Costs for Environmental Impact Assessments

    The Commonwealth Department of the Environment (Department) introduced its “one stop shop” amendments to Parliament on 13 May 2014. One of the proposed amendments is to implement new cost recovery arrangements, so that if an application is required to be assessed under the Environment Protection and Biodiversity Conservation Act 1999 (Cth), proponents will be required to pay for the cost of the Department’s assessment.

    The Department is yet to release any information as to how such costs will be calculated, recorded or passed on. The provision will apply to applications referred on or after 14 May 2014, and is expected to come into force by 1 July 2014. This is conditional on passage of the legislative amendments.

    Further information is due to be released in June and we will endeavour to keep you informed. In the meantime, please contact us for further information on how these amendments may apply to you.


    State Bushfire Policy Elevated to the Highest Level – What You Need to Know

    In Western Australia, new Bushfire Risk Management Policies are coming. Draft State Planning Policy 3.7: Planning for Bushfire Risk Management (the Policy) and accompanying Planning for Bushfire Risk Management Guidelines (the Guidelines) have been released for public comment, and it is anticipated that they will be implemented by the end of this year.

    The Policy will form the foundation for land-use planning in addressing bushfire risk management. All developers should be aware of its provisions as planning authorities will begin to expect certain fire protection outcomes on development applications.

    Key Components


    • All land in bushfire prone areas subject to a development or planning application will be required to undergo an independent bushfire hazard assessment.
    • Proponents subject to the Policy will be required to submit a Bushfire Management Plan, to be prepared by an independent fire consultant.
    • Bush Fire Management Plans will be required to contain a Bushfire Attack Level assessment as prescribed by Australian Standard 3959: Construction of buildings in bushfire-prone areas (AS 3959).
    • Planning authorities will be able to impose development conditions to address bushfire protection issues including title notifications and ongoing bushfire management contributions.

    Application

    The Policy will apply to new planning proposals and will not be retrospective. It will apply to all areas that have been designated as “bushfire prone” by the Fire and Emergency Services Commissioner or under a legislative instrument. Such areas will be identified either:


    • on a local government bushfire map;
    • on the State Bushfire-Prone Area Map (State Map); or
    • as any land within 100 metres of an area of bushfire prone vegetation equal or greater than one hectare.

    Identifying Risk

    The onus will be on owners of bushfire prone land to assess the level of risk through either a bushfire hazard assessment, or in accordance with the Bush Fire Attack Level assessment in AS 3959. Land identified as low risk will not be required to comply with the Policy provisions.

    Implementation

    Enforcement will be delivered via local planning schemes and amendments.

    The “precautionary principle” will be applied to all applications which potentially involve bushfire risk, resulting in the refusal of proposed development or intensification where there is insufficient evidence to show that potentially significant adverse impacts can be reduced and managed. The proponent will carry the burden of demonstrating that bushfire risks have been identified and managed where necessary.

    Impact on new development

    All new developments, will be bound by the highest achievable level of bushfire protection and impacted by the Policy as follows:


    • any rezoning or proposed land-use intensification must be assessed against bushfire risk mechanisms;
    • all proposals in extreme bushfire risk areas will generally not be supported, unless it is considered unavoidable development;
    • all proposals on land occupied by persons who may be less able to respond to a bushfire emergency in moderate risk areas will generally not be supported;
    • all proposals on land which use may lead to potential ignition of a bushfire in moderate risk areas will generally not be supported; and
    • any development within moderate or extreme risk areas may have bushfire protection conditions imposed on its approval.

    Response

    Public submissions in respect of the Policy and Guidelines must be provided by 4 July 2014 and 1 August 2014 respectively. Please contact us if you require any further advice or assistance in respect of your submissions.


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