Leasehold schemes

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Overview

Leasehold schemes are a new type of strata.  A leasehold scheme is essentially a strata / survey-strata scheme that is set up for a fixed term of 20 to 99 years.  The scheme, all of the lots in the scheme and the strata leases for each of the lots all expire on the expiry day.  The owner of a lot in a leasehold scheme has a long-term lease of a lot (a strata lease).

The owner of a lot in a leasehold scheme:

  • can transfer the lot and the strata lease
  • mortgage the lot

without the lessor’s consent.

Owners of the lots in a leasehold scheme are members of the strata company. They decide how to run the leasehold scheme.

Features of a leasehold scheme

In leasehold schemes:

  • a leasehold lot that is the subject of a strata lease within a leasehold scheme will have its own certificate of title
  • there will be a separate certificate of title for the registered proprietor of the parcel of land over which the leasehold scheme is registered (owner of the leasehold scheme)
  • the scheme is created for a fixed-term (from 20 years to a maximum of 99 years)
  • the expiry date of the scheme may be postponed to a later date by a resolution passed by 80% of the number of lots in a leasehold scheme (provided the later date is not more than 99 years after registration of the scheme)
  • people can buy and mortgage a leasehold lot within the leasehold scheme
  • an owner of a lot (lessee) within the leasehold scheme can easily sell that lot, without needing the consent of the owner of the leasehold scheme (lessor)
  • the owner of the leasehold scheme is entitled to the reversion in the land upon expiry or termination of the scheme.

Leasehold schemes will give Western Australia a new option for owning lots in a strata titles scheme over a fixed period. These schemes already exist in New South Wales and Queensland.

Benefits

Leasehold schemes and station precincts

Crown land in station precincts can be converted to freehold land and transferred to a State agency (e.g. Housing Authority). The State agency can then strata title that land with a leasehold scheme and sell the lots, using that money to offset the cost of building the station.

The leasehold scheme and strata leases in the station precinct will end on the expiry day (which might be after 99 years) – at that point the land and buildings revert to the State agency. With leasehold schemes the State can retain control of strategic sites at station precincts and still generate much needed revenue.

Leasehold schemes give the freehold land owner an opportunity to develop land which they otherwise wouldn’t or couldn’t develop.

This is of particular benefit to organisations such as churches and universities who need to retain ownership of their land and make it available for development. Leasehold schemes also offer an alternative form of tenure for retirement villages.

Further advantages of leasehold schemes include:

  • local government rates and land tax liability will be specifically addressed, removing uncertainty that can exist in a leasehold environment
  • a leasehold certificate of title will simplify financing, as lending bodies recognise certificates of title and mortgagees will have the protection of a power of sale.

Freehold compared to leasehold

The majority of the Strata Titles Act 1985 will apply to leasehold schemes in the same way as it applies to freehold schemes. Leasehold schemes can be strata (built strata) or survey-strata schemes. However, it will not be possible to develop a community scheme under the Community Titles Act 2018 as a leasehold scheme. Community schemes are always developed on freehold land.

New definitions in the Strata Titles Act 1985

Definitions in the Strata Titles Act 1985 will be updated to make sure the requirements that apply to existing freehold schemes, generally also apply to leasehold schemes where appropriate.

New definitions that will be included in the legislation to apply or relate to leasehold schemes include:

  • Owner of a lot /lessee – in the case of leasehold schemes, a person registered as proprietor (owner) of a strata leasehold estate in a leasehold lot the subject of a strata lease will be regarded as the owner of the lot until the expiry or termination of the scheme (and will include a mortgagee in possession of the lot). It won’t include anyone who subleases the lot from the owner of the lot. The owner of the lot will also be the lessee under the strata lease for the lot.
  • Leasehold scheme – will be defined as a strata titles scheme (strata scheme or survey-strata scheme) in which each lot in the scheme is subject to a strata lease and has leasehold tenure when the scheme is registered.
  • Freehold scheme –is a strata titles scheme where none of the lots in the scheme are subject to a strata lease or have a leasehold certificate of title.
  • Strata company – applies also to leasehold schemes in order to ensure the strata company is responsible for maintenance and insurance, rather than the owner of the leasehold scheme.
  • Owner of the leasehold scheme/ lessor – is the owner of the reversionary interest in the parcel of freehold land, which was subdivided by the leasehold scheme and will also be the lessor under each strata lease for a leasehold lot.
  • Mortgagee of a lot in a leasehold scheme – includes a mortgagee or chargee of the strata leasehold estate in the lot. Leasehold lots can be used as security for loans.
  • Scheme Plans – the terms ‘strata plan’, ‘strata scheme’, ‘survey-strata plan’ and ‘survey-strata scheme’ and ‘strata titles scheme’ will include plans and schemes for leasehold schemes. Similarly, the former terms ‘re-subdivision’, ‘consolidation’ and ‘conversion’ will be included in “amendments of a strata titles scheme to give effect to a subdivision” and the provisions supporting such amendments will include leasehold schemes.
  • Leasehold by-laws – refer to by-laws for the postponement of the expiry date of a leasehold scheme or for compensation to be payable on the expiry of a leasehold scheme.

Leasehold lots will have a certificate of title

Every lot in a leasehold scheme will have a certificate of title

Every leasehold lot will have a leasehold certificate of title. This will be different to a normal strata certificate of title because the title will clearly show that it is the title for a strata leasehold interest in the lot and show the date when the leasehold scheme will expire. Once the leasehold scheme ends the title will end and will be cancelled.

No certificate of title for the common property in a leasehold scheme

Certificates of title for the common property in strata titles schemes are not created in Western Australia. This will also be the case for leasehold schemes.

Features of leasehold strata title

The leasehold scheme and strata leases must be for a period of greater than 20 years but not exceeding 99 years

The minimum term of the leasehold scheme and strata leases will be greater than 20 years (unless otherwise provided in the regulations) and the maximum term (including any postponement of the expiry date of the scheme) will be 99 years.

Every strata lease in the scheme will expire at the same time

All strata leases must have a common (synchronised) expiry date. A strata lease expires at the same time the leasehold scheme expires. The term (or duration) of a strata lease can be extended by the postponement of the expiry date of the leasehold scheme (but the total term of the strata lease can’t be extended past 99 years). This ensures part of the scheme doesn’t expire while the rest of the scheme is still running, which would confuse ownership arrangements and management.

The strata leases, the plan and the titles are all tied to one another

Under a leasehold scheme the scheme plan and the strata leases are interdependent; one cannot exist without the other. This means that every leasehold scheme plan must have a strata lease and a leasehold certificate of title for each lot. A strata lease for a lot cannot be dealt with by the owner of the lot separately from the leasehold certificate of title for the lot.

Leasehold schemes can be either strata or survey-strata

A leasehold scheme can either be for a building (strata) or an area of land with surveyed boundaries (survey-strata).

Leasehold schemes can only be used on freehold land and conditional tenure land

A leasehold scheme can only be lodged over land which is either freehold land or conditional tenure land (which is a type of freehold land). Conditional tenure land is land the State has transferred to a new owner as freehold, but with conditions attached. Leasehold schemes cannot be developed over Crown land.

The same person can be a lessor and a lessee of a leasehold lot

The owner of freehold land (lessor) may also be a leasehold lot owner (lessee) of one or more leasehold lots. This can occur when a leasehold scheme plan is first registered, the scheme is terminated early or if a lessee breaches the strata lease (and the State Administrative Tribunal makes a re-entry order), and the freehold land owner takes over the leasehold lot. This is not the case in a normal lease, because if one person is both the lessor and lessee their interests merge.

Valuation and unit entitlement

The existing valuation and unit entitlement provisions in the Strata Titles Act 1985 will apply to leasehold schemes.

Transfer of a leasehold lot will be dutiable

The creation of a leasehold lot (that is in the same ownership) and a strata lease will not be dutiable.

Transfers of a leasehold lot will be dutiable, which means the transfer will need to be assessed for duty.

When a leasehold lot is transferred, the buyer will either make:

  • a single payment
  • a deposit followed by a further balance payment
  • payment according to a terms contract, as stated under the Sale of Land Act 1970.

Leasehold schemes can’t be used in a community scheme

The new community schemes, which are being introduced under the Community Titles Act 2018, will not be able to include leasehold schemes.

How a leasehold scheme is created

A leasehold scheme can be created by the owner of the freehold land parcel. When construction is complete the scheme documents necessary to register a leasehold scheme can be lodged. These documents are: a scheme notice which will specify the expiry date for the leasehold scheme, a scheme plan, schedule of unit entitlements for the scheme, the scheme by-laws (unless the standard by-laws in schedules 1 and 2 of the Strata Titles Act 1985 are adopted) and strata leases.  In a leasehold scheme, the freehold land owner must lodge separate strata leases for each lot shown on the scheme plan. The WA Planning Commission must approve the scheme plan and the making, amendment or repeal of any leasehold scheme by-laws that allow the expiry date for the scheme to be postponed.

How a leasehold scheme will be managed

A leasehold scheme must have scheme by-laws

As with freehold strata titles schemes, every leasehold scheme must have scheme by-laws that set out the by-laws for the scheme, such as the control, management and maintenance of the building and common property will be the responsibility of the strata company. A leasehold scheme may also have special leasehold by-laws which provide for the postponement of the expiry day of the scheme and for any amounts payable by the owners of lots to the owner of the leasehold scheme for the postponement of the expiry of the scheme.

The strata lease will override the by-laws where they are inconsistent

If there is any inconsistency between the strata lease and the by-laws of the leasehold scheme, the strata lease will override the by-laws.  The strata lease cannot be inconsistent with the Strata Titles Act 1985. A strata lease may not provide for certain matters referred to in the Regulations for the Act, including matters which could be dealt with in leasehold by-laws or matters dealt with under the Act, the acquisition of the lessor’s reversion in the lot and the common property appurtenant to the lot, or compensation for the value of improvements to a lot.

The strata company will be responsible for maintenance

In a leasehold scheme the control, management and maintenance of the scheme and common property will be the responsibility of the strata company, just as it is in a freehold scheme. The lessor (freehold land owner) will not be responsible for maintenance in a leasehold scheme.

The strata company will be responsible for insurance

Under the Strata Titles Act 1985 the strata company is responsible for insuring the common property to replacement value and against public liability. A leasehold strata company will have the same insurance obligations as a freehold strata company.

In a normal lease situation insurance of any buildings would normally be the responsibility of the lessor. This would not be appropriate for most leasehold schemes because the strata company will be responsible for maintenance and running of the scheme.

What the lessor will be involved in

Structural erections, alterations and extensions

An owner under the current Strata Titles Act 1985 must get the approval of the strata company (every proprietor) in order to carry out structural alterations, erections or extensions on their lot. In a leasehold scheme an owner of a lot (lessee) will also need to get the approval of the lessor.

Consent to amendment of the scheme

Any amendment of the scheme by way of subdivision (eg. re-subdivision or consolidation of lots or common property) in a leasehold scheme will need to have the lessor’s consent before an amendment of the scheme plan can be lodged. The only exception is where the subdivision is part of a staged development.

If there is staged development of a leasehold scheme, the staged subdivision by-laws for the leasehold scheme will set out the planned re-subdivision (amendment of the scheme). If the lessor has previously agreed to the staged subdivision by-laws then further consent will not be required unless these by-laws are changed, except where the lessor’s consent is required to the addition of more land to the scheme as common property or removal of common property from the scheme.

What the lessor will not be involved in

Management of a leasehold scheme

The lessor will not be involved in building maintenance; these duties will pass to the strata company. The lessor’s rights and obligations will be replaced by strata company rights and obligations.

The leasehold lots can be transferred (sold) without the lessor’s consent

Generally speaking, leasehold schemes will be treated in the same way as freehold schemes and, leasehold lots can be freely bought and sold without getting consent from the lessor. However, the lessor’s consent is needed for a sale/purchase where the strata company is planning to sell common property or buy neighbouring land. There may be other situations under the Regulations for the Strata Titles Act 1985 where the lessor’s consent is also required.

The owners of leasehold lots will pay rates and land tax

The owners of the leasehold lots in a leasehold scheme will pay rates and land tax on their leasehold lots. The lessor (the owner of the underlying freehold parcel) will not have to pay rates and land tax while the leasehold scheme exists. Owners of leasehold lots are expected to pay full rates, but all the usual tax and rate exemptions will apply. Exemptions from land tax for the principal residence and senior’s discounts for land rates will apply to leasehold schemes.

Amendment of scheme plan on subdivision

Any time there is an amendment of the scheme upon subdivision (e.g. re-subdivision, consolidation), a new strata lease must be lodged for each lot which is impacted by the amendment. This might be the case where a new lot is created or the boundaries of the lots are adjusted.

The expiry date will remain the same across the whole leasehold scheme, including any new strata leases. When the amended scheme plan is registered, any lot which is impacted will receive a replacement title (this is the same as the current system for freehold schemes).

Lessor’s power of re-entry

In an ordinary lease situation, the lessor will have the power to terminate the lease on the breach of certain fundamental conditions. This power is to be diluted for leasehold schemes as there is a duty on the strata company to enforce by-laws, lease conditions etc.

Differences between leasehold schemes and normal leases

There are fundamental differences between strata leases in leasehold schemes and normal leases. A normal lease will frequently be for a short term and provide for periodic payments (rent), whereas a strata lease for a lot in a leasehold scheme is for a long-term (more than 20 years and up to 99 years). A leasehold scheme typically involves the lessee purchasing the leasehold lot (and strata lease) by paying a single amount. That single payment is equivalent to the purchase of a freehold unit.

The lessor’s power of re-entry in a normal short-term lease is justified as the damage a lessee can do to the lessor’s asset (the lot) during that term is relatively large compared to the losses suffered by a lessee, who loses possession of the lot under a short-term lease. This applies where the lessor is only receiving relatively small payments of money (as rent) and the lease is for a relatively short period.

Under the reforms, re-entry of the parcel or a lot within a leasehold scheme will only be, by order of the State Administrative Tribunal; for non-payment of an amount to the lessor for postponement of the expiry day; or if the lease is otherwise surrendered. Any statement within the strata lease which suggests otherwise does not apply. Stipulations in the Transfer of Land Act 1893 which give a lessor a right of re-entry, will not apply to the strata leases in leasehold schemes and the provisions of the Property Law Act 1969 relating to the powers of re-entry in a lease will not apply to the strata leases of leasehold schemes.

The State Administrative Tribunal (the Tribunal) will be empowered to make an order:

  • for damages against the owner of a lot in favour of the lessor as reasonable compensation for losses suffered by the lessor on a breach of the strata lease
  • requiring the owner of a lot to do or not do something to remedy the breach of the strata lease
  • for the lessor to re-enter only in very specific circumstances where re-entry is the only option
  • for damages against the lessor in favour of the owner of a lot as compensation for losses suffered, including, if the lessor re-enters the leasehold parcel or leasehold lot, without first obtaining an order from the Tribunal
  • for the lessor to give possession of the parcel or the lot in a leasehold scheme back to the owner of a lot
  • transferring the strata leases of the leasehold lots to the mortgagee, for the remaining term of the strata leases or a shorter term, on the conditions the Tribunal or the court considers just and equitable, including, for example, conditions relating to:
    • the execution of a dealing or other document
    • costs, expenses, damages or compensation
    • the giving of a security.

A leasehold scheme will expire

A leasehold scheme and the strata leases for the leasehold lots in that scheme will all have the same expiry date. This date must be greater than 20 years but cannot exceed 99 years (including any postponement of the expiry date) from the date of registration of the leasehold scheme. The expiry date of the leasehold scheme will be clearly shown on the certificate of title for each leasehold lot.

When can a leasehold scheme be extended (expiry date postponed)?

A leasehold scheme can be extended to a later date (not more than 99 years after registration of the leasehold scheme) by a resolution passed by the owners of at least 75 per cent of the number of lots in a leasehold scheme. The 75 per cent vote requirement is not calculated on the basis of unit entitlement, but on the basis of one vote per lot. A vote can only be taken to postpone the expiry date if there are leasehold by-laws for the scheme which enable the expiry of the scheme to be postponed. If the leasehold scheme is extended, the strata leases for each lot in the scheme will also be extended to the same date. All strata leases will be extended to the same date.

The process to extend the leasehold scheme, the voting procedures, notice requirements, and ability for proprietors to opt out will be set out in the Strata Titles Act 1985.

The extension of the term of a strata lease by postponing the expiry date of the leasehold scheme will be a dutiable transaction under the Duties Act 2008.

Extending a leasehold scheme (where there is no leasehold by-law for extension)

The expiry date of a scheme can only be postponed if the scheme has leasehold by-laws (approved by the owner of the leasehold scheme) which enable the expiry of the scheme to be postponed.

Leasehold by-laws may provide for the freehold owner of the leasehold scheme to be paid an amount by each owner of a lot for postponement of the expiry of the leasehold scheme. The amounts payable by owners of lots will be proportional to the unit entitlement of each lot in the leasehold scheme. The leasehold by-laws may also provide for compensation to be paid to owners of lots on expiry of a leasehold scheme for improvements that have been made.

Where a scheme has no leasehold by-laws to postpone the expiry of the scheme, an amendment to the scheme by-laws will be needed to insert leasehold by-laws. The amendment of the leasehold by-laws will require a resolution without dissent by the strata company and the agreement of the freehold owner of the leasehold scheme (lessor) and the approval of the WA Planning Commission.

Process for extending a leasehold scheme

Every leasehold scheme that wants to extend will have to follow the process set out in the Strata Titles Act 1985 to ensure that both the lessor and owners of lots have a say in whether the scheme is renewed.

Where there are leasehold by-laws that enable postponement of the expiry of the leasehold scheme, the first step is for the strata company to hold a vote on whether or not to postpone the expiry date. At least 14 days’ notice of the proposed resolution must be given to each owner of a lot and at least 75 per cent of the number of lots in the scheme will need to vote in favour of postponing the expiry of the scheme to a later date before they can approach the lessor with their decision. The resolution must be passed at least six months before the expiration of the scheme/strata leases. If less than 75 per cent vote in favour, the leasehold scheme will expire on the original expiry date. If the vote is successful and the lessor consents, the expiry of the scheme is postponed and every strata lease in the scheme is extended to the new expiry date.

Where the owner of lot in the scheme chooses not to continue with their strata lease or the lessor re-enters the lease (for non-payment of an amount for the postponement of the expiry of the scheme in accordance with the leasehold by-laws or upon an order of the State Administrative Tribunal), the strata lease for that lot will be extended in the lessor’s name.

The State Administrative Tribunal will be given the power to resolve disputes arising from postponement of the expiry date of a strata lease.

What happens after the leasehold scheme has ended?

A leasehold scheme can end by expiry or it can be terminated. What happens after the leasehold scheme ends will be different in each case but generally speaking all the strata company obligations need to be dealt with as the registration of the scheme and certificates of title for the leasehold lots will be cancelled.

If the leasehold scheme expires or is terminated early

If the leasehold scheme expires, a notice of expiry or an application for termination (accompanied by the required evidence), must be lodged with the Registrar of Titles. The Registrar will then cancel the registration of the leasehold scheme, cancel the certificates of title for the leasehold lots in the scheme and record the termination of the scheme. Upon termination, the scheme documents cease to have effect, the lots and common property cease to exist and, the land becomes a parcel that is not subdivided by the leasehold scheme. The strata company also ceases to exist and the parcel of land goes back to the freehold owner. The rights and liabilities of the strata company vest in the owner of the freehold parcel of land.

The Tribunal may make orders regarding the winding up of a strata company prior to expiry or termination of a scheme

If the strata company’s affairs can’t be neatly wound up before the leasehold scheme expires or is terminated, the State Administrative Tribunal can make an order, including: for the sale of strata company property, the discharge of liabilities of the strata company or the administration and functions of the strata company. This may include the appointment of an administrator of the strata company.


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Disclaimer

This information has been prepared for the purposes of informing stakeholders and the community on the nature and scope of the proposed reforms to the legislation relating to strata title. Every effort has been made to ensure the information presented is accurate at the time of publication. Because this information avoids the use of legal language, information about the law may have been summarised or expressed in general statements. This information should not be relied upon as a substitute for professional legal advice or reference to the actual or proposed legislation. The contents should not be relied on as a guide for current or future legislation relating to strata title or community title in Western Australia or in relation to current or future subdivision or development proposals, commercial transactions or dealings in strata title.

This page was last updated on: 19 Nov 2018