26 Jun 2008

The first step towards fixing the investment problem: Harmonising real property laws in Australia

by Peter McMahon, Eva Oraham

The patchwork of property laws in Australia is slowing investment. The Property Law Reform Alliance is pushing for harmonisation of real property laws to simplify property transactions.

Although the Torrens Title system is widely recognised as one of the world’s best systems of land titling, the fact that we have eight markedly different versions of that system slows down investment and makes Australia less competitive on an international scale.

To address this, an industry body has been formed to lobby for the reform and harmonisation of our real property laws. The Property Law Reform Alliance ("PLRA") was formed following discussions between the Property Council of Australia and the Australian Property Law Group of the Law Council of Australia. The PLRA is a national coalition of peak legal and industry associations committed to achieving uniformity by pursuing the reform of real property laws and procedures in Australia. Peter McMahon (partner at Clayton Utz) and Eva Oraham (lawyer at Clayton Utz) are both closely involved in the PLRA.

The need for uniformity

Focusing on the specific issue of recovery of land tax from a tenant, it is easy to see how Australia’s current property scheme differs across jurisdictions. In the Australian Capital Territory, New South Wales and Western Australia, land tax is recoverable in some circumstances, however even these differ. For example, in the ACT land tax is recoverable other than in residential tenancies. In Western Australia, by contrast, it is recoverable only for limited amounts under a retail lease. Land tax is not recoverable in Queensland, South Australia, Tasmania or Victoria. These inconsistencies can prove financially and practically significant for the foreign investor. It may even affect where the foreign investor ultimately chooses to invest.

Another area of real estate which highlights the inconsistencies in property law and practice is the failure to register a lease.

Northern Territory, New South Wales and Western Australian legislation state that a lease does not achieve indefeasibility until it is registered. Therefore, registration of a subsequent interest or sale of the freehold can affect the tenant’s rights to the land.

Other jurisdictions are less strict, granting the tenant some rights where the lease is unregistered. In Queensland, while generally leases do not achieve indefeasibility unless registered, there is an exception to this rule which states that the interests of the holder of a registered interest are not paramount over a ‘short lease’, which is an unregistered lease for a term of three years. Tasmanian legislation has a similar effect, stating that a lease for a term exceeding three years takes effect as an equitable lease only. South Australian legislation states that leases for a term exceeding 12 months must be registered to enjoy indefeasibility. Victorian legislation grants a tenant in possession statutory protection.

Failure by a foreign investor to recognise these discrepancies in Australian legislation can have serious ramifications, especially if the foreign investor is a tenant. These differences are cumbersome, requiring a firm understanding of the law in every Australian jurisdiction, and often the registration of short term leases, which can be time-consuming and costly.

Harmonising real property laws in Australia will encourage trade and commerce and simplify property transactions in Australia. PLRA members, representing the broad spectrum of peak industry associations and legal groups, are working towards achieving this goal.

The objectives of the PLRA

The main objective of the PLRA is to encourage nationally consistent property law, practices, procedures and compliance requirements throughout Australia in order to facilitate cross-border transactions and increase the inclusiveness of property-related regulation.

The PLRA also intends:

  • to encourage agreement on issues of property law;
  • to consider and formulate a national model of real property legislation;
  • to develop an advocacy campaign to promote the benefits of property law reform
    to Commonwealth, State and Territory governments;
  • to develop and implement a communications strategy which highlights the benefit of property law reform; and
  • to encourage alliances between the PLRA and organisations with similar objectives.

The path to harmonisation

With the assistance of Professor Peter Butt, the PLRA has drafted a Table of Contents for the Model Real Property Act. The purpose of the Table of Contents is to identify the main areas that would need to be covered and, in doing so, to demonstrate that, given the political will and a spirit of co-operation, it should not be difficult to develop uniform Torrens title legislation that will meet the requirements of all Australian jurisdictions.

The document draws on Torrens legislation enacted relatively recently in Australia, especially in Queensland and the Northern Territory. It also endeavours to clarify doubts on some aspects of the Torrens statutes highlighted in recent case law on certain points.

In order to bring about reform, the PLRA has had discussions with various Government representatives and Attorneys-General (including the former Commonwealth Attorney-General), and more recently a senior officer of the Attorney-General’s office Victoria regarding the Table of Contents. The PLRA is also in discussions with the office of the current Commonwealth Attorney-General regarding the development of the Model Real Property Act and the need for uniform real property legislation.

It is clear to see that the path to harmonisation, although a long process, can be achieved through the co-operation of the States. It is envisaged that the draft Table of Contents prepared by the PLRA will be the first and most important step towards achieving the goal of uniformity, and in doing so make Australia more competitive in the global market.

Members of the PLRA

Legal sector members of the PLRA include:

  • Australian Property Law Group of the Law Council of Australia;
  • Law Institute of Victoria;
  • Law Society of the Australian Capital Territory;
  • Law Society of New South Wales;
  • Law Society of the Northern Territory; and
  • Law Society of South Australia.

Industry sector members of the PLRA include:

  • Australian College of Community Association Lawyers;
  • Australian Institute of Conveyancers;
  • Australian Institute of Quantity Surveyors;
  • Australian Property Institute;
  • Australian Spatial Information Business Association;
  • Master Builders Australia;
  • Property Council of Australia (including the Shopping Centre Council of Australia);
  • Real Estate Institute of Australia;
  • RICS Oceania; and
  • Urban Development Institute of Australia.

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Clayton Utz communications are intended to provide commentary and general information. They should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from this communication. Persons listed may not be admitted in all States and Territories.