Special titles

Some properties have special titles, and dealing with them requires professional advice. These titles are briefly described below.

General law titles

This title came to Australia with the early English settlers. It is evidenced by the chain of deeds that give effect to the transactions with the land. A buyer must have each document in the chain assessed by an expert to ensure it is valid. Lenders often insist that buyers convert them to registered titles. They are being phased out. Conversion is compulsory after 1 January 1999.

Company share flat

These are the earliest “group” titles and were popular in the 1950s. In these schemes, a company is the registered owner of the land, and each owner is issued with a parcel of shares that allow occupancy of a particular flat. Transfer of the shares is controlled by the company: usually a proposed new owner must be approved. These titles are not popular with lenders as the loan is secured only by shares, not land.

Stratum title

With these titles, which were introduced in 1960, each owner receives a registered title to a flat in the development and shares in the service company. The company holds title to the common property and manages the property on behalf of all the owners, through a service agreement. Some lenders refuse stratum titles as security because the service company has the first call on the land for debts owed by the owner. Sales of these lots are complicated and should be signed only after you have obtained independent advice.

Many company share schemes and stratum titles have been converted to strata titles, which significantly improves saleability and even the value of the units. However, conversion requires the agreement of all owners and is often difficult to put into effect.

Strata title

Strata titles were introduced in 1967 to reduce the complications of multi-storey developments. These titles were also used for many single-storey or villa-unit developments. Each owner in a strata subdivision receives a registered title and the administration of the block is carried out by a statutory owners corporation (not a company). Each unit owner contributes to the management and running costs of the block. Owners corporation rules govern the way the block is managed.

The Owners Corporations Act 2006 (Vic) commenced operation in Victoria on 31 December 2007. This Act controls the activities of owners corporations, removed provisions about bodies corporate from the Subdivision Act 1988 (Vic) (“Subdivision Act”) and comprehensively provides for the activity and operation of all owners corporations in Victoria. For more detailed information, see Owners corporations. (Note that owners corporations were referred to as the “body corporate” prior to 31 December 2007.)

While strata titles provide individual unit/lot ownership, there are restrictions that go with the title. These are mainly concerned with the daily issues of people living in close proximity and are contained in the rules of the governing owners corporation. While there are common versions of owners corporation rules, many have been developed and expanded over the years with additions designed to deal with an identified issue, for example, noise, animals, colours of painted buildings and maintenance funds.

A wise purchaser will investigate the governing rules of an owners corporation to see if there are restrictive rules that do not accord with the lifestyle they seek. It should be remembered that the majority rules this rule-making process, so discovering as much as possible about the neighbours you are about to inherit can be a useful exercise.

A common problem is the mix of owner-occupied versus tenanted units in a strata development. Because apartments and typically strata titled units are common investment properties, there can be a high incidence of tenanted units. An owner seeking to occupy a unit can find themselves in a minority and facing the complacency of absentee owners when it comes to some owners corporation issues affecting their occupancy. These matters can become very important to a unit owner and pre-contract investigations can often help to alleviate or avoid later problems.

It is always important that the owners corporation be identified. Often, it is said there is no owners corporation. That is not accurate. More likely, they mean the owners corporation is not active. Where this occurs, some caution should be applied because the owners corporation has a statutory obligation to insure, in its name, the common property and shared services in the strata subdivision. This is a very important feature of these structures and a buyer should insist on the details of owners corporation insurance being disclosed as the owners corporation, on behalf of all lot owners, is the body responsible for the common property areas and is liable for what happens on the common property.

If an owners corporation has not, in the past 15 months, held an AGM, and fixed any fees, and held an insurance policy, then it may state in the vendor’s statement that it is inactive.

Cluster title

These titles are rare, but are similar to strata titles. The scheme was introduced in 1974 to facilitate flexible development of vacant land.

Subdivision title

The Subdivision Act replaced these legislative schemes with a single subdivision procedure under which owners have registered titles to their lots. The procedure is much more flexible and allows an owners corporation to be created whether or not there is common property. The plan and the owners corporation rules define owners’ rights to use common property, easements, the lots, and the liability of each owner to contribute to the owners corporation funds.

Off-the-plan titles

These are sales of lots that do not yet have a title because the plan is unregistered. Before agreeing to buy one of these titles, you should seek independent advice, especially about opportunities to save stamp duty and potential problems.

These sales are now more common, with the explosion of high-rise apartment developments in major cities. Developers obtain finance for these projects and are therefore under pressure to show their financiers signed contracts as evidence that units are being sold and money is flowing back into the project.

This process involves the vendor presenting to a buyer what is, in most cases, a complex contract of sale well ahead of the actual construction of the building. The contract contains all the plans and specifications of the lot being purchased but, traditionally, it is not a building contract. The purchaser is not contracting with the builder to construct the unit; the building agreement is between the developer and a licensed builder.

These contracts generally contain enormous detail about the proposed subdivision; the rights of the vendor to vary permits, amend common property areas, commence works, and alter plans (including the boundaries of the unit/lot being purchased); and location of easements. They also provide for completion of works by a specified time, with a right to avoid the contract where that completion cannot be achieved. This avoidance right is very important: some contracts grant it as a right to be exercised by the vendor only; other contracts allow both parties to exercise the right.

Deposits are often financed by a guarantee or bond issued in favour of the vendor. This may lead to difficulties, particularly where a purchaser seeks to rescind the contract.

It is prudent for a buyer to seek appropriate legal advice on one of these contracts. These are not run-of-the-mill agreements and purchasers can be bound by the contract in circumstances that might be a surprise to them.