Most significant changes to property law in 50 years

The Property Law Bill 2023 (the Bill) heralds the most significant changes to property law in Queensland in 50 years.

The Bill, which will repeal the Property Law Act 1974 in full, was introduced to Queensland Parliament on 23 February 2023, after detailed consideration and consultation with many stakeholders, including the Queensland Law Society, REIQ, Property Council, UDIA and community title stakeholder groups.

The Bill enacts a majority of the recommendations from the QUT Centre for Commercial and Property Law Report from 2017 about modernisation of property laws in Queensland. At a high level, the recommendations concerned removal of outdated English rules, omission of provisions only relevant to old system land, facilitation of electronic transactions and updating for other changes in property law practice.

The Bill has been reviewed by the Parliamentary Committee, which reported on 14 April 2023. The Committee recommended the Bill should be passed. Only some minor changes were recommended.

It is anticipated the Bill will be passed in September or October 2023, but commencement will be delayed by six to 12 months to allow for consultation on the new Property Law Regulations and education.

Some of the major changes are outlined in this article with an emphasis on sections commonly used by property practitioners.

Deeds

Current provisions validating electronic deeds will remain largely unchanged and apply to deeds signed by individuals, corporations, partnerships, statutory corporations, unincorporated associations and the State. These provisions do not affect the signing of instruments under the Land Title Act 1994. However, the limitation period of 12 years for suing on a deed will be reduced to six years by an amendment to the Limitation of Actions Act 1974.

Both guarantees and indemnities must be in writing and signed by the guarantor/indemnifier (s69 of the Bill). Both can be electronically signed, subject to any restrictions in the National Consumer Credit Protection Act 2009.

Practice Note

The provision in s69 relating to guarantees is a modern enactment of the Statute of Frauds, which required guarantees to be in writing. There is no reason to think this section will not allow joinder of documents to prove the contents of a guarantee as s69(2)(a) refers to the guarantee ‘or written record’ having to be signed by the party against whom the guarantee is to be enforced. As a guarantee by definition ‘includes an indemnity’, there is no reason to suggest this factor would not apply to indemnities although, in practice, guarantees and indemnities are normally in writing and signed by the guarantor or indemnifier.

Sales of land

The principles governing the sale or disposition of an interest in land are largely unchanged in relation of the requirements of writing and signing (ss7-10). Interests that may be created by parol are the same, including short leases, resulting, constructive and implied trusts and wills. The common law rule about passing of risk has not changed but s58 and s63 Property Law Act 1974 related to claims on the seller’s insurance are omitted.

The right of a buyer to rescind a contract of sale for a residential dwelling where it is so damaged or destroyed to be unfit for occupation in s64 PLA 1974 is re-enacted in s77. The buyer will have a right to rescind before settlement unless the seller restores the dwelling to its condition before the damage. If a seller restores the dwelling, a notice must be given by the seller when complete allowing the buyer to inspect. The buyer’s right to terminate under s77 expires when the property is restored.

Several provisions related to settlement have been updated to take into account electronic settlement including:

• Extension of settlement to the next business day where it falls on a non-business day under the contract (new s78);
• Rights to extend the settlement date where settlement is prevented due to computers in the land registry being inoperative on the settlement date or in the case of an electronic settlement any computer system required for settlement being unavailable (new ss79 and 80)

A new section which mirrors to some extent clause 6.3 of the REIQ contracts is enacted as s81 of the Bill. The section applies if an adverse event prevents one of the parties from attending settlement and delays An ability to delay settlement where a party is prevented from settling due to an adverse event. This section is similar in operation to clause 6.3 of the REIQ Contracts.


Emeritus Professor Bill Duncan at June 16 seminar.

The most significant change to the law and practice is the introduction of a mandatory seller disclosure regime for all sales of land. Elements of the framework are:

• Applies to all freehold land, including units but there are a number of exceptions listed in s100;
• Applies to sales by private treaty and auction;
• Seller is obliged to disclose information before contract;
• Disclosure by the seller is required to be given using an approved form with some prescribed certificates attached;
• The information to be disclosed mirrors existing statutory, common law or contractual disclosure requirements, including a title search, registered plan, tree orders, contaminated land notice, heritage listings, transport proposals. Some additional information is required such as a body corporate information certificate and a Community Management Statement. A BMS is not required to be attached but the existence of a BMS must be acknowledged by the seller in the disclosure statement;
• The disclosure must be accurate at the time it is given;
• If there is a material inaccuracy or omission in the disclosed information and the buyer was not aware of this inaccuracy or omission at the time of contract, the buyer may terminate; and
• If the buyer terminates there is no statutory right to compensation.

Practice Notes  

Rescission of contract of sale where dwelling becomes unfit for occupation after contract

The new s77, unlike the existing s64, gives the seller an opportunity to restore the dwelling to habitability before settlement if the damage to the property was light and capable of being fixed in the narrow window of time between its occurrence and settlement or earlier possession. In such a case, the seller, upon assessing the damage, should notify the buyer immediately and advise that the seller will be undertaking restoration and that they will advise the buyer when it is completed to enable an inspection to be carried out by the buyer. Nothing in the section prevents the buyer from rescinding at the time when the property is uninhabitable before restoration. Where restoration is undertaken, it is a matter for the buyer to assess whether it is satisfactorily restores the property to its original condition or not and settle or rescind as the case may be.

Extensions of time for settlement in certain cases automatic

Section 78 provides for settlement on the next ‘business day’ (or as agreed) where the contract provides for settlement on a non ‘ business day’ in the place where the contract is to be settled in the case of a paper settlement, or in the case or an electronic settlement, the location of the land. The expression ‘business day’ is contained in Schedule 1 of the Acts Interpretation Act 1954 where it is defined as ‘a day that is not — (a) a Saturday or Sunday; or (b) a public holiday, special holiday or bank holiday in the place in which any relevant act is to be or may be done’. The time of settlement applies ‘despite the terms of the contract’ (s78(2)).

Section 70A of the existing Property Law Act 1974 is effectively re-enacted by s79 of the Bill where the buyer cannot verify the seller’s title because of inoperative computers in the land registry and a new s80 is added where computers in any part of the electronic settlement process are inoperative both preventing settlement upon the day of settlement. In the first instance, (s79) notice must be given by the buyer to the seller nominating a day, not less than three or more than seven business days after the computers become operative again for settlement, and in the latter case, (s80), the day of settlement becomes the next business day after the electronic system is again operational but excluding 27-31 December.

Section 81 is added to the Bill similar to the current clause 6.3 of the standard REIQ Contracts permitting an extension of time for settlement where a party cannot complete the contract due to an adverse event as defined in s81(9). This would include although not expressly so, the non-attending party’s solicitor as the party’s agent. In the context of electronic conveyancing, by parity of reasoning, this would include a situation where the solicitor, as an authorised person, could not, because of some adverse event, access a computer to attend to an electronic conveyance on the date of settlement.

Disclosure

The approved form of the disclosure statement and prescribed certificate is yet to be settled by regulation to be drafted after the new Act is passed. As well, alterations may be required to the standard REIQ/QLS Contracts of Sale to accommodate the introduction of this more extensive statutory disclosure. There are several other general matters to note which are apparent now from the Bill.

1. It will not be possible to contract out of the seller disclosure requirement (s98)
2. The requirement applies to all sales of registered lots under $10 million (incl GST) including residential and non-residential property.
3. Seller disclosure does not apply to sales of registered land over $10 million (incl GST) provided the buyer gives the seller(s) a notice waiving compliance with the requirement prior to contract. (s100(k) (i)(B) and (ii)).
4. The disclosure regime only applies to lots under the Land Title Act 1994 and does not include a proposed lot under the Land Sales Act 1994 or Body Corporate and Community Management Act 1997 where existing requirements will continue to apply.
5. A buyer may terminate a contract up until settlement where: a) the seller fails to give the buyer a disclosure statement or a prescribed certificate before the buyer signs the contract; or b) the statement or certificate given to the buyer is inaccurate in relation to a material matter affecting the lot at the time it is given to the buyer AND the buyer  at the time of signing the contract is not aware of the correct state of affairs AND had the buyer been aware  of them, the buyer would not have signed the contract. This standard for termination is not the same as the material prejudice’ test which is a subjective test as to how the failure or inaccuracy affects the buyer.
6. The only remedy is termination of the contract and refund of the deposit and any interest paid (s105, s106(1) and (2)). The Bill does not give a buyer a right to any other compensation, including for an inaccurate prescribed certificate prepared by a third party eg. body corporate manager or secretary.
7. Certain sellers are not required to give disclosure (s100) (See eg related parties (as defined in s96), the State or statutory bodies, local governments, listed corporations, etc (as defined in s95)
8. The disclosure statement and prescribed certificate may be given electronically (s99(7) and s102).

Leases

Assignment of reversion subject to lease

The concepts of covenants that touch and concern the land will no longer be relevant to determining the enforceability of covenant after a transfer of the reversion. According to s140, the benefit and burden of all covenants in a registered lease will run with the land unless:

• The term of the lease is expressly stated to be personal to the parties, or
• A term of the lease excludes the operation of the PLA or s140 PLA, or
• A lessor and the transferee of the land agree in writing that the benefit of a term remains with the lessor. This will enable the parties to agreement that the transferor will retain the right to see for arrears of rent.

Consistent  with the current position the transferor will remain liable for past breaches and a notice to the lessee directing rent to be paid to the new lessor is required.

Practice Note

This section will apply to all transfers of freehold land subject to lease after the commencement of the Act, irrespective of the date of the lease. This will mean a review of leases before a contract of sale is entered into to determine whether a lease has to be amended or whether the contract of sale will need to contain a clause that the benefit of a specified lease term will remain with the seller after transfer of the freehold.

This is consistent with the current approach of excluding s117 of the Property Law Act 1974 in relation to arrears of rent, except that under the new provisions the contract will need to spell out the specific right to remain with the seller.

When drafting a lease, the new section may be expressly excluded or specific covenants may be declared to be personal which means the enforceability of lease terms after transfer of the freehold would be interpreted according to the express wording of the lease or, in the absence of these express exclusions, this new section.

Assignment of Leases – enforceability of covenants

Similar to s140, new s143 provides that an assignee of a lease is bound by each term and entitled to the benefit of all terms in the lease except where:

• A covenant in the lease expressly provides the term is personal to the parties;
  • A term of the lease excludes the operation of s143;
  • The lessee and assignee expressly agree in writing that the benefit of the term remains with the lessee and either:
    • benefit of the term accrued to the lessee prior to assignment; or
    • the lessor consents to the benefit of the term remaining with the lessee.

The operation of this section is not affected by s62 Land Title Act 1994 but is subject to agreement to the contrary.

Practice Note

As the practical effect of this section is subject to any contrary agreement between assignor and assignee, which is subject to lessor consent at the time, a consideration of the application of the section would have to be carried out at the time of assignment of the lease after commencement of the Act. The agreement between the assignee and assignor that the benefit of any term remains with the assignor with the consent of the lessor would be achieved by a tripartite Deed of Covenant.

The section applies to all leases regardless of the time they were created.

Release of subsequent assignee and guarantor post lease assignment

The legislation does not expressly release an assignor from the covenants in the lease upon assignment, so the current position after an assignment from one lessee to the next lessee is unchanged. However, if an assignee of the lease effects a further assignment to a subsequent lessee, s144 releases the original lessee and their guarantors from liability under the lease for breach by a subsequent lessee.

The section cannot be altered by the terms of the lease or the guarantee.

Practice Note

Section 144 will only apply to the assignment of a lease entered into after the commencement of the new Act (s255(2)).

The section will operate where a lease is entered into after the commencement of the Act by Lessor and Lessee 1. Lessee 1 then assigns to Lessee 2 and subsequently, during the term of the lease, Lessee 2 assigns to Lessee 3.

At the time of the assignment from Lessee 2 to Lessee 3, a limited release of Lessee 1 and their guarantor occurs, only in relation to liability for breaches of the lease by Lessee 3. If there happens to be an accrued breach of the lease by Lessee 2, Lessee 1 will continue to be liable for this breach.

Lessors may deal with this change by incorporating provisions in a lease requiring new guarantors/security to be provided by the assignee as a condition of consent to an assignment.

Consent to assignment of lease, sublease, change of use or alterations

Various provisions related to consent from the lessor currently in s121 will be re-enacted in s142. Similar to the current position, new s142 applies if a provision of the lease requires the lessee to obtain the lessors consent, in which case the consent must not be unreasonably withheld.

A significant difference is all requests for consent will be dealt with in the same way under s142. If the lessee requests consent to an assignment, sublease, parting with possession, change to the permitted use, creation of a mortgage, or to carry out alterations or carrying out works the following will apply:  

• lessee is to give the lessor a proposal notice with all information required by the lease
• Further information necessary for the decision can be requested by the lessor (giving a notice);
• A lessor is required to give a decision notice  within one month of the lessor receiving all necessary information. The parties can agree to an extension of the date for the decision notice, during the one-month period;
• The decision notice must state:
  • If consent on conditions – the conditions of the approval;
  • If consent is refused – the reasons for the refusal.

A lessee can apply to the Supreme Court for an order if consent is withheld  or no decision notice is given. Importantly this does not alter the right of an assignee to proceed for the transaction on the basis the lessor has unreasonably withheld consent. It is likely the unreasonable withholding of consent to a retail shop lease will continue to be dealt with under that regime given the cost of litigation of this matter in the Supreme Court.

Practice Note

The new section applies notwithstanding any agreement to the contrary [s142 (11)] from the commencement of the Act regardless of the date of entry into the lease. A lessor can avoid the application of the section by prohibiting assignment, sublease, alternation in use or building works in all cases. If a lessee later seeks consent to any of these activities, the lessor will be free to refuse on any grounds.

If the section applies, ‘not unreasonably withhold consent’ will have the same meaning as existing s121 Property Law Act 1974.

If the lease does allow a lessee to seek consent, consideration should be given to:

1. What information a lessee should be required to provide in the event consent is sought, this should be specified in the lease;
2. Whether agreed conditions of consent could be specified in the lease as being reasonable in the event consent is sought.

Note a longer time for the giving of a decision notice cannot be specified in the lease but the parties may during the one-month period extend the period by agreement.

Under the new regime, lessors will need to pay particular attention to the one-month time period. Failure to comply gives the lessee the same rights as if consent was unreasonably withheld.

In the case of an assignment of a retail shop lease, the process in s142 applies to a request for assignment. If the lessor does not provide a decision notice within one month of receiving full particulars the lessee, a retail shop lease dispute exists and the lessee can apply to QCAT for a resolution.

Easements

Enforceability of covenants between subsequent owner of land subject to easement

Under the current law, a positive covenant in an easement is subject to the general rule that such covenants are not enforceable against successors in title: Rhone v Stephens [1994] 2 AC 310 at 316-7. This principle has been applied in Queensland to covenants in easements obliging a party to pay for the cost of construction of road, drainage or infrastructure, (Rural View Developments Pty Ltd v Fastfort Pty Ltd [2009] 1 Qd R 35) a covenant to keep the servient tenement free of noxious weeds (Fanigun Pty Ltd v Woolworths Limited [2006] 2 Qd R 366 and an obligation to pay for use of an extension to a party wall (Rufa Pty Ltd v Cross [1981] Qd R 365). The application of this principle is not altered by registration of the easement.

Section 65 of the Bill is a new provision aimed at ensuring covenants in registered easements are binding on subsequent owners. The section will apply to positive or negative covenants related to “use, ownership or maintenance” of burdened land. A non-exhaustive list of examples where the section will apply is provided in s65(2). The section will not apply if covenant expressed to be personal to the parties.

Practice Note

Section 65 will have retrospective effect. It will apply to all easements, regardless of when the easement was entered into and parties cannot contract of the section except by expressly providing in the easement that the covenant is personal to the grantor and grantee named in the grant.

For clarity, it is likely amendments will be made to the Bill arising from submissions made to the Parliamentary Committee, adding further examples to s 65(2) related to obligations to insure and indemnify.

Professor Sharon Christensen, Head of Law School at Queensland University of Technology (QUT) and a member of the QLS Property and Development Law Committee, and Emeritus Professor Bill Duncan, from QUT, presented at the QLS Property Law seminar – Modern times, modern act: The new Property Law Act in June.