What type of property do you want to buy?

The first step in making a purchase decision on a property is to decide on what type of property you want to purchase. There are three main types of property available within the WA real estate landscape, all of which we have outlined below.

Green Title Property

Green title refers to land that, generally speaking, has no common areas that need to be shared (i.e. you have sole ownership of the entire lot). This is the most common type of property in Western Australia and is usually a property on which a free-standing home is built. Although owners of green title lots have sole ownership of the relevant property, it is important to know that there can still be restrictions imposed on how the property can be used.

For example, the Water Corporation may have an easement over the property which grants them a right to access a sewer line on the property – and depending on the location of that sewer line, it could restrict your ability to build anything on that portion of the property. Another example is that the property could be heritage listed (which could restrict the nature and extent of any renovations that can be carried out). Any such restrictions should be noted on the Certificate of Title for the property (and so it is important to check the Certificate of Title thoroughly before making any offer to purchase).

Purple Title Property

Purple title refers to ownership of an undivided share in a property. In other words, you do not buy, nor have sole ownership of, the whole or any particular portion of the relevant property.

Rather, you buy a number of undivided shares in the property, and your right to exclusively occupy certain areas of that property is determined by a contract with the other shareholders. This type of property is no longer very common in Western Australia, although some retirement villages or multi-storey apartment buildings still operate using this format.

Strata Title Property

The owner of a strata title lot generally has sole ownership of a particular cubic space (for example, a particular apartment, unit or townhouse) and then common ownership of the rest of the land and building on/in which that cubic space is located. The relevant strata plan will set out the exact boundaries of your strata title lot (i.e. what cubic space you have sole ownership of).

Common property may include the exterior walls of the building, the roof, the driveway, courtyards, swimming pools, lifts, stairs, etc. The common property is controlled and managed by the strata company (which is a company made up of all of the current lot owners).

When you become an owner of a strata title lot, there are a number of obligations and restrictions that apply, such as:

1. you will be subject to any by-laws or the rules of the relevant strata company;
2. you will become a member of the strata company (which entitles you, to varying extents depending on the relevant strata scheme, to participate in the management of the property);
3. you will need to pay levies (usually quarterly) for the costs of administering the strata scheme (e.g. insurance for the common property and the maintenance and repairs of that common property); and
4. you will be eligible to attend meetings of the strata company to vote on different issues concerning the property (e.g. budgets, repairs and improvements, etc.).

If you are considering purchasing real estate in Perth or Western Australia, and are in need of legal advice to mitigate your risk and to understand the purchase process, we invite you to contact our team of experienced property law WA professionals who are more than happy to assist.

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Do you need to obtain approval from FIRB or the ATO to buy your property?

Before making the decision to buy land in Western Australia (or indeed, anywhere in Australia), you need to make sure that this transaction is allowed. If you are currently living overseas, it is essential that you consider this issue at the very start of the property buying process.

This is because there are potentially significant and harsh consequences for buying WA real estate without prior approval when approval of some form should have been obtained.

Pursuant to the Foreign Acquisitions and Takeovers Act 1975 (Cth) (“FATA”), a “foreign person” who proposes to take a “notifiable action” must either obtain foreign investment approval or an exemption certificate prior to taking the action. Applications for foreign investment approval or for an exemption certificate are made to either the Foreign Investment Review Board (“FIRB”) or to the Australian Taxation Office (“ATO”), depending on the circumstances.

Under the FATA, a “foreign person” means any of the following:

1. an individual not ordinarily resident in Australia;
2. a corporation in which an individual not ordinarily resident in Australia, a foreign corporation, or a foreign government holds a substantial interest;
3. a corporation in which two or more persons, each of whom is an individual not ordinarily resident in Australia, a foreign corporation or a foreign government, hold an aggregate substantial interest;
4. the trustee of a trust in which an individual not ordinarily resident in Australia, a foreign corporation or a foreign government holds a substantial interest;
5. the trustee of a trust in which two or more persons, each of whom is an individual not ordinarily resident in Australia, a foreign corporation or a foreign government, hold an aggregate substantial interest;
6. a foreign government; or
7. any other person, or any other person that meets the conditions, prescribed by the regulations (which currently includes foreign government investors).

Overall, whether or not someone is a “foreign person” under the FATA can be a complicated question.

Whilst the above may sound straightforward, phrases like “ordinarily resident in Australia”, “substantial interest” and “foreign corporation” are all defined terms which carry particular (and at times complex) meanings which need to be carefully considered in light of the relevant circumstances.

If you are a “foreign person”, buying a property in Western Australia (whether that property is a green title lot, a purple title lot or a strata title lot) will be considered a “notifiable action” if it meets the relevant monetary threshold.  The relevant monetary threshold required depends on the type of land you are buying (i.e. whether it is residential, commercial, vacant, or agricultural).

Importantly, the monetary threshold for most residential land (as that term is defined in the FATA) is $0. This means that, if you are a “foreign person” looking to buy a residential property in Western Australia, you will most likely (subject to only a few exceptions – one mentioned below) be required to obtain either foreign investment approval or an exemption certificate from FIRB or the ATO prior to buying that property.

It is important to note that property developers (and other vendors) building new dwellings can also apply for a new (or near new) dwelling exemption certificate.  This exemption certificate means that, if you are a “foreign person” looking to buy that property, then you may not need to seek your own individual foreign investment approval or exemption certificate. However, this is not a blanket rule – for example, you cannot rely on this exemption certificate if the purchase price for a single new dwelling is above $3 million, or if you are buying multiple new dwellings in the property with a total value greater than $3 million.

If you need, or think you might need, foreign investment approval or an exemption certificate to purchase property in Western Australia, then this means that any contract of sale you enter into with respect to a property should be made conditional upon you obtaining the approval/certificate (if required) by a certain time period.

We welcome you to contact us if you are looking to buy a property in Western Australia, and:

1. are not sure whether you are considered a “foreign person” for the purposes of the FATA; and/or
2. are not sure whether the transaction will be considered a “notifiable action” for the purposes of FATA; and/or
3. need assistance drafting special conditions to your contract dealing with your obligation to obtain approval or an exemption certificate.

If you are a “foreign person” for the purposes of the FATA, there are also various other kinds of “notifiable actions” that may require you to obtain approval from FIRB or the ATO prior to completing the relevant transaction. These include purchasing certain kinds of interests in Australian companies or Australian businesses.

If you are overseas and are looking to purchase an interest in an Australian company or business, and are not sure whether you need approval, we welcome you to book in a time with our team of Property Law professionals who will walk you through your options.

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You have found the property you want to buy – how do you actually buy it?

In Western Australian real estate, there are two distinct ways in which you can purchase a property, we have outlined these below.

By Private Treaty

This is the most common way to buy a property in Western Australia.

The process is generally as follows:

1. the seller will set and market a price for the property;
2. potential buyers will be permitted to come and physically inspect the property (usually known as an “open house”);
3. any buyer that is interested in the property will make an offer to the seller (or the seller’s agent) to buy the property (which offer will include proposed purchase price, together with the terms and conditions the buyer requires);
4. negotiations as to the purchase price and the terms and conditions will take place (usually through the seller’s agent) – the seller may be negotiating with different buyers at the same time; and
5. once the seller and the buyer have agreed on the purchase price and all other terms and conditions of the sale, a formal contract of sale will be signed by both parties.

The most common contract of sale used in Western Australia is the Real Estate Institute of Western Australia (“REIWA”) “Contract for Sale of Land or Strata Title by Offer and Acceptance”. This contract incorporates the REIWA “Joint Form of General Conditions for the Sale of Land” – currently the version produced by REIWA in 2018, but these General Conditions are updated from time to time.

The contract also contains a standard finance condition clause (if required) and allows the seller and the buyer to include any bespoke special conditions which they require (usually attached as an annexure). Common special conditions include making the contract subject to the buyer receiving satisfactory building and pest reports for the property, making the contract subject to the buyer first selling their own property, making the contract subject to the buyer obtaining approval from FIRB or the ATO, or making the contract subject to the buyer obtaining satisfactory development approval.

The extent, complexity and nature of the special conditions required (if any) varies greatly from contract to contract and depends on the circumstances. It is very important that the right special conditions are incorporated into your contract so that you have sufficient protection.

If you are using the REIWA “Contract for Sale of Land or Strata Title by Offer and Acceptance”, and you require the contract to be subject to you obtaining adequate finance, then it is important to know that the finance clause in this contract is construed very strictly. The requirements to give notices by certain times in this clause must be complied with.  If you do not obtain adequate finance to buy the property, but fail to comply with the notice requirements set out in this clause, then it is very likely that you still be required to buy the property and unlikely you will be able to get out of the contract.

The above being said, parties do not have to use the REIWA “Contract for Sale of Land or Strata Title by Offer and Acceptance”. Indeed, it is often the case that if you want to purchase an “off the plan” property, or perhaps a large commercial or agricultural property, then the parties will use an entirely bespoke contract of sale. After you have entered into the contract of sale, you should provide a copy of the contract to your settlement agent or lawyer, who will be able to advise you of what happens next through to settlement.

If you need any assistance in drafting or understanding a contract of sale of any kind, would like some advice on the operation of the General Conditions, or have entered into a contract of sale and need to know what happens next, please contact our property team who will gladly assist.

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By Auction

Auction is the other common way to buy property in Western Australia (though not as common as by private treaty).  For an auction, the seller will set a minimum (i.e. reserve) purchase price before the auction is held.  Different buyers will then attend the auction, and bid on the property (and so, unlike with the private treaty system, you will be aware of what other buyers are offering to purchase the property).

If your bid is the highest at the auction, and it meets or exceeds the reserve price, then your bid will be accepted and you will be required to sign a contract of sale immediately.  This contract will be unconditional and there will be no further negotiations permitted.  You will also often be required to pay a deposit to the seller’s agent “upon the fall of the hammer” (i.e. immediately).

This is why, before bidding at an auction, it is important that you:

1. do your research on the property (including carrying out any inspections that may be necessary);
2. have reviewed a copy of the Certificate of Title for the property (you can ask for a copy of this from the seller or the seller’s agent);
3. have already arranged access to any required finance (as, unlike when buying a property through private treaty, the contract will not be conditional upon you obtaining adequate finance); and
4. have thoroughly reviewed a copy of the contract which you will be required to sign after your bid has been accepted – often called the “Auction Particulars and Conditions of Sale of Freehold Property” (you can ask for a copy of this document from the seller or the seller’s agent prior to the auction).

If you need assistance in understanding a copy of any contract which you have been provided for an auction, please contact our property team who are happy to assist.

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Will you need to obtain or receive a clearance certificate?

In short, if you are an Australian resident selling real property in Western Australia with a market value of $750,000 or more, then you must obtain a valid clearance certificate prior to settlement and provide a copy of that certificate to the buyer. There are very few exceptions to this requirement. The market value of a property will, in normal arm’s length transactions, be the purchase price for the property.

The purpose of the clearance certificate is to provide evidence to the buyer that you are not a foreign resident vendor who is liable to pay foreign resident capital gains withholding tax.  Applications for clearance certificates are made online to the ATO, and should be lodged as early as possible (i.e. as soon as you decide to sell your property), as the ATO can take some time to process applications.

Once obtained, your clearance certificate will be valid for 12 months from the date of issue and can be used for multiple sales for multiple properties.

If you are selling your property and fail to provide a valid clearance certificate to the buyer prior to or at settlement in circumstances where this is required, then the buyer will be required to withhold 12.5% of the purchase price and remit this amount to the ATO at settlement.  This is the foreign resident capital gains withholding amount.

If you are buying a property in Western Australia, it is still important to know about this requirement.  This is because if a buyer fails to remit the 12.5% withholding amount to the ATO at settlement in circumstances where the seller has not provided a valid clearance certificate, it could result in penalties being imposed by the ATO against the buyer.

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What duty will be payable when you buy your property?

Duty is, essentially, a tax imposed by the Duties Act 2008 (WA) (“DA”) on different kinds of dutiable transactions – one of which is the transfer (i.e. buying and selling) of real property in Western Australia. The amount of duty (specifically, transfer duty) payable when there is a transfer of real property in Western Australia is calculated by reference to either the purchase price of the property, or the unencumbered value of the property – whichever is greater.  In the DA, this is referred to as the “dutiable value” of the relevant property.

When there is a transfer of real property in Western Australia, duty is payable by the buyer, and it is the buyer’s responsibility to lodge the relevant contract of sale for duty assessment with the Office of State Revenue. This must be done within two (2) months of the date the contract of sale is entered into. Lodgement is generally done by the buyer’s settlement agent or lawyer as part of the settlement process, who will then inform the buyer of the amount of duty that needs to be paid.  The assessed duty will need to be paid prior to or at settlement (and in any event within one month of the assessment being issued).

A failure to lodge a contract of sale for assessment within the two-month period, or to pay any assessed duty by the time specified in the assessment notice, could lead to penalties being imposed.

The DA is a complex area of law. As such, we will take you through a basic scenario to demonstrate how duty would be calculated in circumstances where you are buying a property in Western Australia without any special exemptions or concessions applying.

Let’s say you enter into a contract to buy a property in Western Australia for $480,000.  To calculate the amount of transfer duty that needs to be paid, you need to refer to the applicable general rate of duty.

The current general rates of duty are set out in the following table:

Here, the applicable general rate of duty would be “$7,790 plus $4.75 per $100 or part of $100 above $250,000” because the purchase price, which is $480,000, falls into the range of $250,001 to $500,000.  So, the amount of transfer duty payable by the buyer will be $18,715.  This amount was arrived at using the following calculation:

$7,790 + (4.75% of $230,000) = $18,715

Note that the figure of $230,000 is taken from subtracting $250,000 from $480,000.

Another thing for to consider, particularly if you are currently overseas, is whether foreign transfer duty will be payable.  Generally, when you buy residential real property in Western Australia and you are considered to be a “foreign person” under the DA you will be required to pay both transfer duty (as discussed above) and foreign transfer duty.  The current rate of foreign transfer duty is 7% of the purchase price or unencumbered value of the property (whichever is greater).  So, using our above example, if the buyer was a “foreign person” under the DA, they would also need to pay an additional $33,600.00 in foreign transfer duty.

There are also various exceptions, exemptions and concessions set out in the DA when it comes to the payment of duty.  However, whether these apply depends on individual circumstances.

We welcome you to contact us if you require any assistance in determining:

1. whether duty is payable on your transaction;
2. the amount of duty that will be payable on your transaction; and/or
3. whether any exemptions, exceptions or concessions in the DA might apply to your circumstances,

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How does settlement happen?

Once you have entered into a contract of sale, and that contract has become unconditional, the final stage of the sale process is the settlement.

“Settlement” is the word used in Western Australia to define the moment when the purchase price is ultimately paid by the buyer to the seller, and in exchange, ownership of the property is transferred from the seller to the buyer. This is sometimes also referred to, particularly in other states of Australia, as “completion”.

Settlements are completed for sellers and buyers by settlement agents and/or lawyers. Your settlement agent or lawyer will review your contract of sale, review the certificate of title for the property, and work out what needs to happen in order for settlement to occur. For example, if you are buying a property using finance provided by a lender, your settlement agent or lawyer will communicate with your lender and/or broker so that the required finance is available at settlement.

They will also liaise with the lender and/or broker in relation to any mortgage which you have agreed to grant over the property as security for that finance (which mortgage will be registered on the certificate of title for the property by the lender at the settlement). Conversely, the settlement agent or lawyer acting for the seller will assist the seller in arranging for the removal of any existing encumbrances on the certificate of title which need to be removed prior to or at settlement (for example, an existing mortgage granted by the seller over the property, or existing caveats).

The majority of settlements in Western Australia now occur electronically using a platform called PEXA. However, there are still some instances where a traditional paper settlement will be required.  Your settlement agent or lawyer will advise which method of settlement is required for your transaction.

Regardless of whether your settlement occurs via PEXA or by using paper, prior to settlement, your settlement agent or lawyer will need to verify your identity.  This process is often referred to as a “VOI”.  Your settlement agent will need to view you in person, together with sufficient identity documents (e.g. your passport and driver’s licence).  The VOI requirement was introduced as a way to protect sellers and buyers and reduce fraudulent sales occurring.

If you have entered into a contract of sale for property in Western Australia, and need assistance with your settlement, please contact our Settlements Team who are happy to assist.

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