As commonhold, a new scheme of land ownership for separate properties that are interdependent, is discussed in Britain, what can we learn from Australia? After more than 20 years of experience of the strata title system — with some 200,000 flats and units involved — the State of Victoria is refining its procedures and integrating three separate titling systems. What problems have they found?
Control of housebuilding by the Australian states is directed at land subdivision, not at the development itself. Land use is controlled through municipal planning schemes: unlike in Britain, development control powers do not derive directly from the State Planning Act. The Act empowers the scheme which sets out the way in which land can be used — what can and what cannot be done. In addition to zoning, the scheme may include specific controls such as minimum lot sizes and areas where “medium density” (meaning attached or grouped housing) may be built. Provided that subdivisions comply with the zoning, and a permit has been issued, there are no further planning controls. The siting, structure and materials of the house are controlled by the local municipalities through the operation of local building byelaws. Titles are issued by the (State) Registrar of Titles.
The system of registering freehold ownership (title) evolved by Torrens was introduced to avoid the complications of the English deed system. This procedure of issuing a written certificate which guarantees title was modelled on that of registration for shipping. These “Torrens” titles cannot be issued for areas below minimum sizes specified in local byelaws. Once a title is issued the owner in a residentially zoned area is able to erect one dwelling-house subject to local building byelaws (Fig 1).
Titling and planning systems
As well as structural and materials aspects, the building byelaws specify setbacks from boundaries — typically of 1 m – which ensure detached housing. This is a very effective way of controlling housing densities, but there is some confusion between the titling system and the apparent right to build a house. Although not intended as such, the titling system has become de facto development control rather than a simple official title registration system.
During the 1960s and 1970s rapid expansion in the capital cities led to the development of huge tracts of land for housing which lacked road and sewerage infrastructure. As a result of this lack of planning, subdivision approval and issue of title has, since the 1970s, been very firmly linked to the provision of adequate network services.
Post-war changes
The post-war boom period, especially the early 1960s, saw a phase of private flat development in the inner suburbs of Melbourne and Sydney. Typically three-storey walk-ups, they were usually built on the site of a former house or on backland (Fig 2). The title system, operating under the Local Government Act, did not allow freehold ownership of any shared land, thus there were problems in obtaining title. Immediately after the second world war, the Stratum Titles Act had been introduced in Victoria to deal with the ownership of common property in flat development through company shares and corporate management. It enabled individuals to purchase part of a building. They still appeared, however, to be purchasing shares in a company with little real difference from the way things operated under the Companies Act.
Although each state has an independent parliament and statutory system, the overall purposes and substance of the planning and titling systems are similar. Victoria is particularly interesting, since it has tried several parallel titling systems for freehold ownership and is now moving into a new integrated system. This paper will refer specifically to those systems in Victoria.
Evolution of separate titles for unconventional subdivisions Strata titles
The Strata Titles Act 1967 in Victoria — and similar legislation in the other states — introduced a system of registration of titles for “other” forms of dwelling which ran parallel to but independent of the “normal” titling system. This enabled individual (strata) titles to be issued for vertical or horizontal subdivision of an existing building, or even of a car park with one title. It dealt with situations where there would be common parts — for example, entrance hall, access road or landscaping — by enabling the setting up of a body corporate to manage those common areas. The body corporate dealt also with insurance and repairs of common parts. It could apply to residential, industrial or commercial property.
Each titleholder has a vote on the body corporate, membership of which carries both rights and obligations. Proposals to renovate the property, for example, would require a unanimous decision. Conversely, the status quo can be maintained by the refusal of one titleholder to cooperate. An outsider wishing to redevelop would need to purchase all the titles.
Although introduced to enable simpler ownership of flats, strata titles must also be used for any ground-level attached or grouped houses with shared access (Fig 3). This is because a “normal” title allows only the construction of one dwelling per lot and local byelaws prohibit building to lot boundaries.
The strata title procedures have thus proved to be both restrictive and cumbersome. In addition, they imposed problems on developers or builders which certainly inhibited the typical firm from becoming involved in anything other than “normal” subdivisions. Titles could not be issued until all the development was completed. In an integrated scheme this meant all dwellings being ready for occupation before any could be sold: clearly this poses cashflow problems. A further problem arose owing to a potential loophole which the strata title procedure presented to frustrated housebuilders. Frequently, municipalities attempt to preserve or enhance the social status of an area by maintaining a minimum lot size for houses, typically of 700 m2 (thus attempting to maintain the reality of the 1/4-acre lot). Builders have been able to avoid this restriction by buying an individual lot, constructing say three small units joined to each other by an arch over a carport, and claiming it to be one building — then applying for three separate titles under the strata titles legislation. This led to much unsatisfactory development.
Cluster titles
Victoria, in addition to its Strata Titles Act, introduced a third titling system in the Cluster Titles Act 1974. It was introduced in an attempt to achieve improved layout of “units”, ie groups of attached houses or villa units (small terraces) which were so badly designed during the late 1960s and early 1970s. The Cluster Titles Act introduced the necessity for a scheme of management for the whole site, ie including individual and common property, incorporating design and management conditions.
The Subdivision Act 1988
The Victorian government has sought to simplify the law and speed up the regulatory processes associated with the subdivision of land and buildings through the introduction of the Subdivision Act 1988 (proclaimed in 1989).
This legislation is unprecedented in Australia and is being observed with interest by other states. Alongside the Subdivision Act is new planning legislation: the Planning and Environment Act 1987. The purpose of these two new statutory codes is to move away from the existing method of using subdivision control as a form of development control and to eliminate the excessive bureaucracy and stigma associated with non-conventional titles.
The Planning and Environment Act gives more discretion in development control by widening the scope of factors which can be taken into account and brings that control into the planning system.
The Subdivision Act replaces the three existing titling systems (repealing relevant parts of the Local Government Act 1958, the Strata Titles Act 1967 and the Cluster Titles Act 1974) with a unified system.
The new-style titles may have conditions, for example, the need for a body corporate, but they will all be “normal” titles and the approval processes are now the same (Fig 4). The new regulations(1) draw together in a single place all the relevant pieces of regulation and schedules which relate to the operation of bodies corporate. It is “stressed that the Strata Titles Act provisions in respect to Bodies Corporate are widely felt to have been fairly successful and therefore the main thrust of the former Acts’ provisions and regulations are carried forward into these new regulations”(2). Existing subdivisions, strata subdivisions and cluster subdivisions remain, but may be amended in accordance with the new Act.
Strata title system v leasehold tenure
Australia clearly has considerable experience in systems which provide for titles to both individual and corporate property. Victoria in particular has made several attempts to refine its system and to deal with earlier problems affecting developers, managers and owners.
We can learn a considerable amount from their experience, in particular from the analysis and changes which were incorporated in the Subdivision Act 1988, and related regulations. Of course, the distinctiveness of Australian development and approval processes must be borne in mind(3).
The pros and cons of the strata title system compared with leasehold tenure should be considered in relation to the following:
(1) the benefits and responsibilities which titleholders enjoy compared with leaseholders;
(2) the complexity of procedures and regulations and the associated bureaucracy which may be necessary for a new form of title;
(3) the power of one titleholder over the rest and the scope for disputes and their resolution;
(4) the implications for built form, both in terms of design and renewal.
The body corporate — its structure and regulations
The new regulations in Victoria outline the process to be followed in the establishment of a new body corporate.
Neither the legislation nor regulations for strata titles contained any provisions outlining the actual tasks in establishing a body corporate, merely stating that the owners of strata property “Shall by virtue of this Act be a body corporate” (Strata Titles Act, section 14).
The new regulations have been designed to clarify the steps which must be taken by a developer, when a project is completed, to set up, equip and provide an address for a body corporate.
In addition the developer is also obliged to convene its first meeting. The regulations set out also the duties and powers, meetings and administration of the body corporate and the duties of owners and occupiers. The new regulations allow greater flexibility for developers, especially since more than one body corporate is allowed for one development, which, with the provision for staged development will mean that titles can be obtained in phases without the need to await the completion of a development.
An important matter to be resolved for the proposed Commonhold Associations will be to identify the type of decisions which should be unanimous. This clearly has considerable implications for repair, refurbishment and redevelopment proposals.
Effect on investment decisions
It has been assumed that investment by individual commonholders will be encouraged and saleability improved, thus avoiding the “wasting asset” syndrome which besets many leasehold properties.
What, however, are the implications for existing landlords who may be reluctant to refurbish? What degree of coercion or encourangement for them to convert leaseholds to commonhold will be appropriate? Experience in Melbourne shows that the existence of new properties with individual titles depresses the value of rented property.
Furthermore, when these are refurbished and converted to strata titles the consequent “gentrification” has implications for the availability of low-rented property.
Disputes procedures
A democractic and relatively low-cost arrangement to deal with disputes is necessary if a system of commonhold is to develop any significant role in the property market.
There is no point in exchanging acrimony between landlord and tenant for acrimony between tenants.
Overlap with other legal codes
Given the essential importance of land ownership considerations in the implementation of development and difficulties which may exist, this issue of overlap and confusion merits careful consideration.
The misunderstanding and confusion in Australia between the planning and titling systems ought to be taken as a warning.
References
(1) Subdivision Body Corporate Regulations, Government Printer, Melbourne, 1989.
(2) Subdivision Body Corporate Regulations, Regulatory Impact Statement. Ministry for Planning and Environment, Melbourne, 1989.
(3) For further details see: Carter N, “Housing Development in Australia: the implications of production and approval processes for availability and choice,” Land Development Studies, 7, 1990, pp 153-172.
Acknowledgements
The support of the Sir Robert Menzies Centre for Australian Studies, University of London, and Leicester Polytechnic in enabling the author to spend the first half of 1989 as a Visiting Research Fellow at the University of Melbourne is gratefully acknowledged.
