So you’ve found the perfect home and want to buy it now. Great!
There’s just a few things you need to do before you can settle on the property. Do you know what type of ownership you want and what restrictions there are on the property?
Trying to grasp the legal jargon and complexities of purchasing and owning a home can be confusing. It helps to get expert advice from a conveyancer so you completely understand what your rights are in order for you to make the right decisions.
Here are some tips from Boyd Conveyancing Services’ Katherine Boyd.
What type of land title are you purchasing?
At its very basic, Australian property law is grounded on the Torrens principle of registration of title, with each state and territory having a central register of all land in the state which shows the owner of the land.
Each central register also includes information pertaining to mortgages, covenants, caveats and easements.
Torrens title is the most common type of land title, with a single document guaranteeing ownership so there are few disputes or unregistered dealings.
For instance, if property in New South Wales is sold without the owners knowing then Land and Property Information (LPI) will compensate them.
Although they won’t get the land back, they’ll receive from the government what the LPI believes the value of the property was at the date that the fraud took place.
Old system title
Torrens title replaced what is known as Old system title, a formal centralised system which was introduced in the years following the settlement of Australia.
According to Katherine, Old system properties do not come with a guarantee against fraud and the conveyancer should have an Old system search done to check for signs of fraud or changes in the dimensions of the property.
“These searches can be very expensive and can cost up to $1000,” Katherine says.
“Luckily, only around 10 per cent of properties in Australia are Old system but this is probably less now.”
Properties not registered in Torrens title fall under the Old system and they can be more difficult to finance.
Strata title
The other common title type is known as strata and it’s where ownership of the land is divided into parts. Examples include units, apartments and townhouses.
“Strata is still Torrens title and has fraud protection,” Katherine says.
“The common property areas and land is owned by the strata and people who buy into the strata are like the shareholders.”
The title also refers to the airspace occupied by each unit.
Other property titles
Community title: Similar to strata title, community title usually refers to an entire subdivision or neighbourhood. This was a popular form of high-rise ownership in NSW before the introduction of strata title.
Company title: A company title is an older style of title that was commonly used for blocks of units before the use of strata titles became common around the 1960s. The block of units is owned by a company and the owners of the units buy shares in the company.
Qualified Torrens title: A property that is being converted from Old system to Torrens title, this title doesn’t have the same protection against fraud until the qualification comes into effect. This can take 6 to 12 years from when it is entered depending on when the last sale at a genuine price took place.
Limited Torrens title: This is a standard Torrens title property which has not been adequately surveyed, so it is not known exactly where the boundaries of the land are. This is usually the case for older properties, upon which land was measured with links and chains and bearings from rivers, trees and streets
Without these materials and measurement references available in some cases, your state’s land and property management authority cannot guarantee that the size or location of the land is as it is recorded on the title.
The only way to have this removed is to spend about $4,000-$5,000 and have a plan of delimitation prepared, Katherine says.
Leasehold title: Similar to Crown Land and Perpetual Leasehold, ownership of a property is in actual fact a right to use the land for a specified term, usually for a term of 99 years. One example is in Canberra where there is no freehold land.
You can find out more on our property titles page.
Australian property law and title legislation are different beasts
This table illustrates how utterly confusing property ownership law is in Australia.
State or Territory
Property law
Title law
New South Wales
Real Property Act 1900
Conveyancing Act 1919
Victoria
Transfer of Land Act 1958
Land Titles Validation Act 1994
Australian Capital Territory
Real Property Act 1925
Land Titles Act 1925
Queensland
Property Law Act 1974
Land Titles Act 1994
Northern Territory
Law of Property Act
Validation of Titles Act 1994
South Australia
Real Property Act 1886
Tasmania
Real Property Act 1862
Land Titles Act 1980
Western Australia
Property Law Act 1969
Titles Validation Act 1994
Luckily, you won’t really need to know all of this. Let your conveyancer worry about it.
Do I choose joint tenants, tenants in common or entity?
Opting to purchase a property as joint tenants is the most common type of property ownership for couples wanting to buy a home.
Ultimately, this type of ownership means both individuals own the property equally and, upon death, the deceased individual’s share will go to the surviving owner of the property. If the property is owned by more than two people in a joint tenancy arrangement, the deceased individual’s share will be split equally among the surviving members.
Tenants in common allows couples to own unequal shares in a property with the parties involved deciding how much of the property they want to own.
Two of the most important distinctions between these two forms of ownership is that joint tenants cannot leave the property to a third party in their will.
With tenants in common, each owner is only responsible for their portion of the home, for example, 40 to 60 per cent split. In addition, they can do with their portion of the property as they wish, including leaving their share to another party in the event of death.
For example, tenants in common allows couples with children from separate marriages to have the children inherit all or part of the value of the property in their will.
There are tax advantages to splitting your percentage for investment properties but it’s important to speak to a tax agent before making a decision.
Real estate can also be bought via a corporation, whereby the legal entity is a company owned by shareholders; and a trust, in which the property is owned and managed by a trustee on behalf of beneficiaries, such as a self-managed superannuation fund (SMSF).
It’s important to keep in mind that unless a request is stipulated when entering into the contract, Torrens title will prevail.
Be sure to seek independent advice from a solicitor and, if need be, an accountant, before signing any contract so you know which type of title will work best for you.
Is the property subject to tenancy?
When you receive the Contract of Sale, it will say whether the property is vacant possession or sold subject to tenancy, that is, the existing tenant remaining in the property either under a lease or an expired lease.
Basically, the tenants come with the property when you buy it and they will be advised of the sale.
You should contact them to make arrangements for payment of their rent unless you organise an agent to do this on your behalf.
If the lease is expired but the lease stipulates subject to tenancy, you can settle with the tenant (you may have to give the tenant 90 days notice to vacate) and request that the contract be changed to vacant possession.
“If vacant possession is specifically marked on the contract but the lease does not expire for 12 months, the purchaser cannot be called to settle until such time as vacant possession can be offered,” Katherine says.
When selling, be sure that any rent up until the day of settlement is payable to the vendor. Any rent after that point will go to the buyer. The conveyancers will do all of this for you.
Have you paid council and water rates?
On top of the costs associated with settling, including stamp duty and conveyancing fees, there are water and council rates that you’ll be liable to pay.
The previous owner would have paid these rates either quarterly or yearly so you’ll need to reimburse them for anything they’ve paid up after the settlement date. Conveyancers normally calculate the costs quarterly to save you money up front.
Have you thought about title insurance?
Home and contents insurance is one thing but have you thought about protecting the ownership of your home?
A conveyancer will do a title search in the public record to ensure that you have “good title”, that is, checking that you really own the property and no one else has a claim to it.
Either through a mistake made by your conveyancer or lack of information on the public record, your title and ownership can be threatened.
Title insurance was originally introduced to counter things like title fraud as well as the protection against illegal building works and breach of existing covenants including illegal structures and boundary defects identified by council.
“If someone lodged a caveat due to financial interest after settlement, the insurance would pay them out and find someone else to sue so that the property would go in the buyers name,” Katherine says.
The combination of title insurance and your solicitor’s advice will help to protect the legal ownership of your home as well as cover you for any legal defence costs and expenses.
Coverage commences on the settlement date of a mortgage and lasts for the life of the mortgage for a one-time premium payable at settlement, usually around $400.
You should speak to your conveyancer about title insurance prior to settlement.
How much is land tax?
Investments may incur a land tax liability. These properties not only include investment properties but holiday homes (in which you rent out part of the year), hobby farms and vacant land as well.
In NSW, if the property you purchased is your principal place of residence, you’re usually exempt from land tax. The tax exemption for individuals applies with most states but eligibility for an exemption varies.
For instance, no land tax applies for properties in the Northern Territory even for investment properties.
As part of the Contract of Sale, the vendor may request that you pay part of their land tax, so if the property is to be your principal place of residence, you should try to negotiate this cost out of the contract.
Are you buying the right property?
At the bare minimum, does the contract contain the ‘3 P’s’?
Property: Does the property type, address and other details match the property specified in the contract? You’d be surprised how often conveyancers and real estate agents can stuff this up so double and even triple check these details before signing anything.
Parties: Is the name and details of the vendor (seller) correct? Check that your own personal details are error-free as well.
Price: Once you agree on a price with the vendor, make sure this figure is reflected in the contract.
Construction: 80% of the property value (up to 90% on a case by case basis).
Discounts: Competitive professional package and basic loan discounts are available.
Simultaneous Settlement
Simultaneous settlement is where someone sells their house and purchases another property on the same day.
This will usually involve exchanging the sale and purchase contracts. It sounds simple but it can be quite complex without an experienced conveyancer to line everything up.
One of the most fundamental considerations is that you or the buyer hasn’t bought or sold their property before purchasing the new property.
What's a covenant?
Restrictive covenants prevent you as the buyer of the “burdened” land from undertaking particular activities or exercising certain rights. A restrictive covenant should be distinguished from a positive covenant which requires the owner of the land to run services or build over their neighbour’s land.
In this case, the neighbour would be the owner with the restrictive covenant.
Other restrictive covenants may:
Prohibit the construction of more than one house on the burdened land
Prevent the building of a structure on the burdened land above a certain height
Some covenants include those pertaining to mining. As the owner, you have the right to lease part of your land to the mining company.
There can even be covenants in place pertaining to building restrictions and codes that are now redundant such as the use of asbestos to build homes.
There are covenants for everything so work with your conveyancer to uncover and understand these restrictions in the Contract of Sale.
Is having an easement on the property a good thing?
An easement is basically a section of your land registered on your property title which gives someone (usually your neighbour) the right to use or access the land even though they don’t own it.
Examples include a shared driveway although, most commonly, they are statutory in nature, such as power and telephone lines, and water and sewerage drainage systems.
“The document outlining the easement will advise who is responsible for maintenance and, if not, reference is made to Section 88B of the Conveyancing Act,” Katherine says.
Having an easement on a property can either increase or decrease the value of the land but it can also be an impediment to you getting approved for a home loan. It all depends on the nature of the easement.
For instance, power lines within 50 metres of the property will almost always raise red flags for banks and their mortgage insurers. It varies between banks as to whether the power line is within 50 metres from the boundary or the dwelling itself.
Properties with easements are still ok to buy but like a covenant it’s important to keep in mind that it may restrict you from undertaking certain projects on the land and property.
It’s the reason why these properties can be comparatively cheaper than similar properties in the area.
It’s also the reason why investors steer clear of them, particularly because the big trend now is investors buying up properties to build duplexes. Trying to undertake such construction is difficult and even impossible with an easement.
What are your council’s plans?
Under your council’s town planning rules, you may need to get approval before undertaking building works on a property (whether residential or commercial) or you may be restricted altogether.
It’s best to check this with the council before purchasing a property that you plan to undertake major construction work on in the next few years.
Prior written approval can sometimes be attained but it will not be issued without a development application being lodged and it can take months. On top of that, it can cost a couple of thousand dollars.
You should find out if any future town planning projects will have an effect on your property physically or in relation to its value. Examples include the development of new infrastructure projects, which can have both a positive and negative effect on the value of your property depending on its location from the project.
Can I make changes to a heritage-listed property?
A property can be heritage-listed by a council, state government or even the federal government depending on the historic and cultural significance of the real estate.
Keep in mind though, there’s a stark difference between heritage-listed items and heritage-listed conservation areas.
Heritage items can be expensive to purchase and can either be a building, work, place, relic, tree, object or archaeological site. Specifically, it covers private houses, public buildings, churches, schools, public gardens, trees, shops, bridges, natural areas and memorials.
Keep in mind that if the property is in a flame or flood zone, this can add considerable costs to insurance although we know builders who can approve these types of properties.
You’ll usually need to get approval from council or even state authorities to undertake any work on the property whatsoever.
Conservation areas refer specifically to an area of land including a group of buildings or landscape with specific attributes that make it unique to the area. Work on the exterior and interior of these properties won’t require formal approval but complying with the heritage requirements is where the cost can creep in such as using the exact same paint and replacing tiles with the exact same type.
Other than normal maintenance it is not expected that owners take any special care of a heritage property. Only in situations where an owner is deliberately allowing a property to deteriorate would prosecution action be pursued.
Need expert legal advice?
Don’t go it alone! With expert advice from a solicitor, a real estate agent and a mortgage broker you can ensure that you’re getting the right advice.
If you think you’ve found the right property, please call us on 1300 889 743 or complete our free assessment form. One of our experienced brokers can assess the property (along with the rest of your situation) and let you know if you can get approved for a home loan. Usually it’s just a matter of going with the right bank.
We can also recommend a number of qualified conveyancers like Boyd Conveyancing Services who can sit down with you and make sure there’s nothing in the Contract of Sale, the land title or anything else about the property that may come back to bite you in the future. Knowledge is power!
The post Buying A Property? Get Legal Advice First appeared first on Home Loan Experts.