Retail Leases Act 2022 – April 2023 Update
• In 2021 / 2022, government reviewed the law on retail leasing arrangements in Tasmania. The timing of the review was critical in that the Fair Trading (Code of Practice for Retail Tenancies) Regulations 1998 (Tasmania) (the Code) was initially scheduled to expire on 1 January 2023
• A draft Retail Leases Bill 2022 was introduced in April 2022 and stakeholder submissions, including from the Law Society, were received by government.
• Work continued and after several amendments the Retail Leases Act (RLA) passed both houses in November 2022 and received Royal Assent on 14 December 2022.
• In Tasmania, the Retail Leases Act (RLA) was passed in November 2022. Whilst it received Royal Assent on December 14, 2022, we await full proclamation. So far, only in force are the provisions that allow for the continued application of the existing Fair Trading (Code of Practice for Retail Tenancies) Regulations 1998.
• This is fortunate because from the Law Society’s perspective there are a number of problematic aspects of the RLA as it stands; and government has committed to consider the need for further amendments prior to proclamation
• In the meantime, broadly, the main changes which are likely to be introduced by the RLA are as follows:
o There will no longer be a minimum term for retail leases, and the RLA will not apply to retail leases with a term of less than 6 months (ss. 8 and 9). Licences may also be covered, because “exclusive possession” is not required (definition of “retail lease” in s. 6).
o In addition to providing tenants with a disclosure statement and copy of the proposed lease, landlords will be required to provide both a “Code of Practice” (s.18) and a “retail leases guide” (s. 21) (both of which are yet to be developed) before the tenant enters into the lease. Tenants are not obliged to pay outgoings which have not been disclosed, and may recover any amounts paid for such outgoings from the landlord
o Tenants may be required to provide a disclosure statement to the landlord, but the RLA does not indicate what disclosures would need to be made (s.24).
o Landlords may not charge tenants outgoings in respect of “land not on which the building, of which the retail premises forms part, is located” (s.35 (4)(f)(ii)). This means that a tenant could not be required to pay rates in respect of a
carpark provided by the landlord for the benefit of the retail premises where the carpark is on a difference Certificate of Title to the retail premises itself.
o If a tenant has exercised an option, landlords may only refuse to grant a new lease if the option has been exercised out of time or if the tenant is in breach of the lease at the time they exercised the option or before the commencement of the new lease – there is no longer the right to refuse to grant a new lease if the tenant has persistently breached the lease during the term (s. 45(10)).
o The RLA no longer extends the term of the lease where the landlord does not give the tenant notice of its intentions at the end of the lease (s. 61).
o Only companies have a right to be legally represented at mediation –individuals may only be represented by a lawyer with the consent of the mediator (s. 78).
o The RLA has also introduced penalties for non-compliance with various sections. For example, landlords face fines not exceeding 100 penalty units ($18,000.00) for a body corporate and 50 penalty units ($9,050.00) for an individual for failing to comply with their disclosure obligations (s. 26). Both landlords and tenants face fines in the same amount if the parties enter into a lease which has not been in writing and signed (s. 31).
• In addition to the above, the Law Society is continuing to work with CBOS to develop draft Regulations in respect of the RLA which are expected to cover the following:
o The form of both the landlord and tenant disclosure statements
o A list of retail premises to which the RLA applies, possibly one which is based on the current Code list but necessarily including those businesses already covered by the Code. The Law Society has argued that, wherever possible, retail premises categories should simplified (is there the need for “takeaway food shop snack bar” to be listed in addition to “convenience food shop”, “fast food shop” and “snack bar”) while consideration should be given to including physiotherapy clinics, massage shops, tattoo parlours, and the like.
o A list of premises which are excluded from the definition of retail premises, retaining a listed company exemption.
o Savings and transitional provisions which will likely provide that all existing leases (whether under the current Code or not) should be permitted to run their course without being affected by the introduction of the RLA. Consideration will need to be given to whether amendments to such leases will trigger the operation of the RLA, however.
Other reform items on PCL Committee Agenda
Update April 2023
Residential Building (Miscellaneous Consumer Protection Amendments) Bill 2022
The Law Society’s Property and Commercial Law Committee and Litigation Committee has provided a joint submission to the public consultation period for the Residential Building (Miscellaneous Consumer Protection Amendments) Bill 2022
This Bill proposes new consumer protection and occupational licencing requirements, and a new process for mediation of building disputes within TASCAT’s jurisdiction. It would amend the Building Act 2016, the Building Regulations 2016, the Occupational Licensing Act 2005, the Residential Building Work Contracts and Dispute Resolution Act 2016 and the Tasmanian Civil and Administrative Tribunal Act 2020. Members of the Litigation committee provided expertise on dispute resolution and in particular the proposal to provide TASCAT with original jurisdiction for residential building work dispute matters. After further review of the Bill tabled to Parliament following the consultation, members of the Property and Commercial Law committee and Litigation committee met with representatives of CBOS to discuss a revised Bill tabled following the initial consultation.
Residential Building (Home Warranty Insurance Amendments) Bill 2022
The Law Society of Tasmania’s Property and Commercial Law Committee provided a submission on the draft Residential Building (Home Warranty Insurance Amendments) Bill 2022. This Bill would amend the amend the Residential Building Work Contracts and Dispute Resolution Act 2016 and to consequentially amend the Building Act 2016, the Building Regulations 2016, the Occupational Licensing Act 2005 and the Residential Building Work Contracts and Dispute Resolution Regulations 2016. Of significance is that the Bill will mandate those undertaking residential building work to obtain home warranty insurance through a scheme, and makes changes to the Building Act 2016 related to requirements for defective building work. Although specific penalties and amounts is a matter of policy for the
Government to consider, if consumer protection is the aim of the proposed scheme, the committee believes further consideration is required to the outcome for the consumer in particular to ensure that compliance of the builder is encouraged and fines are not just passed onto the consumer. This is a matter of policy for the Government to consider, however the Committee’s submission suggested further consideration is required of the balance between penalties, the value of the cap on the maximum amount payable to under the insurance, and the cost of insurance to the consumer.
Changes to Conveyancing Practices upon the Phase out of Same-Day Cheque Clearance and Daylight Facilities
The legal profession of Tasmania has been witnessing an increasing reluctance on the part of banks to assume the financial exposures presented by the traditional paper-based conveyancing model that relies on bank cheques, daylight overdraft / advance facilities and same day clearance.
As you may already be aware, this new risk-averse positioning now includes a lead by the major banks on ‘full clearance enforcement’ (three days) as well as the phase out of the daylight advance facilities. This means firms will only be able to draw against cleared funds.
Response
Tasmania remains at least 2 years away from the roll out of e-conveyancing. The Society has been consulting with firms, banks and other external stakeholders regarding alternative interim options, and process adaptations that will need to be considered in response to the changing landscape.
Alternative Simplified Model Used by Firms not Relying on Daylight Facilities
Not every firm has the benefit of daylight facilities in Tasmania. By revisiting some of the current/traditional processes and looking at them differently, the below alternative model already being used by those firms not only removes the need for daylight facilities but arguably reduces the number of steps and risk overall, as well as administrative time
In light of the abovementioned circumstances the Society encourages all firms to consider this model (or variations as required), in which, in one of its simplest forms, three bank cheques are requested from the Purchaser or its Bank / Mortgagee (as the case may be):
Firm-2-Bank Protocols
The major banks the Society has so far consulted with have indicated a willingness to explore agreed protocols between firms and banks to ensure the above alternative model will be a sufficiently reliable and robust model for all firms to adopt until e-conveyancing is introduced. Provisioning for advance estimates (i.e. 2 days prior to settlement) to the Purchaser or Purchaser’s bank should also ideally be built into the protocol.
The assumption is that all settlements will need to occur in the latter part of the day.
Protocols, might, for example, provide for:
1. Notification by the Vendor Mortgagee Bank to the Vendor’s solicitor, of the final mortgage discharge figure by no later than 10am on the day of settlement if that figure cannot be provided any earlier by the Vendor’s bank.1
2. Notification of the above amount by the Vendor’s solicitor to the Purchaser’s solicitor no later than 11am on the day of settlement.
3. Cheque directions (the three cheque amounts) from the Purchaser’s solicitor to the Purchaser or Purchaser’s Bank (as the case maybe) no later than midday on the day of settlement. Communications with bank agents also occur.
4. Readiness on the part of the Purchaser’s bank (agent) to settle from, say, 2pm onwards (post 2pm settlement times to be agreed in advance by the parties and agents).
AND/OR
Agreement to earlier payout figures:
Advance ‘cheque direction’ arrangements (i.e. day prior to settlement day), where the particular bank’s policies and processes, as well as the circumstances, permit– e.g. account freeze. For further exploration with the banks as a trade off against improved risk management associated with the revised conveyancing approach.
Excel Sheet Resource: Sample Vendor and Purchaser Statements, with adjustments allocated prior to the issue of cheque directions [hyperlink]
The protocols may need to deal with privacy issues and assumptions. For example the Vendor will need to consent to the disclosure of their mortgage balance / payout figure to the Purchaser’s solicitors.
A three-day clearance protocol will also need to be acknowledged by all parties.
Firm-2-Firm Protocols - Amendments to the Contract of Sale
Consideration could be given to incorporated aspects of the agreed protocol into the Contract for Sale. The Society’s Property & Commercial Law Committee will give this consideration and will welcome any submissions via info@lst.org.au.
Failure to honour protocols: the contract or protocols might also cover, for example what happens if a settlement date default occurs due to delays for which the banks are responsible.
1 It is understood that some vendor mortgagee banks will provide these details up to two days in advance of settlement date which enables in turn the provision of early information to the Purchaser’s solicitors, which then enables advance cheque directions from the Purchaser’s solicitor to the Purchaser or Purchaser Mortgagee Bank as the case may be.
Same Day Chain Settlements
A suggested solution to accommodate variations in circumstances, is below: (There may be alternative solutions and practitioners are encouraged to explore what they might be.)
V1’s Sale: $1,000,000
V1’s Purchase from V2: $2,000,000
Cheque 1 requested by P from P’s Bank: Mortgage discharge $539,000, made out to V1’s Mortgagee Bank
Cheque 2 requested from P’ Bank: $50,000, made out to P’s solicitors
Cheque 3 requested from P’s Bank: Balance of the V1 sale proceeds $411,000, made out to V2 instead of V1, in partial payment of V1’s purchase of V2’s property.
Cheque 4 requested by V1 from V1’s Banks made out to V2: $1,589,000 (balance of purchase price for V2)
Cheque 5 requested by V1 from V1’s Bank: $100,000 made out to V1’s solicitors (legal fees, stamp duty etc)
The Protocols would also need to cover chain settlements
Next Steps – Have You Say
The Society will continue conversations with banks and other stakeholders. Members are invited to provide comments or suggestions, including in relation to the forecast protocols, or raise any concerns, with the Society via info@lst.org.au (ref: conveyancing settlement protocols) or by telephoning (03) 62 344133. Deadline: 20 May 2023
Settlement Statement (hyperlink to Open File Excel version here)
Notes Notes
Vendor mortgagee only able to confirm final payout on day of settlement
Vendor not required to arrange any daylight advance to pay client or mortgagee
Vendor attends settlement with one cheque - $180.20 for discharge of mortgage
Purchaser mortgage may want cheque directions 2+ days ahead of settlement
Purchaser firm only draws funds from client ledger where it is in credit - no daylight advance
Purchaser provides most cheques for settlement
Verification of Identity Best Practice Update:
With e-conveyancing only a couple of years away, the Law Society encourages property practitioners to familiarise themselves with the ARNECC Model Participation Rules, which can be found at the below link, together with any Directions, forms and resources issued by the LTO in the coming months. ‘What to expect’ will be covered by today’s LTO guest Recorder of Titles Robert Manning in an upcoming session.
The Law Society also plans to release a best practice VOI guide for all areas of legal practice in 2023 which will be broadly consistent with future e-conveyancing VOI rules.
https://www.arnecc.gov.au/publications/model-participation-rules/
28.04.23
FIDS and FILTS - Update
Miscellaneous State Taxes - Update April 2023
On 17 June 2022, the Tasmanian State Revenue Office (TSRO) issued a Foreign Investor Duty Surcharge (FIDS (Tas)) Factsheet and updated the FIDS (Tas) Guideline as a consequence of amendments to the Duties Act 2001 (Tas) effected by the Duties Amendment Act 2022 (Tas) and associated legislation (16 June 2022).
The Property & Commercial Law Committee made successful submissions on behalf of the profession regarding amendments to the FIDS (Tas) provisions and the interpretation and content of the amending legislation and the Guideline.
Particular issues for practitioners to note are:
1. with effect from 1 July 2018, the definition of 'foreign trust' has been amended to resolve uncertainty that FIDS (Tas) applies to self-managed superannuation funds and testamentary trusts;
2. with effect from 1 July 2018, the definition of 'residential property' has been amended to resolve uncertainty that FIDS (Tas) does not apply to certain types of residential accommodation (e.g. hotels, hostels boarding houses, student accommodation and residential care facilities and retirement villages);
3. with effect from 1 July 2022, a double duty exclusion has been enacted for non-interest-based financing of property under Islamic finance arrangements;
4. with effect from 1 July 2022, a FIDS (Tas) refund concession has been enacted for Tasmanian-based foreign developers building qualifying residential developments of least 50 residential dwellings in a 12-month period; and
5. with effect from 1 July 2022, the Commissioner of State Revenue (Tas) is granted a discretion in determining that mixed use land is residential land or primary production land based on percentage use of the land.
There remains a number of areas where commentators hold a different view to the TSRO.
Foreign Investor Land Tax Surcharge
From 1 July 2022, an additional 2% Foreign Investor Land Tax Surcharge (FILTS (Tas)) on the assessed land value is imposed annually on a foreign natural person, foreign corporation or foreign trust that has acquired General Land (i.e. residential land, vacant land or land upon which a residence is being constructed, but not short term-accommodation, commercial, industrial or primary production land), became foreign or acquired a further interest in General Land on or after 1 July 2022, unless exempt land (e.g. principal residence land).
On 20 June 2022, the TSRO has issued a FILTS (Tas) Factsheet and a FILTS (Tas) Guideline as a consequence of amendments to the Land Tax Act 2000 (Tas) effected by the Land Tax Amendment (Foreign Investors) Act 2022 (Tas) and associated legislation (16 June 2022).
The Property & Commercial Law Committee made successful submissions on behalf of the profession regarding the interpretation and content of the amending legislation and the Guideline.
Particular issues for practitioners to note are:
1. FILTS (Tas) is imposed based on a title-by-title basis for each co-owner's interest with principal use of mixed use property determined by the relative land/floor areas and multiple titles under one property identification number (PID) apportioned based on relative land area usage;
2. all corporations are foreign unless incorporated in Australia and foreign natural person, foreign corporation or foreign trust do not have an ownership or controlling interest of 50% or more on a direct or indirect cascading basis
3. all discretionary trusts are foreign, unless all foreign natural person, foreign corporation or foreign trust beneficiaries are expressly excluded as beneficiaries;
4. fixed trusts and unit trusts are foreign where any foreign natural person, foreign corporation or foreign trustee hold are beneficiaries and have an ownership or controlling interest of 50% or more on a direct or indirect cascading basis;
5. New Zealand special category individual visa holders will become foreign if they exit Australia for more than three (3) consecutive months (e.g. have an extended holiday);
6. mixed commercial, industrial or primary production land and residential land is considered General Law residential land if 50% or more of the land is capable of being lawfully used for residential purposes regardless of actual use;
7. discretionary trust deed may be amended to exclude all foreign persons within 6 months of the date of issue of the first Notice of Assessment for land tax which includes a FILTS (Tas) and a refund of FILTS (Tas) will be provided;
8. the acquisition by a foreign person after 1 July 2022 of a further interest in land acquired before 1 July 2022 (e.g. by divorce) will cause the entire ownership interest of the foreign person to become subject to FILTS (Tas);
9. co-owners (including the non-foreign owners) are jointly and severally liable for and FILTS (Tas) unpaid by the foreign owners; and
10. a refund of FILTS (Tas) may be obtained in certain circumstances (e.g. the Developer Concession).
FILTS (Tas) is largely consistent with FIDS(Tas) criteria and interpretation, but there are differences (i.e. FIDS (Tas) applies to residential land, vacant residential land and primary production land). Accordingly, TSRO publications on interpreting FIDS (Tas) may be instructive when interpreting FILTS (Tas).
There remains a number of areas where commentators hold a different view to the TSRO.
Uncertainty of Validity of Investor Surcharges
On 21 February 2023, the Commissioner of State Revenue (NSW) (CSR (NSW)) announced that the Surcharge Purchaser Duty (NSW) and the Surcharge Land Tax (NSW) are inconsistent with international tax treaties entered into by the Federal Government with New Zealand, Finland, Germany and South Africa and will immediately cease to be imposed on these individual citizens and their affiliated corporations, trusts or partnerships and will be refunded on surcharges incurred on or after 1 July 2021.
Commentators consider the CSR (NSW) announcement is consistent with the High Court of Australia's decision in Addy v FCT [2021] HCA 34 (3 November 2021) of the International Tax Agreements Act 1953 (Cth) non-discrimination Article of Double Tax Agreements.
On 15 March 2023, the Commissioner of State Revenue (Vic) (CSR (Vic)) announced that the position in Victorian had not changed and the CSR (Vic) would continue to apply the Victorian provisions to all foreign persons.
The Property & Commercial Law Committee has sought clarification from the Department of Treasury and Finance and the TSRO regarding application of the non-discrimination Articles to FIDS (Tas) and FILTS (Tas).
Miscellaneous State Taxes
On 23 May 2022, the TSRO issued a miscellaneous Tasmanian Government Tax and Grant Measures Factsheet as a consequence of amendments to the Duties Act 2001 (Tas), the Land Tax Act and Payroll Tax Act 2008 (Tas) effected by the Treasury Miscellaneous (Affordable Housing and Youth Employment Support) Act 2022 (Tas) and associated legislation (5 April 2022).
Particular issues for practitioners to note are:
1. from 1 July 2022, the land tax thresholds, brackets and rates have changed with the tax-free threshold increasing to $100,000 and the upper bracket to $500,000 and the rate for land valued between $200,000 and $499,999 reduced to 0.45%;
2. the 50% First Home Buyers for Established Homes and Pension Downsizing Duty Concessions are extended to 30 June 2023 with the eligible dutiable value increased retrospectively from 1 January 2022 from $500,000 to $600,000;
3. the $30,000 First Home Owners Grant is extended t0 30 June 2023;
4. from 5 April 2022, the CSR (Tas)has a limited discretion to extend the construction completion date for recipients of the Tasmanian Home Builders Grant; and
5. the Apprentice and Youth Employee Payroll Tax Rebate is extended to 30 June 2024.
Solicitors’ Certificates / Certificate of Independent Legal Advice
A Solicitor’s Certificate is a document that confirms a borrower or guarantor has received independent legal advice regarding a loan and associated security documents By obtaining a Solicitor’s Certificate, lenders can be confident that the borrower or guarantor understands the potential liabilities and risks involved in signing the security documents
Guidance for Legal Practitioners
Legal practitioners may:
• accept a retainer to give independent advice to a client, and
• provide a Solicitor’s Certificate if that action is the appropriate means of achieving the desired outcome for the client;
provided the practitioner acts prudently and professionally.
Practitioners who choose to practice in this area should take appropriate care and seek adequate remuneration for their services given the inherent risks, the skills required and the time and care which must be taken. A solicitor not only needs to ensure that the client understands the risks associated with signing the documents but also that the documents contain the terms the client agreed to.
‘Solicitors certificates are fraught with difficulty if practitioners do not treat them seriously and have good systems in place. We regularly see claims where the client alleges they received no or inadequate advice about mortgage or guarantee they were entering into but the lawyer says they did give advice. Invariably there is not sufficient written evidence to show what that advice was ’ (lplc.com.au)
The insurers of solicitors in Victoria, the Legal Practitioners’ Liability Committee, have several publications providing guidance on this issue. Though the publications are specifically aimed at Victorian practitioners, the guidance which is of a general nature is relevant to Tasmanian practitioners.
The Committee recommends the following resource links:
a) Solicitors’ Certificates – Checklists, Articles and Other Resources
b) Seven Ways to Avoid a Solicitors’ Certificates Claim
c) Establishing Identity – This LIJ article looks at the 2020 case of C&F Nominees Mortgage Securities Ltd v Karbotli & Ors [2020] in which the Court found reasonable steps to verify identity were not fulfilled and provides key takeaways for lenders and legal advisers.
d) Rule 11 of the Legal Profession Uniform Legal Practice (Solicitors) Rules
March 2023
Property & Commercial Law Committee, Law Society of Tasmania
