Doing Business in Australia: Chapter 15 - Property Law

Australian law recognises the following two basic different types of land ownership:

• freehold title; and
• Crown land.

Each of the states and territories has its own legislation that deals with the ownership of land.

Freehold title

Freehold title gives the landowner complete and unrestricted ownership of that land (but subject to certain rights which are often reserved to the relevant state or territory, such as the right to minerals) and the right to do anything it wishes on that land, subject to complying with applicable laws, such as planning and environmental laws. The majority of ownership of freehold title, and interests in freehold title, in Australia is governed by a system of registration known as Torrens title.

Torrens title

Torrens title is an effective, relatively simple and secure system that protects the rights of those having a registered interest in land. Most types of interests in land can be registered on the relevant state or territory register which is then used as the key means for the public to find out what interests exist in relation to a parcel of land (and the terms of any such interests, such as the terms of a registered lease). However, some freehold land in Australia has not yet been converted to Torrens title and is still governed by what is called 'old system' title. This type of land is relatively rare and mostly located in New South Wales. Old system title is not as simple to deal with as Torrens title but it still provides the owner with secure title.

The title to freehold land can be subdivided in various ways. Two examples are strata title and community title. A strata title is similar to a community title scheme. Both strata title and community title are regulated by statute, with differences between each of the states and territories.

Strata title and community title

Strata title is most commonly used for multi-level buildings, for example, residential apartments. Strata title enables a person to own part of a building (commonly referred to as a lot or unit) and to use the common areas of the building (such as foyers, pools and lifts) in common with the other lot or unit owners of the building.

Community title is most commonly used for land subdivisions, such as housing estates. It can also be used in relation to apartment buildings. Community title enables a person to own an area of land forming part of an estate and to use the common areas of the estate (such as private roads and parks) in common with other persons who own the other land in the estate.

The legislation governing strata title and community title subdivisions establishes a body corporate which oversees the common areas and shared facilities’ and which has the power to make rules which regulate the way people can use property and shared facilities within the building or estate. The owners of land in a strata title or community title subdivision collectively control the body corporate.

Crown land

The Australian Government and the state and territory governments own certain land in Australia. Not all government-owned land has been converted to freehold title and what remains is known as Crown land. Crown land is regulated by statute and certain specific requirements must be met before Crown land can be dealt with, for example, by being leased or sold.

Australian law recognises a number of different types of interests in and rights to land which do not amount to full ownership of the land including:

• leases;
• mortgages;
• easements and restrictive covenants;
• native title; and
• licences.

Leases

A landowner can lease the land or part of it to another person on terms to be agreed by the parties. A lease gives the person to whom it is granted an interest in the land and a right to exclusively occupy the area leased subject to the terms of the lease. Certain types of leases are required to be registered under the Torrens title system in some, but not all, states and territories, in order to protect the interest in the lease against the claims of third parties (for example, a mortgagee who wishes to sell the land as vacant land). An exception to this position is Victoria, where leases are generally not able to be registered.

Mortgages

When a landowner borrows money, the lender may require that the landowner grant to the lender security over land. This security is known as a mortgage, and it generally entitles the lender to sell the land if the borrower does not repay the money borrowed as agreed between the parties. Mortgages of Torrens title land are registered under the Torrens title system.

The owner of a leasehold interest in land can also use its leasehold interest as security for borrowed money, subject to the terms of the lease. If the borrower does not repay the money borrowed as agreed between the parties, the mortgage of a leasehold interest gives the lender the right to sell the leasehold interest in the land. Mortgages of leases of Torrens title land are registered under the Torrens title system.

Easements and restrictive covenants

A landowner can grant rights over its land, in favour of the owner from time to time of other land, for example, a right to travel over the land or to lay pipes through the land. These rights are referred to as easements.

A landowner can also restrict the use of its land, in favour of the owner for the time being of other land, for example, agreeing to not use their land for noxious or offensive purposes. These restrictions are referred to as restrictive covenants.

Both easements and restrictive covenants:

• benefit or restrict the land rather than the landowner who granted the easement or restrictive covenant or the landowner who obtained the benefit of it; and
• where they affect Torrens title land, are registered under the Torrens title system in some, but not all, states and territories.

In general, where easements and restrictive covenants are not registered under the Torrens title system, they will not be binding on future owners unless the future owners have agreed by contract to be bound by them.

Some government bodies and authorities can also obtain easements or place restrictive covenants over land, for example, to lay electricity cables. These easements and restrictions are referred to as easements in gross. Easements in gross do not attach to or benefit land owned by the government body or authority but instead are granted directly to the government body or authority. Like easements and restrictive covenants granted between landowners, easements in gross are registered under the Torrens title system where they affect Torrens title land.

Native title

Native title is the term for the interests in land held by Aboriginal or Torres Strait Islanders (Australia’s Indigenous people) under their customary law as recognised by the law of Australia.

Native title is different from a freehold or leasehold interest in that:

• the rights derive from traditional laws and customs acknowledged and observed by Indigenous Australians; they do not derive from statute; and
• native title rights and interests must relate to either or both of land or waters. They may be communal, group or individual, but are not transferable. Refer to the ‘Native title and Aboriginal cultural heritage’ chapter of this publication for further information on native title and Indigenous cultural heritage law.

Licences

A landowner (and, subject to the terms of the particular lease, a person who leases land) can grant a licence to occupy that land to other persons. A licence gives the person to whom it is granted a non-exclusive right to occupy the land subject to the terms of the licence. Licences do not give the licence holder an interest in the land and cannot be registered under the Torrens title system. A licence is a personal contract between the landowner (or the lessee) and the person to whom the licence is granted.

There are certain legal requirements which must be met before land located in Australia can be dealt with (for example, purchased or leased). The more significant of these requirements are as follows:

• agreements which deal with land (that is, sell, lease or mortgage land) in Australia must be made in writing in order to be effective;
• documents which need to be lodged with the Torrens title system registry offices to transfer any type of interest in land to a purchaser must be in the prescribed form and executed in accordance with the registry requirements for the relevant state. Registry offices in Australia are moving to electronic lodgement of documents and requirements vary between the states. It is also ordinarily a requirement that a lawyer verify the identity of signatories who sign prescribed forms. Again, the practice varies between the states;
• in some states and territories certain documents dealing with land are required to be stamped by a government office in order to be effective. The government office charges a fee or transfer tax, usually calculated by reference to the money paid under the dealing, before it will stamp the document. This is referred to as stamp duty. Foreign companies or persons may be subject to higher rates of stamp duty on acquisition of real estate as compared to an Australian resident. Similarly, a foreign company or person may be charged a higher rate for land tax in relation to real estate it has acquired.
• foreign companies or persons will generally require approval from the Foreign Investment Review Board (FIRB) before they are able to buy real estate in Australia. Different rules apply to different types of real estate and certain categories of foreign persons. In some circumstances, FIRB approval may also be required to lease real estate in Australia. See the 'Foreign investment regulation' chapter of this publication for more information on FIRB approval;
• in some states, there may be a separate foreign ownership of land register (distinct from the FIRB approval requirements); and
• in relation to the acquisition of certain types of real estate in some states, purchasers must enquire about the vendor’s residency status and vendor’s GST compliance. Depending on the information provided by the vendor, the purchaser may be required by law to withhold a prescribed amount from the purchase price and remit this amount to the Australian Taxation Office. Failure to comply with this obligation to retain and remit funds will make the purchaser personally responsible for these amounts. See the 'Foreign investment regulation' and ‘Taxation, stamp duty and customs duty’ chapters of this publication.

Australian law imposes certain general responsibilities and liabilities on land owners. A brief overview of some of these responsibilities and liabilities is set out here. Other responsibilities and liabilities may apply where entering into certain transactions, such as:

• a standard form lease offered to a party on a 'take it or leave it' basis – see the ‘Conduct obligations’ section of the ‘Consumer protection and product liability ’ chapter of this publication for a discussion of the Australian Consumer Law; and
• the obligation to disclose certain information about land that is being sold or leased, for example:
  • disclosure material which must be provided to purchasers of certain types of land under the property legislation for most states;
  • the presence of contamination on the land;
  • specific disclosure obligations and requirements for the sale of strata and community title land; and
  • building and energy efficiency certificates, NABERS and Green Star ratings for buildings on the land.

You should obtain legal advice as to the specific responsibilities and liabilities which attach to any land you are considering purchasing.

Rates and taxes

Australian law permits local government authorities to charge levies on land to cover the cost of providing services such as garbage removal, water and sewage removal services to the land. These levies are referred to as rates and are assessed yearly but may be payable in quarterly instalments.

Each state and territory in Australia imposes an annual tax on owning land within the state or territory. This tax is known as land tax.

Some properties, usually properties which are the owner’s principal place of residence, are exempt from the requirement to pay land tax.

An owner domiciled outside Australia is not usually entitled to this exemption.

For strata title or community title subdivisions of land, the body corporate also charges levies to meet the costs of administration, repair, maintenance and insurance of common areas and shared facilities.

Public liability

Australian law imposes liability on a landowner or a person who leases land if people who enter onto that land are killed or injured or have their property damaged in certain ways for which the law regards the landowner or person who leases the land as being responsible. Public liability insurance is available to cover this risk.

Compliance

Each state and territory in Australia has detailed laws governing:

• the use of land;
• the development of land and the erection of improvements on land; and
• the emission of pollutants.

These laws often place responsibility for complying with such laws on the landowner as well as on the person occupying the land or carrying out development of land. See the 'Environmental and planning regulation ' chapter of this publication for more information on these laws.