Productivity Commission: Inquiry into First Home Buyer Ownership

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Torrens Title Provisions

7.9 Australian land law is all state based, but essentially modeled on the Torrens tiles system. In 1997 and 2000, important amendments were made to the Land Title Act 1994 by inclusion of divisions 8A and 4 A allowing statutory covenants to be registered on title.

7.10 Section 97A (3) sets out what kinds of provisions can be in covenants:

  • Provisions about the use of the lot or part of the lot;

  • Provisions about a building, or building proposed to be built, on the lot;

  • Provisions about the conservation of a physical or natural feature of the lot, including soil, water, animals or plants;

  • Provisions ensuring that the lot may only be transferred if another lot (freehold or leasehold) also subject to the covenant is transferred with it.

7.11 The covenant may be a positive or negative, but must not prevent a person from registering another interest, exercising rights under a registered interest, releasing or surrendering a registered interest.

7.12 The Act does not positively define “use”, but says it excludes architectural or landscaping standards for a building. In his second reading speech to the Bill, by Minister Welford, clarified that statutory covenants were not intended to secure landscaping type restrictions, such as “red roof” personal covenants. Assistance may be obtained in understanding the aims intended for statutory covenants from reading the Ministerial speeches when the original and amending provisions were introduced. Such speeches may be used as an aid to interpretation5, should the operation of the provisions be ambiguous, or their operation would lead to an absurd result in a particular context. Particular mention was made6 of the part statutory covenants might play in securing a measure of “low or medium cost” housing, through the Department of Housing entering into a statutory covenant with a developer as part of a development approved under IPA.
7.13 IPA also contains provisions related to covenants, designed to restrict the scope of them interfering with traditional planning laws. These are not footnoted in the Land Title Act or Land Act, but must be read concurrently to fully understand the requirements for statutory covenants. As there is no cross-referencing in the authorizing provisions, there is potential for confusion. The provisions are set out below in their current form, for information:
2.1.25 Covenants not to conflict with planning schemes
Subject to section 3.5.37, a covenant under the Land Act 1994,

section 373A(4) or the Land Title Act 1994, section 97A(3)(a) or (b) is of

no effect to the extent it conflicts with a planning scheme—

(a) for the land subject to the covenant; and

(b) in effect when the document creating the covenant is registered.’.
7.14 An important change to this section, introduced by the Integrated Planning and Other Legislation Amendment Act (IPOLA) was passed on 16 October 2003. The test for consistency with a planning scheme was widened so that the covenant must be “in conflict” with the planning scheme to be ineffective, not just “inconsistent with the planning scheme” as the section previously provided.
3.5.37 Covenants not to be inconsistent with development approvals
(1) Subsection (2) applies if a covenant under the Land Act 1994,

section 373A(4)62 or the Land Title Act 1994, section 97A(3)(a) or (b)63 is

entered into in connection with a development application.

(2) The covenant is of no effect unless it is entered into—

(a) as a requirement of a condition of a development approval for the

application; or

(b) under an infrastructure agreement’.

7.15 A useful illustration of how a statutory covenant would fit into the chronological sequence of a development approval and be registered on land is set out below.

Covenant as part of Development Approval and Registration Process

  1. Development Application. Developer applies for dispensations or other concessions on the basis that covenant will be entered into.

  1. Development Condition. Prior to issue of development approval, Council checks that covenant satisfies reasonable and relevant test and not in conflict with planning scheme. Condition requires Council to prepare covenant.

  1. Survey Plan Survey plan to depict the covenant area.

  1. Request for Plan Sealing Developer requests plan sealing

  1. Plan Sealing Terms of covenant and any other documents to be agreed between Council and developer signed.

  1. Drawing Covenants Council to draw the Covenant in accordance with the Development Condition. After developer agrees, signs covenant first presents to Council for execution. Once all other required documents and payments are returned by the Developer, Plan Sealing can occur.

  1. Plan Sealing Once all conditions are met, the plan of survey is sealed. The Developer collects the sealed survey plan, covenant and any other documents executed by Council.

8. Stamping and registration. Developer attends to this, separate titles are issued after registration.
7.16 It therefore appears the use of land can be regulated by statutory covenant combined with planning approvals.
7.17 Most often, a covenant to secure ongoing management of land will be implemented by a management plan, not registered, but signed by the current owner. The management plan drills down into the fine detail of how the covenant outcomes will be achieved, and may be amended to suite changing conditions, provided it does not limit the main obligation of land use established by the covenants – affordable housing. Without detailed provisions in the Land Tile Act about enforcement and monitoring of covenants, much of this detail will have to be negotiated and agreed between the parties and form parts of the management plan. Even though such plans represent a departure from traditional enforcement models, it is in keeping with a general modern trend towards self-assessment and audit regimes with non-court based solutions.
7.18 Over the last 10 years there has been a shift away from traditional statute and court based compliance by inspection and prosecution towards these regimes, with elf-assessment and audit regimes with non-court based enforcement. Much work on alternative methods of compliance was undertaken by Ayres and Braithwaite, academics at the Australian National University who were commissioned to research compliance issues for the Cash Economy Task Force within the Australian Taxation Office.
7.19 Examples of different compliance models at State and Federal levels include self-regulation via industry codes (e.g. telecommunication industry); the use of infringement notices rather than summonses (environmental offences), enforceable undertakings (ACCC) and continuous disclosure regimes (ASX for listed securities).
7.20 The trend against direct inspection and audit in favour reporting on pre determined performance criteria could be followed with a statutory covenant for affordable housing, with skilful drafting. Government reserve the right to audit the information supplied on a random basis, if irregularities are noticed or upon information supplied by a third party. Costs of the audit can be payable by the party audited, especially where the audit is conducted by an independent third party engaged by the government. In the United States, new businesses of “compliance auditing” have developed to cater for governments requirements that particular firms be accredited to conduct audits for departments, when compliance becomes an issue.
7.21 The monitoring, compliance and enforcement mechanisms must be negotiated and agreed between the parties. They might include the self-assessment / audit style described earlier. This regime is particularly apt where the agency seeks to save cost, the land is well known and valued by the owner, and the agency builds strong incentives into the model, to make the landowner “want to comply”.
7.22 Even though not underpinned by legislative provisions, a voluntary regime has the advantage that it is negotiated and agreed. The landowner may suggest a better method of compliance monitoring not considered by the agency. A landowner that has agreed to a regime is much more likely to cooperate in it, than one who is forced to comply with imposed rules over which they have no control or sense of ownership. Incentives offered to landowners to induce compliance could be monetary payments, tax deductions, rate remissions or reduced valuations leading to other benefits.
7.23 To further enhance the fact that the regime is voluntary, agencies could require land owners to sign a fresh management plan, either as the covenant is reviewed each 1 or 2 years, or when the land changes hands. This will allow a negotiation process to ensue with new owners so they are made fully aware of the regime and specifically agree to it or suggest changes. A powerful incentive for new owners to sign fresh management plans is to make the payment of incentives or benefits a term of the management plan, so they can’t be claimed until the plan is signed.
7.24 When considering compliance issues, government agencies would have to be mindful of a line of superior Court decisions7 about the potential liability of government for negligence in the exercise or non-exercise of its powers. Although these cases concern the non-exercise of statutory powers, they could, by analogy, be extended to cases where an agency negotiates for, and obtains, other enforcement powers, by way of statutory covenant.

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