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Property Law Update - Winter 2012 Edition


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In this issue

Six months in ... how the PPSA may be impacting your business

Turning green: Environmental Upgrade Agreements
Sorting the legislative maze between Landowners and developing Resource Companies - a mine field
Non-residents may no longer enjoy the 50% discount on capital gains
Don’t forget your BEEC
Victoria moves to a new landholder duty model   




Six months in
how the PPSA may be impacting your business
            
The Personal Property and Securities Act 2009 (Cth) (PPSA), which came into effect on 30 January 2012, changes the way in which security interests in personal property are managed across Australia. There is now one single online register called the Personal Properties Securities Register, (“PPSR”) on which any holder of an interest in personal property must register their interest in order to ensure they have a priority claim to that property. 

Many affected by the PPSA have come to grips with their obligations but there are issues you need to consider beyond your technical registration requirements.

What you need to know

Real property and fixtures are excluded by definition from the PPSA regime. Nevertheless, transactions involving real estate may still be impacted by the legislation.

Interests in transactions involving real property may require registration if that property is part of a mixed securities arrangement. Some examples include commercial equipment leasing agreements (like retention of title arrangements), hire purchase or lease finance arrangements and bailment agreements.

Consequently, a landlord’s interest in property may require registration on the PPSR, if the landlord leases goods, provides finance or provides a fit-out to a tenant as part of a lease arrangement and wants to ensure that ownership over the relevant property is secured.

The failure to register a security interest on the PPSR could result in the loss of that unregistered (unperfected) interest to another party whose interest is perfected and therefore has priority.

If a tenant is insolvent, all personal property in the tenancy may vest in the liquidator or trustee in bankruptcy, despite the fact that the landlord owns that property, unless the landlord has properly registered their interest in that property on the PPSR.

While the Australian Banker’s Association and the Australian Finance Conference have developed a Deed of Release and Undertaking of a security agreement. In the context of sale of land transactions, we have encountered resistance from vendors to provide the purchaser with a full or partial Deed of Release because the lender or financier fears losing its priority. In these circumstances, purchasers need to identify the significance of the personal property and whether they can rely on any of the “extinguishment” provisions.

The broad definition of security interests under the PPSA is the primary reason that commercial agreements involving real property are affected by the legislation, as the definition goes to the substance rather than the form of the agreement. Therefore, a landlord in a commercial lease arrangement may have an interest “in substance” in certain personal property in the tenancy, which must be perfected by registration in order to ensure priority over other competing interests.

A PPSA checklist for Landlords

  • Investigate whether any security interests on non-migrating registers need to be registered on the PPSR. While most existing registered interests should have been migrated to the PPSR, we have seen many instances where:
    • charges previously registered on the ASIC Register of Charges have not migrated across to the PPSR;
    • charges that have been previously satisfied have been migrated across as undischarged;
    • security interests that were attached to specific assets (e.g. a fixed charge), were reclassified incorrectly on the PPSR as over all present and after acquired property; and
    • information regarding secured parties have not been properly transferred.
  • Accurate and complete details of the relevant security interest must be included on the financing statement that is lodged on the PPSR to ensure your security interest is perfected. A financing statement that contains errors may be ineffective;
  • A lease of land and goods should be registered on the PPSR. All contractual incentives given by landlords in the leasing arrangement will need to be reviewed and registered as necessary;
  • Purchasers of real estate will need to consider if the acquisition involves any personal property, for example, stock-in-trade, consignment or bailment items. Additionally, purchasers should check the PPSR for any existing security interests over all items valued over $5,000 or not for personal, domestic or household purposes included in the sale and seek appropriate releases from any security holders;
  • Purchasers of development sites, should check to see whether any drawings, designs and other intellectual property associated with the site are registered on the PPSR;
  • Keep track of all financing statements registered against you on the PPSR and seek a discharge or amendment where necessary.

How can we help you?

At Hunt & Hunt we can guide you through the complex maze that is the PPSA and provide crucial protection for your business including:

  • Staff training - we can come to your business and train your staff to help them to identify transactions covered by the PPSA, as well how to search and make new registrations;
  • Internal review - we can review your business activities to identify areas of risk, and advise you how to mitigate them;
  • Document review - we can review and amend your documentation to ensure you have the maximum possible protection under the legislation; and
  • Ongoing advice - we can advise on a case by case basis whenever a new transaction arises that may be covered by the PPSA.

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Turning green
:

Environmental Upgrade Agreements
by Bill Hazlett, Partner

The Environmental Upgrade Agreements (EUA) are an innovative and new way for the Victorian and New South Wales (NSW) governments to try to stimulate energy efficient upgrades of commercial buildings. They are finding popularity as owners and tenants see the merits in sharing the costs of upgrades to improve energy, water and environmental efficiency and sustainability (“upgrades”).

What is an EUA?

An EUA is as an agreement between a building owner, local council and financier. The finance is provided to the owner to carry out pre-approved upgrades. The council then places a charge against the land, collecting and forwarding its proceeds through the rating system to the financier. It is the security provided by the charge that has stimulated private sector investment as the liability to repay the loan attaches to subsequent owners and tenants of the charged land.

When is it used?

An EUA can be entered for existing commercial buildings and buildings that are “predominantly used for non-residential purposes”. In NSW, multi-residence strata scheme buildings comprising more than 20 lots are also eligible. Councils cannot make entering into an EUA a condition of their consent for redevelopment works.

Who bears the cost?

EUAs are an attempt to provide a stronger incentive to owners to carry out upgrades. They reduce the “split incentive” that used to benefit tenants, who would reap the rewards of the owner’s investments. Under an EUA, the owner can pass on the cost of the upgrades to tenants as outgoings. The upgrades are expected to pay for themselves through savings on power bills.

So what’s the catch?

In Victoria, the legislation requires that every tenant in a building must consent to the EUA. NSW has reached a more appropriate balance as an owner does not need the consent of tenants, however tenants’ contributions cannot exceed a reasonable estimate of the savings they will make under an EUA. The practical effect of the Victorian position means tenants will only consent to an EUA if they too will not pay more, however this appears to add an unnecessary obstacle to forming an EUA.

The legislation is also complex, particularly in Victoria. Sound legal advice will be invaluable to help navigate these early days of EUAs.

Why are they important?

Although EUAs have only been introduced in Victoria and NSW, it is expected that other Australian states will follow. As a sign of their importance moving forward, the City of Melbourne aims to retrofit 1200 buildings.

The diversity of parties to an EUA means that local councils, commercial landlords and their tenants should all be aware of EUAs and their benefits. Hunt & Hunt is well placed to advise on EUAs due to our extensive leasing and local government expertise.

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Sorting the legislative maze between Landowners
and developing Resource Companies -
a mine field
by Egils Olekalns, Partner

Recent changes to mining legislation increase the burden on mining companies wishing to access land.

In South Australia, amendments to the Mining Act 1971 impose additional procedural requirements on miners wishing to enter private land for exploration. The prescribed forms already used for notifying landowners that the miner will enter private land have been changed and updated. The Act also now sets out more detailed provisions which miners must follow before they can access exempt land, such as land used for cultivation, or land within 400 metres of a residence or water source. Landowners who have waived the exemption are entitled to cool off within five business days if they change their mind.

The amendments also make it clear that it is the tenement owner, not an agent of the tenement owner (like a mine operator), who is ultimately responsible for complying with the Act. Tenement holders will need to ensure that their authorised agents are following all of the required procedures, otherwise they may be personally liable.

Queensland has had a uniform land access regime since August 2010, which regulates access to land for all types of resource projects. A key part of the regime is the Land Access Code, which sets out mandatory and best practice requirements for miners to follow when undertaking authorised activities on land. The objective of the Code is to ensure that miners continue to follow industry best practice in dealing with landowners even after access has been authorised. Miners should become familiar with the requirements of the Code and take steps to ensure their agents and subcontractors comply with it.

More recently, the Strategic Cropping Land Act 2011 (Qld) brings into force additional protection for the State’s best cropping land. Mining projects will need to pass more rigorous assessment processes against the State’s planning policy for strategic cropping land if the relevant land falls within the protection or management zones established under the Act. Activities which are likely to have a permanent impact on land, like open cut mining or storage of mine waste, are most likely to be affected. Mining companies should review the provisions to determine what impact, if any, they have on their resource projects.

In New South Wales (NSW), access arrangements with landowners are initiated by the service of notification under Section 142 of the Mining Act 1992 (NSW). A recent decision of the Supreme Court of NSW resulted in the introduction of an amendment to the Mining Act. The amendment relieves mining companies from the obligation to enter into access arrangements with parties holding registered proprietary interests in land who are not entitled to immediate possession of the land like a mortgagee or security holder who has not enforced its security over that land.

As mining activity increases and encroaches onto peri-urban and cultivated land, attention will focus on the rights of landowners and occupiers in their dealings with mining (and petroleum) companies seeking to exploit valuable underground resources.

Whichever side of the fence you may be sitting, landowner or miner, we can help you unravel the legal maze in this highly regulated and technical area.

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Non-residents may no longer enjoy the 50% discount on capital gains
by Bill Hazlett, Partner

As part of the 2012-13 Budget, the Federal Government announced it proposes to remove the 50% capital gains tax discount for non-residents on certain capital gains accrued after 7.30 pm (AEST) on 8 May 2012. As a result, non-residents who own taxable Australian real property or mining assets will have any capital gains accruing from that property after that time included in assessable income at 100%. Certain assets, like shares in listed public companies, will not be affected as non-residents currently do not receive any capital gains tax discount for the sale of those assets.

While the Federal Parliament has not passed or even drafted the legislation for the proposal, we recommend a non-resident obtain a market valuation of the applicable asset as at 8 May 2012 from a valuer. A non-resident who is considering investing in Australia should take this proposal into consideration. We will provide a further update once an exposure draft of the legislation is available.
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Don’t forget your BEEC
by Lauren David, Lawyer

Since the Building Energy Efficiency Certificate (BEEC) requirements came into force late last year, the government has sent at least 150 ‘please explain’ letters. The impact of the Building Energy Efficiency Act is far reaching. Businesses and individuals are exposed to significant financial penalties if they don’t comply. We therefore provide a refresher on your BEEC obligations and the proactive steps you can take to comply.

When is a BEEC required?

A BEEC is required if your building or tenancy is disclosure affected (a commercial office greater than 2,000 square meters) and you are selling, leasing or sub-leasing a building or area of a building. An owner or tenant cannot offer to sell or lease a building that is disclosure affected unless they have a valid and current BEEC registered on the Building Energy Efficiency Register.

The practical issues of obtaining a BEEC

There are two pre-requisites a vendor or landlord must have to obtain a BEEC

  • A current NABERS energy for offices rating; and
  • A current lighting assessment for the building/tenancy.

The BEEC will also contain a uniform general energy efficiency guidance statement.

The catch is, a BEEC is only valid for up to 12 months and only valid during the time that both the NABERS energy rating for offices and the lighting assessment remain current - the moment one ceases is the moment the BEEC validity ceases.

Planning ahead

Vendors, landlords and tenants should consider how long it may take to sell or lease premises, and whether their NABERS energy for office rating or lighting assessment will expire during the time the office space is for sale or lease. If so, the office rating or lighting assessment should be renewed, or at the very least you might receive a “Please Explain” letter.

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Victoria moves to a new landholder duty model
by Bill Hazlett, Partner and David Archer, Special Counsel

On 1 July 2012, a new landholder duty model came into force in Victoria, replacing the previous land rich duty model. The amendments to the Duties Act 2000 have expanded the number of transactions in Victoria which will now attract a liability to pay duty if a "significant interest" is acquired in land holding entities. The reach of the new provisions extends beyond the scope of similar landholding duties imposed in other Australian jurisdictions. This means acquiring land owning entities in Victoria has become more complex and less favourable to acquiring land owning entities in other states and territories.

The core changes are:

  • the removal of the 60% land to asset value ratio so that the liability for duty can now apply to any entity which owns land in Victoria with a total market value of $1 million or more
  • the introduction of the concept of an 'economic entitlement'. Anyone who acquires an economic entitlement (like dividends, income, rents, profits or proceeds of sale derived from the land holdings of the landowner), either directly or indirectly, of 50% or more in a landholder, will be liable to pay duty.
  • the removal of the three year limitation period for aggregation of interests. All acquisitions of interests in a landholder can now be aggregated for an unlimited time period to determine whether a person has acquired a "significant interest" in a landholder.

If you currently have an investment in an entity which is a Victorian landholder and you are considering increasing that investment, or are considering making a new investment in an entity which is a Victorian landholder, please contact our Melbourne office for advice on the possible exposure of the transaction to a liability for payment of landholder duty under the Duties Act.
These changes will particularly affect those who make or who increase investments in private trusts or companies which, at the time of the investment, own Victorian land with a market value of $1 million or more.

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Contacts

If you would like to discuss any of the issues raised in this update or require further information, please contact

Sydney (City) | Ned Boyce, Senior Consultant | +61 2 9391 3001 |eboyce@hunthunt.com.au
Sydney (North Ryde) | Mark Byers, Partner | +61 2 9804 5777  | mbyers@hunthunt.com.au
Melbourne | Bill Hazlett, Partner | +61 3 8602 9259 | bhazlett@hunthunt.com.au
Adelaide | Egils Olekalns, Partner | +61 8 8414 3342 | eolekalns@hunthunt.com.au
Perth | Darren Miller, Partner | +61 8 9488 1300 | darren.miller@culshawmiller.com.au
Hobart | Antony Logan, Partner | +61 3 6210 6213 | alogan@hunthunt.com.au
Darwin | Christine Osborne, Partner | +61 8 8924 2600 | cosborne@huntnt.com.au

 

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