Buying or selling a house

A land title is the official record that confirms who is the registered owner of a piece of land at any point in time. A land title contains information about mortgages, covenants, caveats, registered easements and registered notices. Land titles can be searched online (at www.landata.vic.gov.au). These title searches are included in the vendor’s statement that accompanies a contract of sale of real estate.

Because of the history of how land and subdivisions have been regulated in Victoria, not all titles are the same. Over time in Victoria, the subdivision of land to create separate titles has occurred in a variety of ways. Unusual titles include general law titles, company share apartments, stratum titles, strata titles and cluster titles (these are all outlined below). Dealing with unusual titles requires advice from a property lawyer or a licensed conveyancer. General law titles The general law title system relies on a ‘chain of deeds’ to prove ownership. This ‘chain’ is made up of all the documents related to the sale of the land since the land was initially sold by the Crown. General law titles are still valid proof of ownership. A buyer must have each document in the chain assessed by an expert to ensure it is valid.

However, Land Use Victoria recommends that all general law titles be converted to registered or Torrens titles. In recent years, Land Use Victoria has been unilaterally converting many general law titles, without input from landowners.

To register a transfer or discharge of a mortgage for property that has a general law title, Land Use Victoria requires the general law title to first be converted to a registered title. Company share apartments Company share apartments are the earliest ‘group’ titles and were popular in the 1950s. In these schemes, a company is the registered owner of the land and buildings. Unlike standard apartment purchases, the title to a company share apartment is not transferred from the company to the buyer. Instead, each buyer is issued with a parcel of the company’s shares that entitles them to live in a particular apartment.

The company reviews each sale and must consent to the transfer of shares. It is usually the buyer’s responsibility to obtain the company’s consent for the sale. These titles are not popular with lenders as the loan is secured by shares, not land. ASIC has strict requirements about what must be in the contract to exempt the vendor from the usual disclosure requirements when selling shares.

The transfer of a company share apartment is complicated and you should engage a property lawyer or licensed conveyancer who is familiar with this area of law to assist you in buying or selling your property.

Company share apartments can be converted to individual titled properties under the Subdivision Act 1988 (Vic) (‘Subdivision Act’) but this requires the agreement of all shareholders and mortgagees, and may require the building to be brought up to current building standards. This can be an expensive and lengthy process. Stratum titles With stratum titles, each owner receives a registered title to an apartment in the development as well as shares in the service company. The company holds the title to the common property and manages the property on behalf of all the owners. Some lenders are hesitant to lend against stratum titles because the service company has the first call on the land for debts owed by the owner.

Sales of stratum title properties are complicated; a contract of sale for a stratum title property should only be signed after you have obtained independent legal advice.

As with company share schemes, stratum titles can be converted to be governed by an owners corporation, which significantly improves the value of the apartments. However, conversion requires the agreement of all the owners and mortgagees, and can be an expensive and drawn-out process. Strata titles Strata titles were introduced in 1967 to reduce the complications of multi-storey developments. Strata titles were also used for many single-storey and villa- unit developments. Each owner in a strata subdivision receives a registered title. A statutory owners corporation (not a company) manages the properties. (Note that before 31 December 2007, owners corporations were called the ‘body corporate’.) Each unit owner is a member of the owners corporation and contributes to the management and running costs – often with the assistance of a management company appointed by the owners. Owners corporation rules govern the way the properties are managed. An owners corporation is responsible for the repair and maintenance of the common property areas and is liable for what happens on common property. Cluster titles Cluster titles are rare; they are similar to strata titles. Cluster titles were introduced in 1974 to facilitate flexible development of vacant land. Each lot in a plan of subdivision was registered as it was transferred to the new owners.

The Subdivision Act replaced previous legislative schemes with a single subdivision procedure under which owners have registered titles to their lots. The procedure is more flexible and allows an owners corporation to be created, regardless of whether or not there is common property (sometimes there is no common property on a plan, such as if an owners corporation is created to manage shared services like water and electricity).

The plan includes details of easements and restrictions (if any) and indicates the separately titled lots. The plan also sets out each owner’s contribution to the owners corporation’s funds and their voting rights as a member of the owners corporation. The owners corporation rules that come with the plan define owners’ rights to use common property, as well as their obligations in respect of the common property and use of their lots.

The Owners Corporations Act 2006 (Vic) started operating on 31 December 2007. This Act controls the activities of owners corporations, removed provisions about bodies corporate from the Subdivision Act, and comprehensively provides for the activity and operation of all owners corporations in Victoria. (See Chapter 6.5: Owners corporations.)

Owners of a property must abide by any rules of the owners corporation. Note that while there is a model version of these rules, many owners corporations expand the model rules to include specific rules (e.g. rules about noise, pets, the colour of paint on external walls, and maintenance funds).

A buyer should investigate the rules of an owners corporation before purchasing a property to see if there are restrictions that do not accord with their lifestyle. Also, remember that the majority of owners govern the owners corporation decision- making process, so discovering as much as possible about your potential future neighbours by reading the minutes of previous annual general meetings can be useful.

A common problem in a subdivided development is the mix of owner-occupied units and rented units. An owner-occupier can find themselves dealing with complacent absentee owners about owners corporation issues affecting their occupancy. Doing your research before you sign a contract of sale can often help to alleviate or avoid such problems. Owners corporations and flammable cladding Another common problem currently faced by owners corporations in Melbourne is the existence of flammable cladding on external walls of apart­ ment buildings. As external walls are generally considered to be common property, buyers should be prepared to pay part of the cost to remove the cladding if funding cannot be obtained from a government body. The amount an owner must pay generally depends on the lot’s financial liability. If a building has flammable cladding, this may affect a buyer’s ability to secure finance to buy a lot.

If it is unclear whether or not a building has flammable cladding, buyers should – before making an offer on a lot – obtain further information from the owners corporation manager, the local council, or the Victorian Building Authority.

The Victorian Government has agreed to provide funding to remove flammable cladding from some high-risk residential apartment buildings, but not all. Inactive owners corporations It is often said that there is no owners corporation, despite there either being common property in a sub-division, or an owners corporation is specifically noted as affecting the title. More likely, the owners corporation is not active or only does the minimum required to insure the common property (note that two-lot subdivisions and ‘services only’ owners corporations are exempt from this requirement).

If there are three or more lots on a plan that do not include ‘accessory lots’ (e.g. carpark lots) and there is common property (e.g. a driveway), the vendor’s statement should include a copy of the insurance for the common property and information about how this insurance premium (and any other shared expenses) is split between the owners.

If an owners corporation has not, in the past 15 months, held an annual general meeting, nor fixed any fees, nor held an insurance policy, then it may state in the vendor’s statement that it is inactive. However, it is technically not possible for a three-plus lot subdivision with common property to be inactive as the common property must be insured.

Off-the-plan properties do not yet have a title because the plan of subdivision creating the title that is being purchased is not yet registered. Before agreeing to purchase an off-the-plan property, you should seek independent legal advice, especially about stamp duty savings and the potential risks associated with such purchases.

Selling an off-the-plan property involves the vendor and buyer signing a complex contract of sale often well before the actual construction of the building or subdivision of vacant land. The contract contains all the plans and specifications of the property being purchased. Usually, the contract is not a building contract as the building agreement is between the developer and a builder. The contract is usually weighted in the vendor’s favour to allow flexibility in the timeframes, building design, and changes to the plan of subdivision.

Off-the-plan property contracts generally contain substantial detail about the proposed development and the vendor’s rights to make changes. This includes the rights of the vendor to vary the planning and building permits, the common property areas, the plan of subdivision (including the boundaries of the unit or lot being purchased), the location of easements, and when building works will commence. The contract will also stipulate what is to happen if the works cannot be completed or the plan has not been registered by the nominated sunset date.

In 2019, the Victorian Government passed new laws that removed the ability of developers to use sunset clauses to intentionally delay residential building projects and exploit buyers. Developers can now only use sunset clauses with the buyer’s written consent or with permission from the Supreme Court of Victoria (this applies to residential off-the-plan properties only). A buyer can end a contract of sale upon the expiration of the sunset date without the vendor’s consent or permission from the Supreme Court.

Currently in Melbourne, there are lots of pending apartment developments. The biggest risk of purchasing off-the-plan in such a market is that, come settlement, a buyer’s bank may value the property at less than what the buyer paid for it, and the bank will ultimately not lend as much as it may have first indicated. This is a particular concern when the direction of the property market is uncertain. The best way a buyer can protect themselves from this situation is by saving as much money as possible between signing the contract and settlement (and have a back-up plan, such as a parent going guarantor on the loan).

There are other factors to think about before buying off-the-plan, considering a developer may take one to six years to build the property (depending on the sunset date in the contract):

• Will you still want to live here in say, six years’ time? What could change in your life during that period? Would you be better-off buying an already built apartment that is available now?
• Will there be changes in your life in the next six years that could result in a bank not agreeing to lend you as much money? (e.g. Are you planning on starting a business or a family or shifting to a lower-paid job?)
• Would you still want this property if some of the fixtures/finishes were not the same as in the marketing materials, or if the dimensions of the property were reduced by four per cent, or if some of the views or facilities were not as promised? Due to the complexity of off-the-plan property contracts, buyers should seek legal advice before signing the contract of sale as buyers can be bound by the contract in ways that might surprise them.

  Guarantees and deposit bonds

  For off-the-plan properties, buyers may be able to pay the deposit by way of a bank guarantee or a deposit bond that is issued in the vendor’s favour. Check the contract to see if this is permitted (note that the vendor needs to consent to the deposit being paid this way). The original bank guarantee or deposit bond is usually held by the vendor’s solicitor until settlement. After settlement, the document should be returned to the buyer to send to their final institution to be destroyed. Solicitors acting for vendors should also be wary of bank guarantees or deposit bonds expiring before they have a chance to call on them (e.g. if a buyer defaults under the contract and the vendor wants to call on the deposit bond or bank guarantee to access the deposit money). Generally, bank guarantees or deposit bonds must have an expiry date of at least 45 days after the due date settlement.