The purchase of a property can be a daunting process for prospective buyers. Often, the complexity of a purchase can be increased by the existence of an ongoing lease arrangement with respect to the property in question. Such arrangements have the potential to not only impact when a purchaser can actually occupy the property, but may also have broader implications on the ability of a purchaser to claim important stamp duty concessions.
In the recent decision of Commissioner of State Revenue v Di Sipio & Anor [2015] QCA 198, the Queensland Court of Appeal clarified that purchasers can still retain their first home duty concession even if they do not move into their property within six months after the date of settlement. In this Alert, Partner James Bottomley, Associate Justin Raiteri and Solicitor Kerrod Giles discuss the practical implications of this decision for prospective purchasers.
Background
In July 2011, Christopher Di Sipio and Vanessa Rotolone (the respondents) entered into a contract to purchase a residence at Aspley, Brisbane. The contract was subject to a 12 month lease that expired in April 2012. The respondents also claimed the first home duty concession on the purchase.
After the respondents purchased the property, the Commissioner of State Revenue (the Commissioner) conducted a reassessment of the duty payable by the respondents on the purchase. The ongoing lease arrangement had in effect, prevented the respondents from moving into the residence until 7 April 2012, over six months after the date of settlement.
The Commissioner found that the respondents had breached the provisions of the Duties Act 2001 (Qld) (the Act) regulating the first home duty concession, by allowing the ongoing lease arrangement to remain on foot and by consequently failing to take possession of the property within six months from the settlement date. As a result, the Commissioner revoked the respondents' first home duty concession.
Relevant Provision of the Act
The Commissioner relied on section 154(2) of the Act to revoke the respondents' first home duty concession.1 That section provides that the Commissioner may re-assess transfer duty where a transferee, lessee or vested person does any of the following before entering into occupation of land:
- Transfers or leases the land;
- Surrenders a Lease over the land; or
- Otherwise grants exclusive possession of part or all of the land to another person.
Legal Issues and Proceedings
The Commissioner's decision was initially set aside by the QCAT Appeal Tribunal, which took the view that the Commissioner was not entitled to re-assess the transfer duty on the purchase under section 154(2).
The Appeal Tribunal reasoned that the respondents, by purchasing the residence subject to an existing lease, had not directly granted the tenants either "exclusive possession" or a lease over the property for the purposes of the section.2
Instead, the Appeal Tribunal held that the existing tenants only held an interest in the property rather than exclusive possession. The Appeal Tribunal outlined that that interest arose out of the tenants' lease agreement with the previous owner and the tenant's continued occupation of the property after its acquisition by the respondent.3
On Appeal
The decision of the QCAT Appeal Tribunal was subsequently appealed to the Queensland Court of Appeal. The Court upheld the Appeal Tribunal's decision, with Chief Justice Holmes reasoning that the wording "leased or otherwise grants exclusive possession" used by section 154(2) implied that there must be some positive act on the part of the respondent for exclusive possession to be granted. Merely continuing with an ongoing lease arrangement after the acquisition of the property was not considered to be enough to satisfy the requirement for some positive act.4
Chief Justice Holmes referred to the explanatory notes of the Duties Bill 2001 to further clarify the intended application of section 154. The explanatory notes explicitly outline that where the land that is being acquired is leased to a sitting tenant before the purchaser occupies it, that purchaser may be entitled to retain their concession benefit.5
Accordingly, Chief Justice Holmes concluded that no automatic grant of exclusive possession occurs on the acquisition of a property with a pre-existing lease, and further, that the respondents were entitled to retain their first home duty concession despite the fact they had not taken physical possession of the property within six months from the settlement date.
Key Points for Purchasers
- A purchaser will not be considered to have granted an existing tenant either exclusive possession or a leasehold interest over a property simply because they have purchased a property with a pre-existing lease.
- A purchaser will be entitled to the first home duty concession even where an existing tenant retains possession of a property for more than six months after the date of settlement so long as the purchaser of the property does not actively grant the existing tenant a further lease or allow the existing tenant to continue their exclusive possession of the property after expiration of the tenant's pre-existing lease.
- The effect of this decision is that tenants who refuse to vacate a property will be unlikely to cause a purchaser to lose their entitlement to a duty concession.
Footnotes
1 The Duties Act 2001 (Qld) s.
154(2).
2 Di Sipio & Anor v The Commissioner of State
Revenue [2014] QCATA 301 at 17 per Senior Member Stilgoe OAM
and Member Hughes.
3 Di Sipio & Anor v The Commissioner of State
Revenue [2014] QCATA 301 at 17 and 18 per Senior Member
Stilgoe OAM and Member Hughes.
4 Commissioner of State Revenue v Di Sipio &
Anor [2015] QCA 198 at 20 per Holmes CJ.
5 Commissioner of State Revenue v Di Sipio &
Anor [2015] QCA 198 at 21 per Holmes CJ.
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