Each Australian state and territory has its own separate legislative regime in relation to the ownership of land and the various available tenures.
An interest in land can either be held under freehold or leasehold ownership. Freehold is the highest category of land ownership in Australia and effectively confers absolute ownership. The land can be held outright by one owner or a part interest or share can be held.
Leasehold land confers rights of exclusive possession and use, pursuant to specific legislation. Some leasehold interests are ‘perpetual’ in nature, and others are granted for fixed periods of time.
A real estate owner can also give non-exclusive rights to third parties to use their land, such as granting an easement for a right of way. If registered, easements are binding on successors in title to the burdened and benefited land.
Last modified 31 Aug 2020
Commonwealth legislation (the Foreign Acquisitions and Takeovers Act 1975 (FATA) and relevant regulations) operates to impose restrictions on foreign investors in relation to the acquisition of Australian land.
The Commonwealth’s stated approach to foreign investment policy is to encourage foreign investment consistent with Australia’s national interest. A key objective of the policy is to balance concerns about foreign ownership of Australian assets against the strong economic benefits to Australia that arise from foreign investment. The FATA regime is administered by the Federal Treasurer and the Foreign Investment Review Board (FIRB).
Proposals concerning acquisitions of an interest in Australian land by a foreign person require notification to, and approval by, FIRB if the value of the interest being acquired exceeds prescribed thresholds. In the case of vacant land and residential land (as well as acquisitions by foreign government), the threshold is zero and accordingly all acquisitions of such land or by such entity require approval by FIRB.
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Pre-emption rights are not imposed by statute.
It is possible, as a matter of contract law, for parties to grant pre-emptive rights or first rights of refusal in relation to the sale of real estate.
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Each Australian state and territory has its own separate legislative regime in relation to the ownership of land and the various available tenures.
Each legislative regime is fundamentally similar in its structure and implementation; however there are some differences between each jurisdiction.
Australian real estate is regulated under a titling system which operates on the principle of 'title by registration'. This system effectively does away with the need for a chain of title (ie tracing titles through a series of documentary instruments).
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The laws applying to transfer of title do not differ based on the nature of the real estate involved.
However, each Australian state and territory has legislation which can have an impact on the form and content of sale and purchase agreements depending on the nature of the property involved.
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The transfer of real estate to a purchaser is recorded in writing on prescribed statutory forms and lodged with the state or territory government department responsible for maintaining the register of land ownership.
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Not all land is registered, although all land in private ownership is registered.
Land which is not registered is known as 'unallocated or unalientated land'. The first disposition of the land by a state or territory will result in the relevant land becoming registered.
Yes, a buyer must register a transfer of the land in order to become registered as owner of the land and prove title to the property in the future. Registration should therefore take place as soon as possible after the transfer.
Once registered, the details of ownership of the land and certain title documents are made available on a public register.
Title insurance exists in Australia although it is rarely used as a substitute for the buyer's investigation of title to the property and undertaking relevant searches and surveys. In addition, the 'title by registration' system provides protection once registration has occurred and therefore title insurance is often viewed as unnecessary.
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Following the investigation of title, the parties will enter into a formal contract for the sale and purchase of the property.
There will usually be a period between the date of contract and the date when settlement (financial close) occurs and title transfer takes place. The contract will set out the documents that must be entered into at completion, including the formal transfer and any other related documentation.
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Yes. Buyers should undertake their own investigation of title, searches and survey.
The buyer's lawyer will review the title information provided by the seller's lawyer (including copies of the registered title if applicable) and will carry out standard conveyancing searches.
Some states and territories require a seller to provide certain minimum information to a buyer (in the nature of statutory certificates and approvals relating to the property) before a contract is entered into. Other States and Territories have no such requirement.
Buyers can undertake due diligence either:
A buyer would generally undertake due diligence after a contract is formed if the contract contains a broad due diligence special condition by which the buyer may be released from the contract if the outcome of the due diligence is unfavourable.
Standard form contracts in use in some jurisdictions provide that a buyer may terminate a contract in circumstances where due diligence enquiries reveal that the property is adversely affected. These are fairly restricted rights and are not a substitute for a broad due diligence condition in favour of the buyer.
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Where leasehold property is sold, the consent of the relevant state or territory government minister to the transfer of the Crown lease must be obtained before completion.
Consent is required from registered mortgagees over the land, unless the mortgage is to be discharged at completion (which is the most common scenario).
Sellers must also ensure that they comply with any contractual rights they have given to third parties in relation to the land (for example pre-emptive rights or first rights of refusal) as part of any sale process.
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Yes. The contract must be in writing and signed by each party. It should contain all the terms of the sale including details of the land to be sold and the price, as well as the settlement date and any other documents required to be executed by the parties to give effect to the overall transaction.
In addition, legislation applies in some Australian states for the disclosure of certain prescribed documents within the form of contract. Apart from these restrictions the general form of contract may take any form.
A typical contract includes all relevant commercial details such as the real estate being sold, the purchase price, deposit, date for completion, representations and warranties.
It may also contain provisions regarding how the property will be managed between execution of the contract and completion, and how income and outgoings will be allocated between the buyer and seller at the date of completion.
Contracts also contain provisions relating to the passing of risk and insurance issues and what happens if the property is damaged before completion.
Most states and territories have industry-body-approved standard contracts of sale for residential property and commercial property. These are widely used.
However, for complicated assets or high value transactions, specifically tailored contracts are used in lieu of the industry body approved forms.
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Generally speaking, no warranties are implied by law, although some Australian states and territories have legislation that does impose warranties on the seller in relation to certain forms of property (for example, that no government proposal exists to compulsorily purchase the property).
Therefore, general warranties are usually a matter for commercial negotiation. Common warranties relate to matters such as:
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A buyer has a right to terminate a contract and/or to claim damages where there is a material or substantial misdescription of the property or the seller's title to the property. The test is essentially whether the buyer is getting substantially what it had bargained for.
In addition to this fundamental principle, there is a range of Commonwealth and state legislation which can give rise to termination rights for a buyer in circumstances where there has been some misrepresentation or misleading or deceptive conduct by or on behalf of the seller in relation to the subject matter of the contract. Courts have extremely wide powers in relation to misleading or deceptive conduct by the seller, or the seller's agent if acting within the agent's actual or ostensible authority.
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Town planning (zoning), construction and environmental laws may all apply. The buyer should also consider the level of compliance with workplace health and safety legislation requirements. Proper due diligence by a buyer should cover these particular areas of concern.
The buyer should undertake a full investigation of the site's town planning and land use history, and in particular whether developments on a site have been authorized and have been constructed in accordance with all required permits and approvals.
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The person causing the pollution is primarily responsible for the contamination caused. Where the person causing the pollution is unknown and cannot be located the owner and/or occupier may be required to undertake the remediation works.
Buyers should take careful note of any environmental issues and should seek to apportion liability and/or adjust the purchase price in relation to any risks identified.
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Proper due diligence enquiries include investigations as to the lawfulness of the present and/or proposed use of the property from a town planning perspective. This usually involves a two or three pronged approach:
Usually, sellers make no warranty or representation as to the lawfulness of current use in land sale contracts.
Where a buyer wishes to change the use to a use not currently approved from a town planning perspective (and does not wish to assume the risk of securing approvals after acquiring the land), then the buyer may wish to make the contract conditional upon appropriate development approvals being obtained before completion.
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In the case of substantial proposed developments, local authorities can require a developer to enter into development or infrastructure agreements as a condition for the issue of development and planning approvals.
These agreements often impose obligations on developers to comply with certain obligations including, for example, the making of payments, the carrying out of public works and the performance of required infrastructure works.
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All levels of government in Australia (local authorities, state and territory governments, and the Commonwealth government) have certain powers of compulsory acquisition where the acquisition of land is necessary for certain public purposes.
Compensation is broadly based on the value of the land acquired. In addition, there are 'other heads of compensation' for which a disaffected landowner can seek compensation in respect of the compulsory acquisition.
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Stamp duty is payable on the acquisition of real property in all Australian states and jurisdictions. The rates of duty differ from state to state and are based on a sliding scale depending on the purchase price/value of the real estate.
The highest rate of duty payable is 7 percent, however for most property the highest rates of duty are between 5 percent and 6 percent. Stamp duty is generally payable by the buyer. In relation to acquisitions of residential real estate by foreign persons, an additional foreign purchaser surcharge duty is payable in some states (ranging from 3 percent to 7 percent).
In addition to stamp duty, the government land registries impose registration fees on the transfer of title documentation. In some jurisdictions these fees are calculated by reference to the consideration paid for the land and can represent significant additional cost.
Goods and Services Tax (GST) (roughly equivalent to VAT) at a rate of 10 percent is payable by sellers in relation to the sale of real estate which constitutes a ‘taxable supply’. There are GST exemptions for most residential property and the sale of a going concern Other exemptions may apply. The conditions for obtaining GST free status can be complex.
Where a contract provides that the buyer agrees to pay to the seller an amount equal to the seller’s GST liability for the supply of the land, stamp duty will be calculated on the GST inclusive consideration.
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Stamp duty is payable on the transfer of shares in ‘land rich’ companies. If duty is payable, it will be levied on the value of the underlying land (and, in certain states, the goods) of the company. The rates of duty are the same as a direct sale of the land (ie up to 7 percent). As is the case in respect of asset deals, a transfer of shares in ‘land rich’ companies to a foreign person may attract the foreign purchaser surcharge duty (mentioned above) where the majority of the assets of the company consist of residential real estate.
Duty is generally payable by the purchaser, but in some states, both parties are jointly and severally liable for the duty.
Each jurisdiction differs as to the threshold tests for what constitutes a ‘land rich’ company, the types of transactions caught by the stamp duty legislation and the applicable rates of duty.
Similar provisions apply in relation to the acquisition of beneficial interests in trusts (a trust is a form of ownership where a nominal owner holds property on trust for, ie on behalf of, the true or ‘beneficial’ owner and the beneficial owner’s interest can be sold without the nominal ownership of the asset changing). As is the case in respect of asset deals, a transfer of units in ‘land rich’ trusts to a foreign person may attract the foreign purchaser surcharge duty (mentioned above) where the majority of the assets of the trust consist of residential real estate.
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What are the most important areas of public law for an investor to consider when purchasing real estate?
Town planning (zoning), construction and environmental laws may all apply. The buyer should also consider the level of compliance with workplace health and safety legislation requirements. Proper due diligence by a buyer should cover these particular areas of concern.
The buyer should undertake a full investigation of the site's town planning and land use history, and in particular whether developments on a site have been authorized and have been constructed in accordance with all required permits and approvals.
Last modified 31 Aug 2020