Issues Arising in
Mixed-Use Developments
Simon Libbis
Principal
Subdivision Lawyers
www.legalwiseseminars.com.au
1
ISSUES ARISING IN MIXED-USE DEVELOPMENTS
By
SIMON LIBBIS
SUBDIVISION LAWYERS
www.subdivisionlawyers.com
The introduction of the Subdivision Act 1988 (the Act) in October 1989 provided property
developers with unprecedented flexibility. They could now set out multiple uses on one plan
without having to comply with the rigid regime of the Strata Titles Act 1967. This led to a
plethora of so called “mixed-use developments”.
There was no limit to the combination of uses. The most common is commercial and
residential where there are shops and apartments in one building. There can also be
commercial with industrial, rural with residential and so on. Whatever the mixture, a number
of issues can arise when dealing with these sorts of developments. The purpose of this
paper is to equip you with the basic tools necessary for deal with them. A more detailed
analysis can be found in my book, Subdivisions with the Lot. For more information about my
publications visit http://www.hybridpublishers.com.au/legal.html
Understanding the Plan of Subdivision
You need to know what the plan does. Following is an overview of some of the more
important features.
Stages
Section 37 of the Act allows a subdivision to be done in a number of stages. Ascertaining
whether or not a plan is staged can have significant consequences.
Staged subdivisions have particular significance in relation to making changes to owners
corporations. A plan for a second or subsequent stage on a staged subdivision can create
an owners corporation, common property, lot liability and entitlement for that stage. It can
also change the earlier stages by adding to the membership of an existing owners
corporation, adding to existing common property and changing lot entitlements and liability
for existing lots. No other change affecting the common property can be made. The
unanimous resolution of the existing owners corporation to the making of these changes is
not required. The developer is entitled to make the changes without any reference to the
2
owners corporation. The buyer of a lot in a staged subdivision needs to be aware of the
changes that can be made without reference to the lot owner.
Staged subdivisions impose additional disclosure obligations on vendors. They are set out in
Section 32(3)(ba) of the Sale of Land Act 1962. If the land being sold is in a second or
subsequent stage then a copy of the plan for the first stage must be given. Details of any
unsatisfied requirements in a statement of compliance for the stage that includes the land
being sold must be provided. Any information that the seller has about subsequent stages
must be disclosed and the buyer must be informed of the contents of the planning permit
that authorised the staged subdivision. This latter requirement would usually be satisfied by
attaching a copy of the planning permit.
The obligation to provide these details is not limited to the developer. A person who
purchased a lot in a staged subdivision and subsequently sold that lot would also need to
provide the necessary information.
Easements
Section 24(2)(d) of the Act provides that on registration of a plan of subdivision any
easement is created, varied or removed as specified in the plan. Where land being
subdivided is subject to an existing easement it will be shown on the plan even though it was
created before the land was subdivided. Details of where the easement was created will be
set out on the plan. This could be in a deed of creation of easement, a transfer of land or an
earlier plan of subdivision. Providing these details on the plan enables a person dealing with
the land to obtain the document that created the easement and ascertain details of it. Where
the easement has been created by the plan of subdivision the origin of the easement is
shown as being ‘this plan’.
As well as express easements, a plan can also have implied easements under Section 12 of
the Act. These easements will exist in all subdivisions that create an owners corporation or
subdivide a building. They will also apply if the plan so specifies.
A plan can provide that implied easements do not affect land on a plan in which an owners
corporation is created. However, it is not possible to exclude Section 12 easements in the
case of the subdivision of a building.
Section 12(2) sets out that the easement will exist if it “is necessary for the reasonable use
and enjoyment of the lot or common property and is consistent with the reasonable use and
3
enjoyment of the other lots and the common property”. This sounds straightforward enough
but whether it will apply in a particular situation is not always that clear.
Burford & Ors v. Wichlinski1 dealt with an implied easement for drainage over an adjoining
property. Even though the proposed location of the drain was the most convenient and cost
effective way of providing the service it was not the only way. The court refused to recognise
an implied easement.
Compare this with Gordon & Anor v. Body Corporate Strata Plan 3023 & Anor2. The
easement claimed related to foundations for extensions to a building on the lot. Although an
alternative method was available the cost of it was prohibitive. The court found that an
implied easement did exist.
Then there’s Body Corporate No. 413424R v. Sheppard3. The court had to decide whether
there was an implied easement over a lot to access equipment on the 16th floor. The only
other way of reaching it was by climbing up the fire escape. But climb they must said the
court as there was no implied easement for that purpose.
So the message here is to never assume that an implied easement exists. If an easement is
required then it is best to expressly create it on the plan. To avoid one being implied when
you don’t want it utilise the option in Section 12(3) to negate it. This will not be available for
those parts of a plan that subdivide a building.4
Restrictions
Covenants are called restrictions in the Act. A plan of subdivision can have the effect of
creating, removing or varying a restriction. All lots are affected by the covenant as soon as
the plan is registered.
The fact that the restriction is created will be set out under the ‘Notations’ panel on the plan
and a separate sheet which contains the restriction forms part of the plan of subdivision.
A plan of subdivision can also remove or vary a covenant provided that a planning permit is
obtained for this purpose. If the plan has this effect then it will be accompanied by a
statement. When the plan is registered the restriction will be removed or varied as specified
in the statement.
1
Unreported, Supreme Court of Victoria, Beach J, 30 April 1996
(2004) 15 VR 557
[2008] VSCA 118
4
Section12 (3A) of the Act
2
3
4
Another form of restriction that will often affect lots on a plan are agreements under Section
173 of the Planning and Environment Act. These are not created by the plan but may be
lodged with it. A planning authority will require one of these where there will not be
compliance with all the conditions of a planning permit prior to the plan of subdivision being
registered or where the authority wishes to impose some restriction on the use of the land.
The agreement will bind not only the original subdivider but also anyone who subsequently
purchases the land. To ensure that future owners of the land are aware of their obligations
under the agreement it is a requirement that the agreement be noted on the title to the land.
Boundaries
Lots created on a plan can consist of land, air space, buildings or any combination of these.
They are defined by their boundaries.
Apart from strata titles, land does not usually have an upper limit. Accordingly the owner also
owns the air space above it. This space can be subdivided in much the same way as land.
Most subdivisions of air space are ancillary to the subdivision of a multi-storey development.
Strictly speaking, however, this does not have to be so. A diagram showing these lots will
form part of the plan of subdivision.
Where the plan is a subdivision of a building some of the boundaries are structures like
walls, floors or ceilings. A particular point in those structures must be located as the actual
boundary. It is, therefore, necessary to specify whether the boundary is the interior face, the
external wall or some other location in the structure. Some plans adopt the medium of a
structure as the boundary. So if the boundary were a dividing wall it would be located at the
middle of the wall
Details of the location of the boundaries come under the heading of ‘Notations’ on the plan
If a lot on a plan has the letters ‘PT’ before the number it will be part of the lot. This is used
to tie a main unit to an ancillary area such as a car park. So part of the lot is the building or
apartment and the other part is the car park space. This means that the car park cannot be
dealt with separately from the living area.
Common Property and Owners Corporations
Most mixed-use developments will create at least one owners corporation. Information about
it is contained in an additional sheet on the plan which is called the ‘Owners Corporation
Schedule’. A number of consequences flow from the manner in which owners corporations
are set up.
5
Identifying Common Property
It is important to ensure that the boundaries of common property on the plan are clearly and
correctly identified. Failure to do this could have unintended consequences. A plan will often
define the common property as the area not included in the lots. What constitutes a lot then
becomes of paramount importance.
Where the boundary between lots and common property is a structure such as a wall it is
necessary to identify what part of that structure is the boundary. A plan must indicate this.
You can find on the same plan that some boundaries are the median of structures whereas
others are the exterior or interior faces of those structures. When those structures require
repairs or maintenance the cost will need to be borne by either the owners corporation or the
lot owner depending on whether all or part of those structures are lots or common property.
In order to ascertain this, the location of the boundary needs to be identified.
Also watch out where the boundaries of lots have upper and lower limits. What is above and
below the lot will be common property.
Plans created under the Strata Titles Act are not always easy to read and it is often better to
consult a surveyor when in doubt. Traditionally, a thick continuous line with no measurement
represents a vertical or near vertical boundary along or inside a wall or fence. A thick broken
line with measurements represents a vertical or near vertical boundary which does not lie
along or inside a wall or fence. Where there is a common boundary (such as a wall, fence,
ceiling or floor) between two lots or a lot and common property and the plan does not
provide otherwise, the boundary between them is the middle of that wall, fence, ceiling or
floor.
Membership of an Owners Corporation
An owners corporation can be created on any plan of subdivision but must be created where
the plan creates common property. You don't need to have one in a building subdivision
provided that no common property is created. There are, however, some subdivisions with
no common property where an owners corporation is created. This is usually where there is
a subdivision of a building that does not have separate services. The authority providing
those services may only agree to the subdivision if an owners corporation is created.
Section 27 of the Act provides that a plan may create one or more owners corporations. Any
owners corporation created will be incorporated on registration of the plan of subdivision and
any common property shown on the plan will be owned by the members of the owners
6
corporation in the shares shown as lot entitlement on the plan. Not all lot owners have to be
members of the owners corporation.
The owners corporation has a separate legal identity and owns the common property as
nominee for the lot owners. The number which is allocated to the owners corporation is the
registration number of the plan of subdivision. As a separate legal entity, the owners
corporation can sue and be sued. Although the owners corporation resembles a company,
it is not covered by the legislation that regulates corporations.
Limited Owners Corporations
It is possible to create an owners corporation with a limited function. There is a panel in the
owners corporation schedule headed ‘limitations on owners corporation’. If the words ‘limited
to common property’ appear in this panel then the owners corporation is a limited owners
corporation. Otherwise it will be unlimited. Strangely enough, there can be a limited owners
corporation in a plan with no common property, but the same statement must appear to
create it.
A limited owners corporation will normally serve some purpose which is ancillary to a main
owners corporation. It is, however, possible to have a limited owners corporation without
there being an unlimited owners corporation.
As a limited owners corporation is intended to be an ancillary owners corporation, it does not
have the same powers and responsibilities in respect of lots on the subdivision. The
significance of limited owners corporation in relation to multiple owners corporation is dealt
with below.
An example of an owners corporation with a limited function could be where there is a large
subdivision with a number of facilities, such as swimming pools and tennis courts. Different
lots are entitled to use different facilities. There could be one main owners corporation which
has responsibility for the whole of the subdivision. There could then be a number of limited
owners corporations in respect of each facility. The only function of those limited owners
corporations would be to look after their particular common property and those lot owners
entitled to use it.
Multiple Owners Corporations
A plan of subdivision can create more than one owners corporation. Often in mixed-use
developments
there are different lots that use separate parts of common property. This
could be because they are located on different levels of the building or in certain parts of a
7
land subdivision. In these circumstances, it is appropriate to create a number of owners
corporations, each having its own members, common property and responsibilities.
Section 27(1) of the Act provides that a plan can create one or more owners corporation. A
lot cannot be affected by two unlimited owners corporations. Nor can it be affected by more
than one limited owners corporation unless there is also an unlimited owners corporation
affecting it. This does not mean that there cannot be more than two unlimited owners
corporations on a plan of subdivision. Not all lots on a plan need be affected by a particular
owners corporation created on that plan.
When lots are affected by more than one owners corporation, special provisions apply in
relation to the distribution of owners corporation assets on the winding up of the owners
corporation. It is another significant aspect of limited owners corporations as, clearly, it is not
possible for common property to be owned by two owners corporations at the same time.
Lot Entitlement and Liability
A plan of subdivision creating an owners corporation will set out the lot liability and
entitlement of each lot. It will also show the total lot liability and entitlement for all lots on the
plan.
Lot liability is the proportion of the owners corporation expenses that are to be borne by a
particular lot. It is effectively the limit of a lot owner’s liability for the liabilities of the owners
corporation.
Lot entitlement reflects the lot owner’s share of ownership in the owners corporation assets
which primarily comprises the common property. It will dictate entitlement on a winding up of
the owners corporation and also voting rights at meetings of the owners corporation.
Normally, lot entitlement and liability for a particular lot will be the same. This does not,
however, need to be the case. Lot entitlement should reflect the value of the lot as a
proportion of the total value of all lots affected by the owners corporation, whereas lot liability
should be based on an equitable sharing of expenses of the owners corporation.
Rules
The Owners Corporations Act 2006 provides that an owners corporation:
• may make rules with respect to the matters listed in Schedule 1 of that Act
• be subject to prescribed model rules if no rules are made by an owners corporation
• be subject to a model rule if the owners corporation has not made a rule relating to a
‘matter’.
8
The model rules set out in Schedule 2 of the Owners Corporations Regulations 2007 apply
to an owners corporation unless it makes and registers additional rules. Section 27E of the
Act allows the rules to be lodged with the plan of subdivision.
The model rules will be inadequate for most mixed-use developments and reaching
agreement on rules after the lots have been sold is usually problematic to say the least.
Accordingly, it is a good idea to work out some appropriate rules and lodge them with the
plan.
Lodging a rule with a plan will not of itself make that rule valid. Care needs to be taken when
drafting rules that they meet legislative requirements.
Insurance
An owners corporation must have public liability insurance for the common property and
reinstatement and replacement insurance for all buildings on it. In the case of a multi-level
building it must have these insurances for all lots and the common property. It can, however,
by unanimous resolution leave it to the lot owners to arrange their own insurance if there is
no common property on the plan. There are insurance exemptions for two lot subdivisions.
The impact of these insurance requirements is significant in conveyancing transactions.
Section 11 of the Sale of Land Act provides that where land that does not have the requisite
owners corporation insurance is sold, the buyer may withdraw from the contract at any time
up to the settlement date. It is, therefore, important to ascertain whether owners corporation
insurance is or will be compulsory. If it is compulsory then the seller must make sure that the
appropriate insurance is in place, failing which the contract may not be enforceable against
the buyer.
In the case of an unregistered plan, the seller must take out the insurance that will be
required to be taken out by the owners corporation when the plan is registered. Section
9AAA provides that the vendor must take out the insurance as if the vendor were the owners
corporation and maintain that insurance for six months after the plan is registered or until the
owners corporation holds its first meeting, whichever is the earlier. There is no penalty for a
vendor who fails to comply with this requirement and it is unlikely that Section 11 would
enable a purchaser to avoid the contract. Section 11 refers to the sale of a lot affected by an
owners corporation. A lot on an unregistered plan of subdivision is not yet affected by the
owners corporation as the owners corporation does not come into existence until the plan of
subdivision is registered. It is for this reason that many vendors do not comply with Section
9AAA.
9
The requirement of Section 11(1) of the Sale of Land Act must be read in conjunction with
section 9AAA. A problem can easily arise long after Section 9AAA has ceased to apply.
There could be no public liability cover or the individual lot owner may have arranged his or
her own cover. This latter insurance cover does not accord with the cover required by the
Owners Corporation Act. Generally the owner-vendor in such a case would be only insured
in respect of his or her own liability in relation to the common property and such cover would
not extend to the liability of the owners corporation.
To comply with the Sale of Land Act and the Owners Corporation Act, the statutory public
liability cover must be taken out in the name of the owners corporation as the insured. To
comply with section 11 the statutory cover must be in effect on the day of sale. Taking the
cover out after the day of sale still leaves the seller exposed to the transaction being avoided
at any time before settlement.
A Final Word
We are not likely to see a slowdown in the growth of mixed-use developments in the
foreseeable future. This means that more issues will arise resulting in litigation and
legislation. If you practise in this area it is vital to keep up to date. Failure to do this is not
only detrimental to your clients’ interests but could also result in significant claims being
made against you.
Copyright
© These materials are subject to copyright which is retained by the author. No part may be reproduced, adapted or
communicated without consent except as permitted under applicable copyright law.
Disclaimer
This seminar paper is intended only to provide a summary of the subject matter covered. It does not purport to be
comprehensive or to render legal advice. Readers should not act on the basis of any matter contained in this seminar paper
without first obtaining their own professional advice.
ISSUES ARISING IN MIXED‐USE DEVELOPMENTS
A presentation for Legalwise on 18 August 2011
BY
SIMON LIBBIS
SUBDIVISION LAWYERS
[email protected]
0488 LIBBIS
www.subdivisionlawyers.com
MIXED‐USE DEVELOPMENTS Simon Libbis
The Subdivision Act 1988
“The interpretation of key provisions of that legislation is a particularly difficult task as it is one of the most poorly drafted Acts it has been my misfortune to confront.”
“It must be said that the interpretation of this important legislation is made exceptionally difficult by virtue of the confusion and lack of clarity of the terms in which it has been drafted. This legislation sets a very low benchmark for the art of the parliamentary draftsperson.”
Walker & Sopov v Registrar of Titles [2001] VSC 354 (8 October 2001) MIXED‐USE DEVELOPMENTS Simon Libbis
Understanding The Plan of Subdivision
• Stages
•Easements
•Restrictions
•Boundaries
MIXED‐USE DEVELOPMENTS Simon Libbis
Common Property & Owners Corporations •Identifying Common Property
•Membership of OC
•Multiple OC’s
•Limited OC’s
•Lot Entitlement/Liability
•OC Rules
•Insurance