The ACT has a Crown leasing system of land ownership. It has always had unique features, but the ACT Government has gone to great lengths to create and emphasise similarities with land title and land dealings in freehold jurisdictions.
However, new land tenure legislation has underlined the uniqueness of how the government handles some aspects of land tenure in Canberra. The legislation – which regulates what private owners can do with their vacant land, and which creates mini-planning and land ownership regimes for the benefit of the University of Canberra and the Australian National University, two of the largest land owners in the ACT – has created confusion and concern within the property industry.
In this Property Reporter, Moulis Legal partner Daniel Moulis examines the new rules for subleasing vacant land, the significant planning powers given to certain perpetual land owners, and the potential flow-on effects for other owners and developers in Canberra.
So you want to sublease vacant land?
It’s now a lot harder. Owners of vacant land must hold it as one undivided parcel, and cannot sublease any part of it without the ACT Planning and Land Authority’s (ACTPLA) prior written consent. A land sublease will not be valid, enforceable, or registrable without consent.
Land subleases must also contain provisions relating to:
- Equitable termination and breach– a land sublease must include provisions dealing with termination, dispute resolution, and breach, each of which must be “fair and equitable” as assessed by ACTPLA. If ACTPLA considers the provisions not “fair and equitable” it may refuse to provide consent.
- Compensation for improvements – if the tenant builds on the vacant land under the approved land sublease, the Crown lessee (ie the landlord) must pay the value of the improvements (assessed on market value) to the tenant if the sublease is surrendered or ends. This requirement is one which you would ordinarily find in a Crown lease (i.e. the Territory must pay the value of improvements to Crown lessees if the lease is surrendered or terminated). This presents an interesting new dynamic for Crown lessees who sublease vacant land, and will no doubt have a bearing on commercial negotiations.
- No extension of initial term – a land sublease must not permit an extension of the initial term, unless the tenant has direct access to the subleased land from a road for direct entry or exit, without charge, at all times.
Additionally, a tenant cannot transfer its interest under the land sublease without ACTPLA’s prior consent. If ACTPLA refuses to consent, the options for the tenant are to continue to hold the land sublease or to surrender it back to the Crown lessee (subject, of course, to the Crown lessee’s approval).
No underleasing
Underleases of vacant land – ie a further lease granted under a sublease – are no longer legally enforceable, and will not be capable of registration with the Land Titles Office.
What if there is a building on the land?
Then the restrictions described above won’t apply. If there is a building on the land then a Crown lessee can sublease the building and the land (or part of the building and land attached to that part) on which the building resides. These are now known as “building subleases”.
Declared land subleases (universities)
Planning and development of land owned by “perpetual lessees” (ie the University of Canberra and the Australian National University) has now been extensively liberated. A new land tenure system has been set up specifically for the universities to exploit their land. The ACT Government can “declare” certain land held by these universities as being in the public interest. If the university subleases the declared land, the parcels become known as “declared land subleases”.
Declared unit title subleases
Land under a declared land sublease can be unitised, in the same way that land under a Crown lease can be unitised. Declared land sublessees can apply (with the university’s permission) to ACTPLA to have their sublease unit titled. Once a units plan is created for the declared land sublease, the units operate in the same manner as a units plan created under a Crown lease (and each becomes a “declared unit title sublease”).
Easier to develop on declared land
Developers at the University of Canberra will not need to comply with the multi-unit housing code if the (minimal) requirements under the Bruce Precinct Code have been satisfied. This provides the University with an advantage when compared to private developers, perhaps just a few hundred metres away, who will have to comply with the more onerous conditions that are included in the multi-unit housing code.
Cheaper to develop on declared land
Land at the University of Canberra will not be subject to the lease variation charge (LVC). This means that developing on the University of Canberra’s site will be less costly than on other sites around Canberra.The University of Canberra will retain its exemption from rates and other taxes. However, declared land sublessees that are created by the University will be subject to the usual duties and taxes that normal Crown lessees must pay. Duty will be payable on dealings with declared land subleases in the same way as duty would apply if they were dutiable Crown lease transactions. For example, duty will be charged on the grant of a declared land sublease as if it were a grant of a Crown lease, and on a transfer of such a lease as if it were a Crown lease or a unit title Crown lease.
Final thoughts
The changes relating to how vacant land can be dealt with by Crown lessees in the ACT are perplexing, to say the least. ACTPLA’s control of land usage through Crown lease terms and conditions, the Territory Plan, and the relevant statutory regimes is already supreme and heavy handed. Telling an interstate investor that it cannot lease its land without ACTPLA’s approval, and that its land cannot be underlet at all, is really not the kind of message that the government should be sending out to people who might be interested in doing business here.
The significant advantages that the declared land scheme promises to give Canberra’s universities is likely to be a sore point with private developers, as it will create a clear competitive imbalance. All initial indications suggest that it will be cheaper to develop on university land, and that there will be substantially less interference from ACTPLA.
The Property Council of Australia has voiced the property council’s “considerable concern” over the changes:
… given the University of Canberra will be provided with significant commercial advantage above and beyond the opportunities available to the private sector, and taking into account the substantial premiums for land paid by private sector investors.1
Moulis Legal has assisted clients in a range of development and construction projects which involve land subleases, complex unit titling issues, and the subdivision of land under Crown leases. Our experience extends to drafting key transaction documents, seeking the necessary consents from Territory and Commonwealth authorities, and undertaking thorough due diligence in respect of the acquisition and disposal of vacant land as well as unit titled/commercial properties.
For more information, please contact Daniel Moulis on +61 2 6163 1000 or daniel.moulis@moulislegal.com.
This memo presents an overview and commentary of the subject matter. It is not provided in the context of a solicitor-client relationship and no duty of care is assumed or accepted. It does not constitute legal advice.
© Moulis Legal 2015
[1] Property Council of Australia
