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Exclusive use areas in community titles schemes

December 13th, 2018

We have seen a few examples recently of buyers not being aware of the truth about garden areas, balconies and the like which are exclusive use areas associated with their unit or townhouse.  Areas such as these are often overlooked in the negotiation of the sale, or worse still, the buyer assumes that they are included or is given incorrect information by the real estate agent.  They can have a big impact on the use and enjoyment of the property, and its value.

What is an exclusive use area?

An exclusive use area is a part of the common property of the community titles scheme which has been designated for the exclusive use of the owners and occupiers of a particular lot, through the by-laws of the scheme.  The by-laws will usually specify which lot has the benefit of the area, for what purpose, and any conditions or other requirements which apply to the use.  Examples of areas which are often the subject of exclusive use by-laws are:

  • car parks;
  • courtyards;
  • gardens;
  • balconies or patios; and
  • roof top areas.

Such areas are not always exclusive use areas – often they will be “on title”, and form part of the legal, freehold title to the lot.

How do I know whether an area is an exclusive use area, part of the lot, or neither?

You cannot tell, either from a title search of the property or from a physical inspection of the property what areas are included on the title, what areas are exclusive use, and what are just general common property.  It is not uncommon for an area of yard to be fenced off for a particular unit, or even for a deck to be built over it, but with the owner having no legal title or exclusive use of the area.

The only way to know what areas are included in the title to the lot, and what areas are exclusive use for the lot, is to obtain a copy of the registered survey plan and community management statement.  The survey plan will show where the boundaries of the lot are.  The plan may show that the lot is made up of several areas in different parts of the building – such as the residential unit on one level and a car park on another.  The community management statement contains the by-laws for the scheme.  If there are any exclusive use areas, they will be recorded here, in a by-law and on a plan showing the location and boundaries of the area.

Is exclusive use as good as the area being part of the lot?

No, not quite.  An owner of a lot with an exclusive use area does have the right to stop others from using the area, and the exclusive use right cannot be taken off them without their written consent, so it is quite secure, but it is not the same as owning the area.  Here are some of the advantages and disadvantages of exclusive use compared to legal title:

Advantages: 

  • Flexibility – provided the body corporate is co-operative, it is relatively easy to change the size or shape of an exclusive use area, or to transfer it to another owner or swap areas with another owner in the complex (particularly handy in the case of underground car parks).
  • Easy to create – new exclusive use areas can be created and allocated without having to mess around with the title to the lot or pay stamp duty.

Disadvantages: 

  • You do not own it – The area is still common property and still owned by the body corporate, so you will normally need permission from the body corporate to make any substantial changes or improvements – such as installing a storage shed or swimming pool in a yard.
  • You can only use it for the purpose for which it was granted – car parks can only be used as car parks and not for storage or building a shed. Private yards can only be used as yard, and not for adding another room to the villa.
  • You still have to maintain it – ultimately your rights will depend on what the relevant by-law says, but in most cases the person who has the exclusive use of an area is also obliged to maintain it. That will include an obligation to maintain gardens, trees, walls, decks and pergolas etc in the area.

What can go wrong?

As mentioned above, exclusive use rights are quite secure, so the main area where things can go wrong is where the reality of them does not match up with a buyer’s (or owner’s) intentions and expectations.  For example:

  • Is a fenced off yard around a unit or townhouse actually exclusive use for that unit or townhouse?
  • Is the car park being used by the seller the correct car park allocated to the unit? Sometimes car park numbers do not correctly correlate to the exclusive use allocations in the by-laws.
  • Is that nice, big garden around the unit exclusive use for the unit, or can anyone use it? If it is exclusive use, are you prepared to maintain it (including any large trees), or do you expect the body corporate to do so?
  • If you want to put a pool, shed or garage in the yard, can you do this, or will you need body corporate permission?

Not having exclusive use of an area which you thought would be included can adversely impact on your ability to use and enjoy the area, as well as the privacy of your lot, and ultimately its value.  On the other hand, being saddled with the care and maintenance of an exclusive use area which you do not really need can be an unwanted burden.

There is nothing in the standard contract used for community title lots which identifies whether there are any exclusive use areas allocated to the lot, or the extent of them.  At Miller Harris, we always do a search of the survey plan and community management statement to identify exclusive use areas.  Some other lawyers do not.  However, even if the searches are done, a lawyer is not going to know what you expect to be included unless you tell them, and it can be difficult to terminate a contract due to an unmet expectation with regard to exclusive use areas, except in very clear cases.  It is better to check them out and get it right before the contract is signed.

What should buyers do?

The old principle of “buyer beware” applies, so:

  • ask questions of the selling agent about what is included in the lot, and any exclusive use areas, when you inspect the property;
  • be aware that agents do not always get it right, so ask to see the plan and community management statement, or better still, get your solicitor to check these out before you sign;
  • if you have specific plans for the property, such as making extensions or additions to it, discuss these with your solicitor before you sign; and
  • even if you have already signed a contract, tell your solicitor if you expect any exclusive use areas to be included with the lot, especially if they were important to your decision to buy the property.

If you are looking at purchasing a unit or townhouse and need advice about exclusive use areas please contact Nigel Hales, Accredited Property Law Specialist and partner at Miller Harris Lawyers on 4036 9700.

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Self managed super funds – not just another trust

December 4th, 2018

Self managed superannuation funds (“SMSF”) have become quite popular investment vehicles in recent years.  It is, however, important to remember that they are not a “set and forget” investment, nor are they like other investments or even other trusts such as family discretionary trusts. The superannuation legislation imposes stringent restrictions on what a SMSF can and cannot do, and also requires a much higher degree of record keeping, auditing and reporting than other forms of trusts.  It is important that trustees of SMSFs keep on top of these obligations and seek professional support to ensure compliance with them.

A recent example of SMSFs trustees not paying any regard to his obligations, essentially treating the SMSFs as his own (or at least as being a financial resource for his family), and coming spectacularly undone as a result is the case of Hart v Commissioner of Taxation.  That case involved a review of a decision by the Commissioner to disqualify Mr Hart from acting as a trustee, investment manager, custodian or officer of a trustee of a superannuation entity. The Commissioner was alerted to the issues by the fund’s auditor issuing a contravention report to the Commission in relation to one aspect of the SMSFs conduct.  The list of the contraventions of the superannuation legislation which were alleged by the Commissioner, and upheld by the Administrative Appeals Tribunal, were extensive and included:

  • failure to lodge annual tax returns for four years;
  • mixing super assets with personal assets;
  • transferring a property from related parties in circumstances where it was not permitted;
  • transferring the property at less than market value;
  • failing to register the property in the name of the trustee;
  • transferring the property subject to an existing mortgage;
  • making several cash payments to super fund members;
  • granting a rent free lease over the property to a related entity;
  • a dodgy investment in an overseas company, related to the tax payer;
  • providing money to allow a related entity to build a shed on the property;
  • the fund ceasing to be a SMSF because it at one stage had five members, when only four are permitted;
  • failing to ensure that the SMSF had the sole purpose of providing retirement benefits to members.

The tribunal found that the breaches were established, and the Commissioner’s decision to disqualify Mr Hart was correct.  We shudder to think what the tax implications of all this might have been, but it no doubt involved reassessments of tax payable by the fund and by the beneficiaries of it, with significant additional tax, and probably penalties payable.

The lesson to heed from this is that if you have a SMSF, do not treat it like your own money, or even like any other trust, ensure that your accountants are on top of the reporting requirements, and seek advice before you enter into any significant transactions, even if (or perhaps especially if) they are only “in house” transactions with related parties.

For more information, speak with our SMSF legal expert Nigel Hales.

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A gift for consumers in time for Christmas

October 23rd, 2018

In a win for consumers, the Commonwealth government passed legislation on Thursday providing for greater consumer protections in relation to gift cards.  It is expected this legislation will come into force on 1 November 2019.

The new laws provide that gift cards will now be required to have a minimum expiry period of three years and also ban most ‘post-supply’ fees for gift cards and vouchers.

What is a gift card?

While many of us would expect that laws on gift cards will only impact big business, the definition used in the legislation potentially creates a much broader application.

A gift card is defined to mean ‘an article that is commonly known to be a gift card or gift voucher, whether in physical or electronic form and is redeemable for goods or services.’

While this definition is quite broad and uncertain, future clarification is expected to be provided through regulations.* In the meantime, parliament has provided the following comments in relation to interpreting gift card:

“Gift cards may be redeemable in a single store or across multiple different businesses. They are generally defined with reference to a dollar amount or as being redeemable for a specific good or service and cannot have additional value added to them after they have been supplied. Gift cards are also generally not redeemable for cash beyond a minimal amount in change.”

As these provisions have a broad application, you should consider carefully whether they apply to you or your business.  It is not necessary for a card to be purchased and given to someone else – a card used by the purchaser can still be a gift card.   It is possible that ‘gift card or voucher’ will apply to most pre-paid services such as pre‑purchased passes for entry to a venue, or provision of services such as classes at a gym.

The new laws

The most significant change is that gift cards must now have a minimum expiry period of three years.

The expiry information must be prominently displayed on the card itself.  This can be either the expiry date itself, or the supply date and a statement about the period of validity.  Even where a gift card has no expiry date, this must be displayed on the card or voucher.

The new laws additionally prohibit charging of certain fees after the card is supplied.  Again this provision is drafted broadly and currently forbids all post-supply fees except those prescribed by the regulations.

The draft regulations currently allow the following fees or charges:

  1. for making a booking;
  2. for disputing a transaction;
  3. for exchanging currencies;
  4. for replacing a stolen, lost or damaged card; and
  5. payment surcharges.

While this is only a draft list, it seems parliament only intends to allow administrative fees. Monthly fees or other fees that are deducted automatically without explicit communication of the request or demand are prohibited.

Final thoughts

Business owners will not know exactly what they need to do to prepare for these new laws until the regulations are finalised and registered, which should be prior to 1 November 2019.  However, it will be worthwhile considering how this requirement might potentially change you business and what administrative changes might be required, so that you are ready to comply once the laws come into force.  In many instances the changes required for businesses may be minor.  The new laws will apply to all gift cards issues on or after 1 November 2019.

A failure to comply with these new laws carries significant financial penalties.  In the case of a corporation it could be up to $30,000, while individuals face penalties of up to $6,000.

If you have any doubt about your compliance obligations, or whether these new laws will apply to you, please do not hesitate to contact our commercial team on 07 4036 9700.

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Don’t get bitten by a Zombie DA

April 26th, 2018

A recent High Court case has highlighted that development approvals are not dead and buried once a development is substantially complete.

In Pike v Tighe, some land was subdivided pursuant to a development approval which included a condition requiring an easement to be granted over part of one lot (lot 1) in favour of another (lot 2) for access, on site manoeuvring, services and utilities.  The development approval was issued in May 2009, and an easement was lodged with the council along with the plan of subdivision, but it did not comply with the condition because it did not provide for on site manoeuvring or connection of services and utilities.  Despite this, the council sealed the plan and the easement and plan were registered.  Lot 1 was sold to the Tighes in 2011.  Lot 2 was sold to the Pikes in 2012.

A dispute evidently arose between the two lot owners about whether the Pikes were entitled to an easement which included rights to manoeuvre and connect to services and utilities, and whether the council could force the Tighes, as the owners of lot 1, to grant such an easement.

Section 245 of the Sustainable Planning Act (which was then in force) provided that a development approval attaches to the land and binds successors in title and any occupier of the land.  A similar provision can now be found in section 73 of the Planning Act 2016.

The High Court ruled that the condition of a development approval obtained by the original developer did bind the current owners of the land, despite the site having since been subdivided, and the present owners (the Tighes) could be forced to grant the easement.  By failing to comply with the condition of the development approval within a reasonable time after they had become the owners of the property, they committed a development offence.

The case was somewhat unusual in that the council involved had sealed the plan without the condition having been properly complied with, but this can occur from time to time for a variety of reasons.  It is not uncommon for a property owner or occupier to have failed to comply with development conditions.  For example, this can be the case where there is a material change of use approval, and the council has no “hold point” such as plan sealing to ensure compliance before the use starts, or perhaps the condition was originally complied with but circumstances have since changed so that the property is no longer compliant.

Development conditions for commercial properties in particular can have a substantial impact on the owner of the property by, for example, requiring a substantial easement to be granted over the land, or requiring the owner to upgrade the road providing access to the property.  It is certainly worth having your lawyer check the planning position out thoroughly as part of your due diligence process before you complete a purchase.  If you do not, an approval which you thought was finished off by a previous owner or occupier might just come back to bite you.

For more information about this issue and all commercial property matters please contact our partner and accredited property law specialist, Nigel Hales on 07 4036 9700.

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Beware Before Consenting to Development Approvals

April 24th, 2018

In a recent case, a property owner was stuck with a $400,000 infrastructure charges bill because he consented to a development application without paying proper attention to the possible consequences.

An infrastructure charge is something which councils can impose for new development.  They are usually triggered by a development application, and become payable when the rights under the development approval are exercised, such as when the change of use occurs.   Although the planning legislation in its various recent forms has not specified that infrastructure charges run with the land, it has for some time said that they are recoverable as rates.

In the case, an owner consented to a tenant making a development application to use his land as a refuse transfer station.   The use had actually already, unlawfully, commenced.  The application was approved by the council, and council issued an infrastructure charges notice to the tenant (not the owner) for $356,718.84.  The tenant did not pay it, and presumably was insolvent because it was not joined in the proceedings.  Four years later the council issued a rates notice to the owner for $400,574.94, which included the infrastructure charges.   Ultimately the Court of Appeal held that council could do this, and the owner had to pay.

In my experience property owners are often fairly flippant in granting consent to tenants, purchasers and option holders to enable them to make development applications.  Often in the case of contracts and options, there is no real description of what it is that the owner is required to consent to  – just a development application of some sort.  It is worth remembering though that development approvals, and their conditions, run with the land and so will bind the owner.  As this case shows, infrastructure charges are treated similarly.  Owners should be cautious about what they are consenting to, especially if there is a prospect of the development commencing while they are still the owner of the land, thus triggering the need to comply with conditions and pay infrastructure charges.

For more information, please contact Partner, Nigel Hales.

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Short term (holiday) accommodation in community title schemes – an international issue

February 6th, 2018

For years there has been tension in some community (strata) title schemes involving conflicts between holiday makers and permanent residents. There have been attempts by schemes which are predominantly permanent residential complexes to outlaw holiday letting via by-laws, and even some attempts by schemes which are predominantly holiday let to outlaw permanent residence.  So far, these attempts have failed in Queensland, with the by-laws being found to be invalid.  The town planning and development approval laws are effectively the only controls, but many local planning schemes and approvals are not sufficiently clear to offer any help.

The popularity of short term accommodation booking services like Airbnb have added further fuel to the fire, and last year saw some significant decisions about the issue. In fact, the issue went all the way to the Privy Council in London, the highest court in the British Commonwealth[1], in an appeal from a case in the Turks and Caicos Islands[2].  The Turks and Caicos Islands are a collection of islands located in the northern Caribbean, almost as beautiful as Far North Queensland. In that case, a body corporate was attempting to enforce a by-law which said that units in the complex could only be used for the private residence of the owner, or the owner’s guests and visitors, but could be rented out for periods of not less than one month.

One of the owners was letting his unit for a week at a time to holiday makers. He argued that the by-law was invalid, because it was a restriction on the sale, disposition or letting of the unit, and contravened a prohibition on such restrictions contained in the relevant strata title legislation. A similar restriction can be found in the strata title legislation in most states of Australia, including Queensland.

The Privy Council found that the by-law was valid, because it did not restrict or prohibit letting, but rather related to the use of the lot, and sought to preserve the fundamentally residential character of the complex.  In doing so, the Privy Council had regard to a similar decision made by the Court of Appeal in Western Australia in June 2017[3].

So will this decision help bodies corporate in Australia who want to impose such by-laws?  Well in some jurisdictions, yes, but not in all.  New South Wales, Western Australia, Northern Territory and ACT will all benefit, as they all have directly comparable legislation to that considered in the Privy Council decision. South Australia has a similar provision, but also has a section allowing a court to strike out a by-law which reduces the value of a lot, which might prove problematic.  The Privy Council decision might also be helpful in Victoria, but the by-law will have to be very carefully worded due to differences in the legislation.  Tasmania has a section in its legislation which specifically allows by-laws to prohibit short term letting, so it should be less of an issue there.  Queensland is different again.

In Queensland we have a section of the Body Corporate and Community Management Act which corresponds with the legislation considered by the Privy Council[4].  However, we also have sections which prohibit by-laws restricting the type of residential use[5], and prohibit by-laws which discriminate between types of occupiers[6].  Short term and long term accommodation have both been regarded as residential uses in Queensland, and there have been several examples of by-laws dealing with the issue having been declared invalid.  There is also a possible argument that it is unreasonable for a body corporate to adopt a by-law which prohibits a use of a lot which would otherwise be lawful, and that doing so breaches the body corporate’s duty to act reasonably under section 94(2) of the act.  That argument has been successfully used to invalidate by-laws which prohibit having animals in a community titles scheme. So whilst the recent decisions offer hope to much of the rest of Australia, it is likely that Queensland will need to await legislative change before bodies corporate can regulate short term letting through by-laws.

[1] It was once possible to appeal to the Privy Council from Australian Courts, but that was abolished in 1986.

[2] O’Connor (Senior) and Others v The Proprietors, Strata Plan No. 51 [2017] UKPC45

[3] Byrne v The Owners of Ceresa River Apartments Strata Plan 55597 [2017] WASC 104

[4] Section 180(4) Body Corporate and Community Management Act

[5] Section 180(3)

[6] Section 180(5)

For more information about this article, please contact Partner Nigel Hales.

Nigel is also the only Accredited Property Law Specialist in Cairns.

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