Land tax apportionment in OTP contract

[dclayw]

Considering buying OTP apartment in QLD. The contract says that any land tax unpaid at settlement must be paid by the seller. To me, that should be the end of it, land tax will be paid by the seller at settlement, and after settlement I will own a lot that will only have a very small proportion of the land content, and this will be under the threshold for having to pay land tax. So no land tax for me.

But then the contract goes on to say that land tax will be calculated for apportionment purposes on the basis that, as at the previous 30 June, the seller owned no land other then the land this development sits on. The land tax for apportionment purposes for the lot will be based on the interest lot entitlement for the lot.

If land tax is apportioned like this for each lot then depending on number of lots and land value, it could come to several thousand $ for each lot.

Not sure why it's going on about apportioning land tax when clearly the lot will only account for a small portion of the land content and this will be well under any land tax threshold (I won't own any other land). I've seen OTP contracts from other developers in the past and these land tax clauses seem fairly standard.

Does this seem fair, that individual lot owners become liable for land tax at settlement? I'm thinking about asking to have that clause removed from the contract.

 

[Terry_w]

No, you could be left with a hefty bill. speak to your lawyer about amending the contract

 

[dclayw]

Is it standard practise to have it removed and is that likely to succeed, or do most people not care or know about it and just suffer the shock at settlement.

This will by my PPOR by the way and at the time of settlement the only property I will own so it seems rather unfair that land tax should be payable in that case. It could work out to be rather large $s too.

 

[Paul@PFI]

Same applies to a purchase prior to 31 Dec / 30 June depending on the state. Clauses which impose land tax liability of the vendor upon the buyer need to be identified and removed so that a delayed settlement isn't costly.

 

[dclayw]

It's my understanding that in QLD Land Tax is assessed at midnight on June 30 each year. Let's say these OTP contracts all settled on August 31. Land Tax for the current year (the year of settlement) has already been assessed, at midnight on preceding June 30. At midnight preceding June 30 none of the OTP lot owners owned any of the land, because from the QLD Office Of State Revenue perspective ownership does not occur until settlement, or at least until a title is issued.

So how come developers try to apportion Land Tax for the current year when they are the ones who are legally required to pay it. This seems to be a standard clause in QLD OTP contracts. If I have got this right how the hell do they get away with this stuff, and how long has it been going on.

 

[Terry_w]

It's my understanding that in QLD Land Tax is assessed at midnight on June 30 each year. Let's say these OTP contracts all settled on August 31. Land Tax for the current year (the year of settlement) has already been assessed, at midnight on preceding June 30. At midnight preceding June 30 none of the OTP lot owners owned any of the land, because from the QLD Office Of State Revenue perspective ownership does not occur until settlement, or at least until a title is issued.

So how come developers try to apportion Land Tax for the current year when they are the ones who are legally required to pay it. This seems to be a standard clause in QLD OTP contracts. If I have got this right how the hell do they get away with this stuff, and how long has it been going on.

A sellor would try to charge you extra for anything they possibly could. if you were to agree to it you would be silly.

Land tax runs with the property. So if you settle on a property with land tax not paid you would wear it. Just because it may be levied on 30 June doesn't mean you won't be liable.

Can the contract reviewed and make sure it is unambiguous.

 

[cu@thetop]

A sellor would try to charge you extra for anything they possibly could. if you were to agree to it you would be silly.

Land tax runs with the property. So if you settle on a property with land tax not paid you would wear it. Just because it may be levied on 30 June doesn't mean you won't be liable.

Can the contract reviewed and make sure it is unambiguous.

Almost every developer will allow for this adjustment in their OTP contracts. I have only negotiated the removal of this clause on a handful of occasions.

While you are at it OP ask why your body corporate adjustments are from the date of registration and not the date of possession?

 

[Terry_w]

I guess it may come down to how hot the market is.

 

[dclayw]

Land tax runs with the property. So if you settle on a property with land tax not paid you would wear it. Just because it may be levied on 30 June doesn't mean you won't be liable.

The contract clause just before this one says if Land Tax is unpaid at the settlement date then the seller must pay it. The next clause then says it should be apportioned among the Lots at settlement. The apportioning clause is the one I have a problem with.

The QLD Land Tax Act states that a liability for Land Tax for a financial year arises at midnight on 30 June preceding the financial year, and then says that the OWNER of the land at that time is the one liable to pay the tax.

OWNER is also defined as a person who is in possession of that land.

The Act also says the seller is the OWNER until the buyer is in possession.

I'm not a lawyer but this stuffs interests me. It seems pretty clear to me that buyers do not take possession until settlement and are therefore not liable for Land Tax in the year of settlement, whether or not the Land Tax has been paid.

This clause that wants to apportion the Land Tax at settlement appears to contravene the law, or is a developer allowed to put anything they like in a contract and as long as someone agrees with it (signing the contract) it's OK?

While you are at it OP ask why your body corporate adjustments are from the date of registration and not the date of possession?

In my contract the Adjustments are from the settlement date so no problem there.

 

[Terry_w]

You would be agreeing to reimburse them - from my glimpse.

You should be seeking legal advice from your lawyer for this.

 

[dclayw]

You would be agreeing to reimburse them - from my glimpse.

You should be seeking legal advice from your lawyer for this.

I will seek legal advice but that doesn't preclude from further discussion here.

If someone is legally obliged to pay land tax then that's the end of it in my view. Why would anyone in their right mind agree to reimburse a developer for his obligation to pay land tax. The developer owns the land, he pays the land tax. Not only is that the legal situation, it is also the most equitable way to go about it.

What I'm wondering is if this is just the standard way everyone goes about it (seems to be a standard contract clause) and it's now accepted practise. Or is it a case of developers just trying to pull a fast one and catch people out if they or their solicitor don't notice it. Don't forget that land tax is likely to be a significant amount of money.

And why would this apportionment of land tax be just in the year of settlement. Some people may have signed a contract for OTP pucrhase 3 years ago, is the developer entitled to apportion land tax during that whole time. I guess so if he puts it in the contract and someone agrees to sign it.

I understand that developers need protection but OTP contracts have always been heavily in favour of a developer and it seems to be going further down that path. I think here in QLD they recently changed the rules to allow 5 year sunset clauses.

Maybe next the purchaser should be paying for the development application.

 

[Terry_w]

it a case of developers just trying to pull a fast one and catch people out if they or their solicitor don't notice it.

I would say it is more of this.