Commercial real estate in Australia: overview
A Q&A guide to corporate real estate law in Australia.
The Q&A gives a high level overview of the corporate real estate market trends; real estate investment structures, including REITs; legislation; title and public registers of title; confidential information; state guarantee of title; tenure; sale of real estate; seller's liability; due diligence; warranties; cost; taxes and mitigation, including VAT and stamp duty/transfer tax; climate change targets; third party outsourcing; restrictions on foreign ownership or occupation; finance; leases; planning law and consents; and proposals for reform.
To compare answers across multiple jurisdictions, visit the Corporate Real Estate Country Q&A tool.
This Q&A is part of the multi-jurisdictional guide to corporate real estate law. For a full list of jurisdictional Q&As visit www.practicallaw.com/realestate-mjg.
The corporate real estate market
The Eurozone sovereign debt crisis and global financial volatility have compounded the negative effects of weak growth in developed economies. This has contributed to an unpredictable Australian property market. These uncertainties have been countered to some extent by the strong economic fundamentals underpinning the Australian economy.
Trends displayed in the Australian market include:
Foreign investment (particularly from China, Singapore, Malaysia, Hong Kong and Canada) into the Australian property market remains strong in respect of luxury hotel assets, residential developments and significant office assets. Offshore investors regard Australian investments as a relatively secure option in comparison to other global investment destinations. Across the market generally, occupancy rates are high and rental income has been stable.
Retail property investment has increased despite only soft growth in the retail sector. The previous 12 months have continued to see weaker gross rents in retail and a trend for landlords to offer greater incentives in the retail leasing context. While vacancy rates are low, there has been an increasing trend for tenants to occupy spaces on a short-term basis, considering that tenant demand has remained selective.
Significant deals in the last 12 months include:
DEXUS' purchase of 480 Queen Street, Brisbane for A$544 million from Grocon.
Charter Hall's purchase of Bankwest Place, Perth for A$458 million from the receivers of Westgem Investments Pty Ltd.
ISPT's purchase of a 50% interest in 1 William Street, Brisbane for just under A$400 million from Cbus Property.
Investa's sale of the Centennial Plaza Complex, Sydney for A$300 million to the Chinese Investment Corporation.
Bright Ruby's purchase of 231 Elizabeth Street, Sydney for A$201 million from Investa Property Group and ICPF.
Stockland's sale of a 50% interest in 133 Castlereagh Street, Sydney for A$194.25 million to Investa Office Fund.
Stockland's sale of a 50% interest in the Optus Centre at Macquarie Park, Sydney for A$184 million to AIMS AMP Capital Industrial REIT.
Real estate investment
The most common structures used for real estate investment are:
Special purpose vehicle companies (incorporated joint ventures).
Unincorporated joint ventures.
Real estate investment trusts (REITs).
REITs are commonly used in Australia. The main legal vehicle used for REITs is the unit trust. Stapled structures are commonly used where units in a REIT and shares in the company that manages the fund are traded on the Australian Securities Exchange (ASX) as if they were a single security.
Typically, institutional investors invest in real estate through property trusts.
Private investors (who do not invest through a company) often invest directly, or through an unincorporated joint venture structure.
Real estate legislation
Each of the states and territories in Australia has separate real estate legislation. Generally, each jurisdiction has:
Legislation governing the Torrens title system (see Question 5).
Legislation relating to general property matters.
Crown lands legislation. (Crown Land is land which is owned and managed by the government of each state and territory, which has not been the subject of a grant.)
Consumer protection legislation, specific to certain real estate transactions, such as residential tenancies and retail tenancies.
Legislation regulating planning and land use.
Further, the Native Title Act 1993 (NTA), which is Commonwealth legislation, provides for the recognition and protection of native title. Native title is the recognition by law that some indigenous people have rights and interests to land that come from their traditional laws and customs.
The Personal Property Securities Act 2009 (Cth) (PPSA) commenced on 30 January 2012. While the PPSA does not apply to land or fixtures, it may still have an impact on real estate transactions such as leasing and the sale or purchase of real estate, in particular transactions which involve premises fit-out or other improvements. The PPSA should be carefully considered for each real estate transaction.
Title to real estate
Title and registers
Title to land includes title to the improvements or fixtures on the land.
There are some limited exceptions to this, for example:
Fixtures brought onto the land by a tenant may remain the property of the tenant (and therefore are excluded from the title to the land).
Fixtures brought onto the land by a statutory authority (for example, works for the provision of services to the land) generally remain the property of the authority.
Generally, title to land does not include minerals lying beneath the surface of the land as these are the property of the Crown.
Most land in Australia is Torrens title land where title to real estate is evidenced by registration in a public register of title, maintained by the relevant government body in each state and territory. In most jurisdictions in Australia, a certificate of title is issued for the property, which is held by the registered proprietor or, if the property is subject to a mortgage, held by the first registered mortgagee.
Other forms of land holding which are sometimes regarded as separate title systems, but which are forms of Torrens title, are:
Strata title, that is, a form of ownership devised for multi-level buildings and horizontal subdivisions with shared areas.
For old system land, (that is, land granted before the commencement of the Torrens title system in 1863 and which has not since been converted to Torrens title land) title is evidenced by a chain of deeds which show the ownership of land back to a good root of title (such as the original Crown grant). Generally, copies of these deeds are publicly available in a separate register to the Torrens title register.
For some land, no title is issued, for example:
Public roads (which vest in the applicable roads authority under statute).
Crown land, which has not been the subject of a grant and is managed by the Crown, under statute.
Information in the public register
The main information and documents registered in the Torrens register are:
A description of the property by reference to a registered survey plan of the land.
The owner of the land and the type of estate which is held (that is, freehold or leasehold).
Other legal estates or interests in the land, and the name of the person who holds that estate or interest (such as a mortgage or a lease).
The terms of any easements, covenants or restrictions on use that burden the land.
Unregistered interests in the land can also be recorded in the register, for example, a proposed easement, or an equitable interest recorded in a caveat.
Protection from disclosure
Documents in the public register are freely available. Once documents, or terms within documents, are registered they cannot be protected from disclosure.
However, it is not uncommon practice for parties to a lease to record terms they want to keep confidential in side deeds which are not registered.
State guarantee of title
State guarantee of title
There is a state guarantee of title in that, once an interest in land is registered, under the Torrens system (subject to certain exceptions, such as fraud) the owner of that interest holds it free from any estates or interests which are not recorded in the register. The register is conclusive; therefore, title cannot be set aside because of a defect which arose prior to the grant of the interest. The Torrens title system is often referred to as a system of title by registration, rather than registration of title.
Title legislation also establishes a statutory compensation scheme, or assurance fund. The fund is maintained by the government in each jurisdiction, and recourse to the fund is available to a person who is deprived of land or an interest in land through the operation of the Torrens system.
Title insurance is available in Australia. However, because registration of title gives the registered proprietor an indefeasible interest in land, title insurance is not commonly used.
In all jurisdictions except the Australian Capital Territory (ACT) tenure is either freehold or leasehold. In the ACT, only a small amount of land is freehold, as the majority of land is held under long-term leases granted by the Crown.
Leasehold title can be granted either by:
The freehold owner of the land.
The Crown, where the land has not previously been divested by the Crown (in the form of either a perpetual lease or a fixed term lease).
Both freehold and leasehold tenures can be held jointly by co-owners, as either tenants in common or joint tenants:
Tenants in common. Tenants in common are regarded as each owning a discrete interest in the land, which is capable of being dealt with (for example, sold or mortgaged) separately from the interests of the other co-owners.
Joint tenants. Joint tenants do not hold proportionate shares in the property, but are each regarded as holding an interest in the whole property, along with the other joint tenants.
Sale of real estate
Main stages and documents
Generally, commercial agents who are licensed to sell real estate are engaged by owners to market properties for sale.
Once a property is on the market, commercial negotiations take place between the owner and all prospective buyers. For large transactions, procurement processes may limit the number of interested parties who are selected by the seller to engage in the detailed negotiation process. Lawyers and other expert consultants are usually involved in advising parties to the negotiations.
The following pre-contractual arrangements are often used in real estate transactions:
Heads of agreement or exclusive dealing agreements. An agreement of this nature can be entered into when parties negotiate contract terms, and the buyer requires (and the seller has agreed to provide) an exclusivity period during which the property will not be sold to any other person while negotiations are taking place.
Option agreements. These agreements are often used when the parties have reached an agreement on the terms of the contract but are not in a position to enter into an unconditional contract. This occurs, for example, when a buyer's commitment is conditional on completion of satisfactory due diligence enquiries, or on obtaining development approval. The buyer can enter into a call option, under which it has the right during a fixed period to call on the seller to sell it the property. If the relevant condition is not satisfied, the buyer can elect not to call, in which case the agreement between the parties will lapse. A fee is generally payable for a call option. Similarly, under a put option, the seller has the right during a fixed period to put the property to the buyer, that is, require the buyer to acquire the property.
Sale contracts will be executed and entered into once all the terms of the contract have been agreed between the parties.
When legally binding
Once written contracts have been signed by both parties, and counterparts have been exchanged, the parties are legally bound. Usually the buyer pays a 10% deposit to a stakeholder on exchange of contracts.
Generally, if an option has been entered into as a pre-contractual arrangement, parties are legally bound once the option has been exercised either by the buyer (in the case of a call option) or the seller (in the case of a put option) without the need for parties to sign and enter into sale contracts.
The change of title is registered after completion of the sale, by lodging the appropriate dealing form for registration. This should be done immediately after completion.
When title transfers
For Torrens title land, title transfers once a transfer form has been registered in the register of titles. The transfer must be prepared in accordance with the Registrar-General's requirements as to form, content, execution and witnesses (which differ in each state and territory in Australia). The transfer must also be stamped to evidence payment of transfer duty before it is capable of being registered. There is no notarisation requirement.
Seller's liability to the buyer
In some jurisdictions, (such as New South Wales (NSW), Queensland (QLD), and the ACT) a seller is statutorily required to disclose certain matters in the contract when disposing of real estate. These range from the mandatory disclosure of certain documents, to expressly disclosing in the contract any issue affecting the property that is covered by a statutory interest.
If the seller breaches these statutory obligations, the buyer (in some circumstances) may have a right to rescind the contract. Statutory obligations imposed on the seller do not remove the need for a buyer to undertake appropriate due diligence enquiries, particularly concerning matters not covered under the applicable statutory regime.
A seller must also avoid making misleading or deceptive representations to buyers. If a seller misleads a buyer, it may have a claim against the seller under either, or both:
Common law, as a claim for misrepresentation.
When preparing the draft contract, a seller's lawyer will generally obtain copies of the mandatory disclosure documents required to be included in the contract (if applicable for that jurisdiction), such as title searches, plans and planning authority information. For more significant transactions, a seller should:
Conduct enquiries to determine if there are further matters that should be expressly included in the contract (for example, so that any applicable statutory warranty deemed to be given by the seller is not breached).
Organise all documentation to be provided to a buyer as part of the buyer's due diligence enquiries.
Obtain a contamination report concerning the land (if considered appropriate).
A buyer will undertake enquiries (both pre- and post-contract exchange) as applicable for that jurisdiction, to determine if the seller has complied with any statutory requirements. Before exchange, a buyer usually obtains building and pest inspection reports to determine the physical state of the building. If a buyer is purchasing strata titled property, it should inspect the owner's corporation records (see Question 5).
For more significant transactions, a buyer should conduct detailed due diligence enquiries concerning the property such as:
Any encroachments by or on the land.
The physical condition of the building.
Compliance with planning laws and development consent conditions.
The status of leases and tenancies (for tenanted properties).
Financial matters regarding the property, if it is part of an ongoing business of leasing tenancies.
Contamination on the property (which involves a contamination report).
A search of the register created under the Personal Property Securities Act 2009 (Cth). This includes searches on the seller or any significant tenant regarding security interests held by third party financiers, or whether a seller as landlord has registered a security interest regarding premises fit-out (see Question 3).
The scope of a seller's contractual warranties is a matter for commercial negotiation between the parties.
A buyer should undertake extensive due diligence enquiries but it can also seek warranties from the seller concerning issues that it is unable to confirm. Warranties include:
Current rental levels and the arrears position in respect of the tenancies.
The accuracy and completeness of the due diligence information that has been provided by the seller to the buyer concerning the property.
The existence of any dispute or litigation relating to the property.
A buyer inherits liability for most matters relating to the real estate once it becomes registered as the owner of property. Therefore, it is important that a buyer conducts thorough due diligence enquiries into potential liabilities before the exchange of contracts.
This includes liability for:
Payment of statutory charges (such as council rates, water rates and land tax), including any unpaid amounts for periods before the transfer.
Landlord obligations under a lease (such as a clause providing for landlord works or allowing for a rent-free period).
Potential environmental matters, such as pre-existing contamination.
The aim of contamination and environmental legislation is that the polluter is liable for remediation. However, it is not always possible to determine when the pollution occurred and who caused it. In some jurisdictions (including NSW) the relevant regulatory body has a broad discretion to pursue the current owner or occupier, if that is considered the most appropriate option.
Retention of liability after disposal
When a seller disposes of property, it can still retain liability under:
Environmental laws, for pollution or contamination concerning the property. In some jurisdictions (such as NSW) the relevant regulatory authority has a broad scope as to whether it commences action against a previous owner (who may have caused the pollution) or a current owner or occupier. Therefore, the issue of contractual indemnities and releases concerning pollution and contamination are often contentious when negotiating the contract.
Any contractual warranties that the seller agreed to give the buyer.
Common law and/or statute for any misrepresentation or misleading conduct by the seller during the sale process.
Seller and buyer costs
Real estate taxes and mitigation
If the sale of real estate constitutes a taxable supply, goods and services tax (GST) is payable on the sale. A taxable supply is made if all of the following conditions are met:
The supply is for consideration.
The supply is in the course or furtherance of an enterprise.
The supply is connected with Australia.
The supplier is registered, or required to be registered for GST.
The supply is neither GST-free nor input-taxed.
The application of the GST law to property transactions is complex. For example:
Some transactions are GST-free if they fall within exemptions contained in the legislation. These include certain supplies of farm land, and sales which constitute the supply of a going concern. In December 2013, the Australian Government announced that it will replace the current GST-free treatment for farm land sales and going concerns with a "reverse charge" mechanism.
Other transactions, such as the supply of used residential property, are input taxed. GST is not payable on these transactions, and no input tax credits are available for GST paid on any acquisitions in the course of making the supply.
If GST is payable under the GST law, it is the liability of the seller. However, the liability is generally passed on to the buyer under the contract. The rate of GST is one-eleventh of the GST inclusive price (or 10% of the GST exclusive price). However, for property transactions, the legislation contains a scheme referred to as the margin scheme. This scheme operates to reduce the amount of GST payable if the seller is eligible to use the margin scheme for the particular sale. A seller can use the margin scheme if it purchased property before 1 July 2000 (the commencement of GST) or if it is purchased after 1 July 2000 and there have been no transfers of the property after 1 July 2000 that were fully taxable and the margin scheme was not used.
Stamp duty is payable on the transfer of land, and must be paid by the buyer. Stamp duty is payable in the state or territory where the land is located. The rates of stamp duty for each jurisdictions are as follows:
ACT. Ad valorem (that is, a tax based on the value of the real estate) with rates up to 7.25%.
NSW. Ad valorem rates up to 7%.
Northern Territory. Ad valorem rates up to 5.45%.
QLD. Ad valorem rates up to 5.75%.
South Australia (SA). Ad valorem rates up to 5.5%.
Tasmania. Ad valorem rates up to 4.5%.
Victoria (VIC). Ad valorem rates up to 6%.
Western Australia (WA). Ad valorem rates up to 5.15%.
From the date of the transfer, stamp duty must be paid within a fixed period of time. Under most stamp duty legislation, the date of the transfer is the date when the agreement to transfer is entered into, rather than completion. The time period varies between jurisdictions, from 30 days (Victoria and Queensland) to three months (New South Wales) after entering into contracts. Penalties and interest apply for late payment of duty. A transfer of land cannot be registered if it has not been marked( that is, stamped) by the relevant state revenue office evidencing payment of stamp duty.
Various exemptions and concessions are available in each jurisdiction to mitigate stamp duty. The conditions that must be met to satisfy the exemptions differ in each jurisdiction.
The main exemptions are:
Certain transfers involving trusts.
Transfers between superannuation funds.
Transfers arising as a consequence of marriage and relationship breakdowns.
Transfers arising from corporate reconstructions.
The stamp duty legislation in each jurisdiction and the Commonwealth tax laws include broad ranging general anti-avoidance provisions. This limits the ability to structure transactions where the proposed structure is for the purpose of minimising stamp duty or tax liability.
Holding business premises
Climate change targets
There are currently no targets to reduce greenhouse gas emissions from buildings, or legislation requiring buildings to meet certain minimum energy efficiency criteria. However, there are requirements and legislation relevant to the energy efficiency of buildings and a strong trend towards the encouragement of greater energy efficiency.
National Construction Code
The Australian Building Codes Board is a joint initiative of all levels of government. Its role is to regulate design, construction and performance of buildings through administration of the National Construction Code (NCC). The NCC contains requirements for energy efficiency for all building classes and is given legal effect through state and territory building legislation.
Commercial Building Disclosure
From 1 November 2010, there are mandatory obligations applicable to many commercial buildings (Building Energy Efficiency Disclosure Act 2010). Most sellers or landlords of office space of 2,000 square metres or more are required to obtain and disclose an up-to-date energy efficiency rating. Certain exemptions apply. These exemptions include:
Buildings undergoing or which have undergone a major refurbishment in the last two years.
Strata titled buildings (see Question 5).
Buildings with a total office space of less than 75% of the building by net lettable area.
A transition period applied for the first year of the programme during which a valid National Australian Built Environment Rating System (NABERS) energy base or whole building rating can be disclosed.
From 1 November 2011, the legislation provided that a full Building Energy Efficiency Certificate (BEEC) must be disclosed. BEECs are valid for 12 months and must be publicly accessible on the online Building Energy Efficiency Register. BEECs must include:
A NABERS energy star rating for the building.
An assessment of tenancy lighting in the area of the building that is being sold or leased.
General energy efficiency guidance.
The NABERS energy star rating must also be included in any advertisement for the sale, lease or sublease of the office space.
The market is still assessing the degree of impact the BEEC regime is having on rents, leases and yields (both in the shorter term and the longer term).
Green Star is a voluntary environmental rating system that evaluates the environmental design and construction of buildings. The system is administered by the Green Building Council of Australia through the Green Star environmental rating system for buildings (www.gbca.org.au). Green Star rating tools are applied to assess a building for design and construction, rather than use. The criteria applied vary according to the type of building and its use. Generally, the criteria include factors such as space use, materials, transport and emissions.
Third party outsourcing
It is common for companies to engage the services of real estate agents, managers and other consultants to manage their real estate portfolios. Generally, the services provided include:
Securing tenants for buildings.
Co-ordinating facilities management of buildings.
Financial management of the properties.
Generally, accommodation needs for companies are managed by outsourced consultants who specialise in assisting major tenants with their accommodation.
Restrictions on foreign ownership or occupation
There are restrictions on foreign ownership. Unless an acquisition is exempt (see below), foreign purchasers must notify the Australian Government before acquiring an interest in urban real estate. Urban real estate means all real property, other than rural land used wholly and exclusively for carrying on a substantial business of primary production (for example, farming). An interest in urban real estate includes an interest as tenant of urban real estate for a term exceeding five years.
If a contract to purchase is entered into, it should be conditional on obtaining foreign investment approval, and remain conditional until after it is granted. Foreign persons (which includes both natural persons and corporations) are in breach of the Foreign Acquisitions and Takeovers Act 1975 if they enter into an unconditional contract to acquire real estate (or if their conditional contract becomes unconditional) before approval is granted. They can be subject to significant penalties.
For commercial (non-residential) property, exemptions apply to the following:
Buyers of an interest in property valued below:
A$50 million generally for developed commercial property;
A$5 million for heritage listed properties;
A$1,005 million for US investors (because of the Australia-United States Free Trade Agreement).
Buyers of an interest in developed commercial property, where the property is to be used immediately and in its present state for industrial or non-residential commercial purposes. Further, the acquisition must be wholly incidental to the buyer's proposed or existing business activities.
Acquirers of an interest by will or by operation of law (such as a court order regarding the division of property in a divorce settlement, but not if both parties agree to transfer property without a court intervention).
Acquirers of real estate from the government (Commonwealth, state or territory, or local).
Issues on change of control
A change of control of a company (in the absence of any other factors) does not affect its holdings of freehold real estate.
It is common that a change in control of a tenant company will trigger provisions in the lease requiring the landlord's consent to change. A lease will usually include a provision that, other than where the tenant company is publicly listed, a change in control of 50% or more of the shareholding in the company will be deemed to be an assignment of the lease, requiring the landlord's consent.
Federal, state and local authorities can compulsory acquire land, including business premises, in a wide range of circumstances where land is required for a public purpose, such as the delivery of public infrastructure (for example, public roads).
Where native title may exist, procedures under the future act regime in the NTA (which concerns legislation that may affect native title in the future) (see Question 3) must be complied with.
In each jurisdiction the acquiring authority must compensate the land owner. The principles used to assess land value differ across jurisdictions. However, the central component of compensation is determined as the market value or actual value of the land at the date of acquisition (disregarding any increase or decrease in value resulting from the project for which the land was acquired). Certain other matters can also be taken into account, such as any:
Special value of the land to the person on the date of the acquisition.
Loss attributable to severance of the acquired land from other land in the possession of the landowner.
There are no municipal taxes payable on the occupation of business premises. However, when a tenant occupies the premises, they usually contribute to the municipal rates and taxes (or a proportion) in addition to payment of rent. When an owner of freehold real estate occupies the premises, municipal rates and taxes are payable as an owner of the real estate.
Real estate finance
Generally, they are funded by loan arrangements with one or more of a wide range of financial institutions. Typically, security for such loans is by registered mortgage over the real estate asset and/or the giving of other securities or charges.
There are also structures involving the creation of vehicles such as REITs, which are regulated and professionally managed. The trusts hold the real estate assets and investors acquire an interest in the trust.
This usually occurs through a mortgage or other charge or securities over real estate assets (see Question 28).
The most common form of security granted is a registered mortgage over freehold or leasehold real estate. Registration grants the mortgagee indefeasibility of title and priority against unregistered or subsequent securities, such as a second mortgage. Prior to registration, there may be a requirement to pay duty on the mortgage. The rate of duty payable varies according to the relevant state and territory.
If the security provider defaults, the mortgagee's rights to enforce the terms of the mortgage are governed by both:
The terms of the mortgage and any other relevant contractual arrangements between the parties (including third parties).
The relevant legislation in each state and territory.
Freehold and leasehold real estate may also be subject to a charge as security for a debt or performance of another obligation. Charges can be given over other assets in addition to real estate and are usually registered in the Register of Company Charges administered by the Australian Securities and Investments Commission. The security holder's rights and priority are governed by the Corporations Act 2001 and other relevant legislation.
Real estate securitisation is common in Australia. Residential mortgage-backed securities (RMBS) are the most common form of securitisation and are an important source of financing. Residential mortgages are a significant proportion of the overall domestic credit supply.
Australia's residential mortgage origination is dominated by the authorised deposit-taking institutions (ADIs) which comprise the following:
All ADIs in Australia must be licensed and are regulated by the Australian Prudential Regulatory Authority.
Australian RMBS issuance has been steady over the past year.
Real estate leases
Negotiation and execution of leases
Commercial leases are freely negotiable, subject to the general constraints of the common law of contract (for example, a clause could be void and unenforceable because it is held to be a penalty, or it could be vaguely drafted so that it is void for uncertainty).
Commercial leases fall under the general property legislation in each jurisdiction, covering such matters as lease registration, indefeasibility under the Torrens system and the rights of tenants for relief against forfeiture of a lease.
In most jurisdictions (such as QLD, NSW and the ACT) there are covenants implied by statute into leases. Typically, most leases expressly exclude these provisions and instead include more detailed provisions within the lease.
Most states and territories have specific retail tenancy legislation, with the exception of Tasmania where the Code of Practice for Retail Tenancies applies. These statutory regimes intend to make retail leasing more efficient and reduce the possible power imbalance between, for example, large retail landlords and individual/small business retail tenants.
Some provisions in the retail legislation cannot be contracted out of at all, while in other cases, it is only possible with an express written waiver from the tenant (for example, with minimum lease terms). There is currently no harmonisation of retail tenancy laws across Australian jurisdictions.
A lease agreement can still exist and have contractual validity even if not in writing. However, for a lease to be in registrable form, it must comply with the requirements of the particular jurisdiction's general property legislation.
Generally, for short term leases that do not require registration for the tenant's interest under the lease to be protected, a lease should be in the form of, and executed as, a deed. This avoids the possibility of being held by a court to be, for example, a tenancy at will and therefore lose any applicable statutory protection against a subsequent party seeking to register an interest in the property.
Rent levels and reviews
Some retail leasing legislation regulates the rent review process to a certain extent. In commercial leases generally, rent review is a commercial matter for negotiation and includes the following methods:
Market rent review (which may include a cap (maximum amount) or collar (minimum amount) to apply).
Consumer price index (CPI) review.
A fixed annual review.
A combination of the first three bullet points.
The supply of commercial property for lease is a taxable supply (if the landlord is registered for GST) (see Question 17). GST is therefore payable on rent and leases will include a GST clause to this effect.
Length of term and security of occupation
In commercial leases, excluding those that may fall within leasing legislation (for example small commercial premises in the ACT) the following are commercial matters to be agreed between the parties without statutory intervention:
The term of the lease.
Whether the tenant has any option to renew the lease at the end of the term.
Generally, the more substantial the lease in terms of value, the more likely it will be at least five years in duration and have options to renew. Substantial leases of at least 20 years (including options to renew) are common.
In retail leases, a minimum term of the lease (unless such right is expressly waived by a tenant) is usually prescribed by statute. In most jurisdictions (such as, NSW, ACT, VIC, WA) this term is five years.
In jurisdictions that commonly register leases, the term of a lease may also determine whether the lease is required to be registered to protect the tenant's interest against any subsequent dealing.
Restrictions on disposal
Provisions concerning assignment and subleasing are commercial matters for the parties to negotiate. Typically, in commercial leases, a tenant will be unable to engage in conduct of the following nature without the consent of the landlord:
Sublease or licence.
Part with possession of premises.
Effect a change of control of a company tenant (as defined in the lease), being a deemed assignment.
Mortgage, charge or otherwise grant any security interest over the lease,
In more substantial leases, these clauses are often the subject of extensive negotiation.
Use of premises within a corporate group
Due to the restrictions that commonly apply to commercial leases (see Question 34), if a company wants to share (or potentially share) premises with a related entity, the lease should be negotiated by the tenant so that a clause specifically allows this to occur. It is not uncommon for members of large corporate groups to negotiate such provisions.
Repair and insurance responsibilities
Repair and maintenance provisions must be negotiated and clearly set out in a lease. It is typical in a lease that a:
Landlord is responsible for capital and structural works to the premises (unless the need for such works is caused by the tenant).
Tenant is responsible for the general repair and maintenance of the premises, usually subject to fair wear and tear.
At the end of a lease, a tenant may be required to redecorate the premises, though this is a matter for negotiation. Further, a tenant will also generally be required to make good the premises. It is important that make good clauses in a lease are unambiguous as disputes often arise. Prudent parties often arrange for a detailed condition report of the premises at the start of a lease, so that the parties have a reliable benchmark on which to gauge fair wear and tear at the end of the lease.
A lease typically requires the tenant to maintain the following insurances for the amounts specified in the lease:
Industrial special risks.
Workers compensation insurance, as well as any other insurance required by law.
Plate glass (where applicable, such as for retail premises in shopping centres).
Contract works insurance (if work is being done by the tenant).
Any other insurance required by the landlord.
As a commercial matter, the landlord will generally have its own insurance for the building itself, as well as loss of rent and so on, although these may not be necessitated by or referred to in the lease.
Grounds for termination
A lease will usually specify the grounds on which a landlord can terminate the lease. These can include the following acts of default by the tenant:
Non-payment of rent after a specified time.
An insolvency event (as defined in the lease) (see Question 39).
A breach of the assignment/subleasing prohibitions.
A landlord must be aware of the general property law in each jurisdiction governing termination of a lease (such as the statutory requirement to serve a formal notice on a tenant and to allow an opportunity to rectify the default).
When a lease is terminated, a tenant may have the right to apply to court to seek relief against forfeiture of the lease.
In certain circumstances, some retail leasing legislation gives a landlord the right to terminate a lease (with prescribed notice periods) such as a proposed redevelopment of the property.
A tenant can negotiate an express right to terminate the lease in certain circumstances or at its discretion, prior to the end of the lease term. However, this will depend on the bargaining power and size of the tenant. It is unusual for a tenant to have any express termination rights under a lease.
A tenant may have a right to terminate a lease under general law if the landlord has repudiated the lease. There is a considerable amount of case law in this area concerning, for example, the covenant for quiet enjoyment.
It is standard for a lease to provide that a tenant's insolvency (which is often broadly defined) is an act of default. The effect of the tenant's insolvency is that a landlord has the right to terminate the lease.
A liquidator appointed to wind up an insolvent corporate tenant may disclaim a lease (for example, where the liquidator determines that the rent payable under the lease is unfavourable to market). In such a case the landlord is likely to rank as an unsecured creditor concerning liabilities owed by the tenant to the landlord.
Planning control is primarily regulated by state governments and local councils.
Local councils are responsible for land development in their local area including:
The preparation of plans and policies that specify zoning permitting and prohibiting land uses.
Setting local development standards, including height and floor space requirements (although most of these plans are required to be approved by the Minister).
The determination of most applications for land use and development.
Monitoring to ensure compliance with relevant legislation, regulations and conditions of consent.
State government processes generally operate alongside local council processes and address issues of state or regional significance.
The primary legislation governing planning is found in each state's planning act. These acts specify the manner in which local council plans and subordinate state regulations are made. The following are examples of these planning acts:
Environmental Planning and Assessment Act 1979 (NSW).
Planning and Environment Act 1987 (VIC).
Development Act 1993 (SA).
Sustainable Planning Act 2009 (QLD).
Further, many state acts regulate specified types of development such as:
Certain manufacturing (for example, chemical manufacturing or heavy industry).
Development affecting vulnerable areas (including threatened species habitat, protected parks and coastal areas).
The primary federal legislation is the Environment Protection and Biodiversity Conservation Act 1993 (EPBC Act).
Planning consents are required from the appropriate approval authority for almost all development. However, exceptions for minor or routine development are provided in most jurisdictions.
In the majority of states, most residential or commercial development require planning consent from the relevant local council. The planning consent generally has a number of conditions of consent that require additional documents, including:
A construction certificate (required prior to commencing construction, ensuring compliance with relevant standards, including the Building Code of Australia, and compliance with the planning consent).
A fire safety certificate.
An occupation certificate (required prior to occupation or use of the building).
In some states, certain proposed developments of state or regional significance, or having more significant impact, will require approval from a regional or state organisation or state planning minister rather than the relevant local council. This is often the case with mining and major infrastructure.
Further, federal government approval is required where a project impacts on matters of national environmental significance (in addition to either local council or state planning approval, unless a bilateral agreement with the relevant state is in place).
Although a project may have received planning approval, prior to commencement, a developer may need to obtain additional licences or work permits that are required as conditions of consent or outside the planning approval process.
Public participation and third party rights
In most planning consent or licence processes, the public have the right to submit objections to the decision-making body prior to the determination of an application. The specific rights and time-frames for lodging an objection vary according to the particular rules of that jurisdiction. In most cases, the consent authority will be required to publicly notify or advertise a development application and consider any objections or submissions in making its determination. There may be exceptions to this requirement specified in the relevant legislation or other statutory instrument.
In some states, third party objectors have the right to appeal certain planning consent and licence decisions to the relevant court or tribunal. In most jurisdictions, these appeals are largely restricted to judicial appeals, which are appeals determining the legality of a decision. More rarely, third parties are permitted to make merits appeals, which determine the quality of a decision and in which the court or tribunal re-makes the decision.
Most jurisdictions provide for certain projects of major significance to undergo a public inquiry process. The decision to order an inquiry is generally conferred on the minister administering the environmental impact assessment procedures.
The time taken for a consent authority to make a determination on a planning application will vary depending on the complexity of the project and level of community support or opposition. In NSW for example, Councils took an average of 71 days to determine development applications in 2011-2012.
Applications assessed at a state government level are generally more complex, and can involve additional requirements. They often take up to a year or more to process.
Generally, the original applicant for a development application has a right to merits review within a specified time frame. The time frame varies according to the jurisdiction. In NSW for example, the time frame is six months from the date of receiving notice of the consent authority's decision.
There are limited situations in which an applicant will be unable to seek merits review of a refusal. For example, in Victoria, merits review is not available to an applicant once a planning decision on a major policy issue has been called in and determined by the Minister for Planning.
In some jurisdictions an applicant may apply to the original consent authority to undertake an internal review of the authority's initial determination.
Occasionally, there are minor legislative changes which affect real estate law in each of the Australian states and territories (for example, to ensure consistency or to complement other legislation). Currently, there are no immediate significant proposals for reform.
The Property Law Reform Alliance is a coalition of legal and industry associations working to achieve uniformity and the reform of property law and procedures in Australia. The Alliance consults with government and is in the process of developing a uniform Torrens Title Act for potential adoption by states and territories. However, it is unlikely that any such reforms will be achieved in the near future.
There have also been recent amendments to planning legislation. For example, Queensland has recently updated its planning legislation with the Sustainable Planning Act 2009 (QLD) and NSW is in the process of preparing new planning legislation to replace the Environmental Planning and Assessment Act 1979 (NSW).
Real estate organisations
Property Council of Australia
Main activities. The Property Council of Australia (PCA) is an advocate for Australia's property industry, championing the interests of its members in the political arena. The PCA's major areas of focus are:
Planning strategy, development and building controls.
Urban policy and economic growth.
Retail trading hours.
Australian Property Institute (API)
Main activities. The API represents the interests of more than 8,600 property professionals throughout Australia. API members include valuers, property advisers, property analysts, property fund and asset managers, property facility managers, property lawyers, and property researchers and academics.
The API's primary role is to set and maintain the highest standards of professional practice, education, ethics and professional conduct for members and the broader property profession.
Foreign Investment Review Board
Main activities. The Foreign Investment Review Board examines proposals by foreign persons to invest in Australia and makes recommendations to the Treasurer on those subject to the Foreign Acquisitions and Takeovers Act 1975 and Australia's foreign investment policy.
Description. Commonwealth legislation: maintained by the Australian government and is an official record of Commonwealth legislation.
Description. Australian Capital Territory legislation: maintained by the ACT government and is an official record of ACT legislation.
Description. New South Wales legislation: maintained by the New South Wales (NSW) government and is an official record of NSW legislation.
Description. Northern Territory legislation: maintained by the Northern Territory government and is an official record of Northern Territory legislation.
Description. Queensland legislation: maintained by the Queensland government and is an official record of Queensland legislation.
Description. South Australian legislation: maintained by the South Australian government and is an official record of South Australian legislation.
Description. Tasmanian legislation: maintained by the Tasmanian government and is an official record of Tasmania legislation.
Description. Victorian legislation: maintained by the Victorian government and is an official record of Victorian legislation.
Description. Western Australian legislation: maintained by the Western Australian government and is an official record of Western Australian legislation.
Professional qualifications. New South Wales, 1997
Areas of practice. Real estate; joint ventures; property finance.
- Advising Shangri-La Hotels and Resorts on the acquisition of the Shangri-La Sydney Hotel from the Government Investment Corporation of Singapore.
- Acting for a major international corporation in the negotiation of a development agreement for a proposed new hotel investment in Australia.
- Acting for numerous corporate clients in negotiating major head office leases.
Professional qualifications. Tasmania, 1984; New South Wales, 1990
Areas of practice. Real estate; government.
- Advising Shangri-La Hotels and Resorts on the acquisition of the Shangri-La Sydney Hotel from the Government Investment Corporation of Singapore.
- Advising Roads and Maritime Services NSW in relation to the redevelopment of prime Sydney harbour front site at Berrys Bay on the Waverton Peninsula.
- Acting for a major international accounting firm and a large international investment bank in the negotiation of their Sydney CBD landmark premises leases.