Perpetual Lease Titles

PERPETUAL LEASE TITLES

Many of our borrower clients will own land held under Perpetual Lease title. They are more prevalent in the central and western areas of New South Wales.

In 2004 the NSW Government announced a plan which was designed to phase out this type of land holding and convert the affected land to unrestricted freehold. It provided financial incentives as a part of the plan.

The Government has recently confirmed that applications for conversion MUST be lodged by close of business on Monday 10th September 2007. Whilst the Rural Issues Committee of the Law Society of New South Wales (of which Bill Thompson of Commins Hendriks is a member) and others have sought more time it would be unwise indeed to place any reliance of the fact that it might be forthcoming.

The advantages of lodging applications prior to the deadline lie in the certainty it creates that the price will be the lesser of:-

(a) the notified capital value recorded by the Department of Lands OR

(b) 3% of the land value recorded by the Registrar of Land Values (VG)

A fee of $398 for each title must be paid (there may be more than one title for each lease). There will be lengthy delays in processing (currently 6-12 months) but you are in the system. On completion of the process applicants are advised by letter and payment has to be made within six weeks.

If an application for conversion is not lodged prior to the deadline then:-

1. Holders will pay market rental in the future and this will not only result in costs being incurred in determining what that is (even if argument is permitted) but in significant increases in rental.

2. The offer outlined above as to the determination of value could change with consequent increases in overall cost to the owner.

There are practical implications which affect you:-

1. Any application has to have mortgagees consent so you can anticipate an increase on a number of requests. Consent can be provided after the application is made and borrowers/clients should not be deterred from lodging applications simply because the consent is to be forthcoming.

2. Failure to apply for consent may affect your securities in respect of value/capacity to service loans. No doubt these issues have been addressed by those competent to do so. They are outside our area of expertise.

We have already encountered a situation where an application was completed by the borrower and the regulatory forms completed by the Department and the borrower then sent them to lender to action (or as a request for help on processing them through the LTO). This was done we assume in an attempt to "save" legal costs.

The formal procedures should be undertaken with the help of the borrowers/clients own solicitors.

If you require assistance or advice in making an application, please contact the Commins Hendriks Property Team.

Ian Erratt
Bill Thompson
Glen Lollback