Good news for NSW property investors with recent legislative changes

Recent minor legislative changes in the property area have produced some small windfalls for vendor investors in the NSW property market. We summarise the legislative changes below:

Abolition of Vendor Duty

Vendor duty has been abolished on contracts for the sale or transfers of land related property in NSW that have been exchanged or executed on or after 2 August 2005.

Land rich duty payable on a disposal of an interest in a landholder on or after 2 August 2005 has also been abolished.

Transactions entered into before 2 August 2005 are still liable for vendor duty and must continue to be processed in the normal way.

Anti-avoidance provisions will prevent persons from rescinding contracts that were exchanged before 2 August 2005 and subsequently exchanging on a new contract on or after 2 August 2005 to avoid the payment of vendor duty.

Transfers that relate to transactions that are not liable for vendor duty will still require a vendor duty endorsement 'not liable' until 30 September 2005 to avoid any registration problems that may arise at Land and Property Information NSW.

A further bulletin will be published by the Office of State Revenue for transactions that are still liable for vendor duty after 30 September 2005.

As a result of the abolition of vendor duty, duplicate duty of $2.00 on the vendor's copy of the contract has been reintroduced. An additional $2.00 must therefore be added to the purchaser's stamp duty for agreements for sale entered into on or after 2 August 2005.

Changes to Land Tax

The general land tax threshold will be reintroduced for the 2006 land tax year. A new threshold of $330,000 will apply in 2006 to land in NSW that is not used and occupied by the owner as his /her principal place of residence.

The general land tax rate for 2006 will be 1.7% (plus $100) on the combined value of all taxable land in excess of $330,000.

There is no threshold in 2006 for non-concessional companies and special trusts. These entities will be taxed at the flat rate of 1.7% on the total value of all the taxable land owned. If the land tax liability is less than $100, no land tax will be payable.

The changes will take effect from midnight 31 December 2005.

Vendor Disclosure

The Conveyancing (Sale of Land) Regulation 2000 has been repealed by the The Conveyancing (Sale of Land) Regulation 2005 ("The Regulation") which commenced on 1 September 2005.

The Regulation sets out:

• the prescribed documents that a vendor must attach to a contract for the sale of land ;
• the prescribed vendor warranties that are implied into a contract for the sale of land or an option to purchase by sections 52A and 662A of the Conveyancing Act, 1919 and the Regulation;
• the purchaser's remedies for breaches; and
• exemptions.

Changes to the Prescribed Documents

Schedule 1 of the Regulation lists the prescribed documents and the changes relate to:

• A separately registered Memorandum that is referred to in an instrument creating an easement, profit a prendre, restriction of the use of land or a positive covenant is now a prescribed document.
• A certificate under section 88G of the Conveyancing Act, 1991 which states whether there are any outstanding amounts owing in relation to positive covenant noted on the title is no longer a prescribed document, due to the difficulties in obtaining such certificates from the relevant public authority.
• Tenure cards for Crown land are no longer a prescribed document as they are not kept up to date.

Changes to the Prescribed Warranties

Schedule 3 of the Regulation sets out the prescribed warranties.

• A warranty has been included in Schedule 3 to the effect that where the property is affected or purports to be affected by a positive covenant, the vendor must now warrant that there are no outstanding amounts owing under section 88F of the Conveyancing Act, 1919.

The effect of the new vendor warranty is to shift the practical problems of obtaining a section 88G certificate from the public authority on to both the vendor and the purchaser.

A vendor may still require a section 88G certificate in circumstances where the vendor is unsure whether there are any amounts outstanding in respect of the positive covenant (the vendor may or may not elect to annex the certificate to the contract).

A prudent purchaser may also require a section 88G certificate in circumstances where the vendor has not annexed an 88G certificate to the contract and the purchaser needs to test the warranty made by the vendor by obtaining a certificate.