Land titles
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A land title is the official record that confirms who is the registered owner of a piece of land. It contains information about mortgages, covenants, caveats, registered easements and registered notices and 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.
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Over time, the subdivision of land to create separate titles has occurred in different ways. Unusual titles include general law titles, company share apartments, stratum titles, strata titles and cluster titles (all outlined below). Dealing with unusual titles requires advice from a property lawyer or 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 it was sold by the Crown. A buyer must have each document in the chain assessed by an expert to ensure the general law title is valid.
However, Land Use Victoria (LUV) recommends that all general law titles be converted to registered or Torrens titles and has recently been unilaterally converting many general law titles without input from owners.
To register a transfer or discharge of a mortgage for property that has a general law title, LUV requires the general law title to first be converted to a registered title.
Company share apartments
Company share apartments are the earliest ‘group’ titles. In these schemes, a company is the registered owner of the land and buildings. Unlike standard apartment purchases, the title is not transferred from the owner to the buyer. Instead, each buyer is issued shares in the company that entitle them to live in a particular apartment.
The company must consent to the transfer of shares and it is usually the buyer’s responsibility to obtain this consent. These titles are not popular with lenders as the loan is secured by shares, not land. The Australian Securities and Investments Commission 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.
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
Each owner has a registered title to an apartment and shares in the service company. The company owns the common property and manages the development on behalf of all 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 should only be signed after getting independent legal advice.
Like 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 owners and mortgagees, and can be an expensive and long process.
Strata titles
Each owner in a strata subdivision receives a registered title. An owners corporation manages the properties. Each unit owner is a member of the owners corporation and contributes to the management and running costs – often assisted by a management company appointed by the owners. Owners corporation rules govern how the properties are managed. An owners corporation is responsible for maintaining the common property and is liable for what happens on common property.
Cluster titles
Cluster titles are similar to strata titles. They were introduced to facilitate flexible development of vacant land. Each lot in a plan of subdivision is registered as it is transferred to the new owners.
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The Subdivision Act is flexible and allows an owners corporation to be created, whether or not there is common property (such as if one is created to manage shared services like water and electricity).
The plan includes details of any easements and restrictions and shows the separately titled lots. The plan also sets out each owner’s contribution to the owners corporation’s funds and their voting rights. The owners corporation rules define owners’ rights to use, and their obligations in respect of, the common property and use of their lots.
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The Owners Corporations Act 2006 (Vic) controls the activities and operation of all owners corporations in Victoria. (see Chapter 6.5: Owners corporations).
An owner of a property with an owners corporation registered on title must abide by the applicable rules. While there is a model version of the rules, many owners corporations expand these to include specific rules (e.g. about noise, pets, property improvements and maintenance funds).
A buyer should consider the rules of an owners corporation before purchasing a property to see if there are restrictions that do not accord with their lifestyle. As the majority of owners govern the owners corporation decision-making process, 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 is the mix of owner-occupied and rented units. An owner-occupier can find themselves dealing with complacent absentee owners about issues affecting their occupancy. Doing your research before you sign a contract of sale can help to avoid such problems.
Owners corporations and flammable cladding
Another common problem faced by owners corporations in Melbourne is flammable cladding on external walls of apartment buildings. As external walls are generally considered to be common property, buyers may have to pay part of the cost to remove the cladding if funding cannot be obtained from a government body. The amount generally depends on the lot’s financial liability. If flammable cladding is present, this may affect a buyer’s ability to get a loan.
If it is unclear whether a building has flammable cladding, buyers should obtain more information from the owners corporation manager, local council or the Victorian Building Authority before making an offer.
The Victorian Government is providing funding to remove flammable cladding from some high-risk apartment buildings, but not all.
Inactive owners corporations
Owners often say there is no owners corporation, despite there either being common property on a plan or an owners corporation specifically noted on 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 excluding ‘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, fixed any fees or held insurance, it may state in the vendor’s statement that it is inactive. However, it is not possible for a three-plus lot subdivision with common property to be inactive as the common property must be insured.
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Off-the-plan properties do not have a title because the plan of subdivision creating the title that is being purchased is not yet registered. Before purchasing an off-the-plan property, you should seek independent legal advice, especially about stamp duty and the risks.
Selling an off-the-plan property involves the vendor and buyer signing a complex contract of sale often well before completion of construction or subdivision. The contract contains all the proposed plans and specifications of the property being purchased. Usually, the contract is not a building contract as that agreement is between the developer and a builder. The contract conditions usually favour the vendor to allow flexible timeframes and building design and changes to the plans.
Off-the-plan contracts generally contain substantial detail about the proposed development and the vendor’s rights to make changes, including to the planning and building permits, common property areas, plan of subdivision (including the boundaries of the lot/s being purchased), easement location and when building works will commence. The contract will also specify what happens if the works cannot be completed or the plan has not registered by the nominated sunset date (which could be up to six years).
Developers can only use sunset clauses with the buyer’s written consent or with permission from the Supreme Court (this applies to residential off-the-plan properties only). A buyer can end a contract of sale on the expiration of the sunset date without the vendor’s consent or permission from the Supreme Court.
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 first indicated. The best way a buyer can protect themselves from this is by saving as much money as possible before settlement (and have a back-up plan, such as a parent being a guarantor on the loan).
Guarantees and deposit bonds
For off-the-plan properties, buyers may be able to pay the deposit by way of a bank guarantee or deposit bond issued in the vendor’s favour if this is permitted in the contract (and the vendor consents). The original bank guarantee or deposit bond is held by the vendor’s legal representative until settlement, after which it should be returned to the buyer to send to their lender 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 and the vendor wants to access the deposit). Generally, bank guarantees or deposit bonds must have an expiry date of at least 45 days after the settlement date.
Land titles
Chapter: 6.2: Buying or selling a house
Contributor: Laura Vickers, Director, Nest Legal; Accredited Property Law Specialist
Current as of: 1 September 2024
Law Handbook Page: 482
Next Section: Conveyancing
