In the recent case of Commissioner of State Revenue v Lend Lease Development Pty Ltd  HCA 51 the High Court was asked to decide on the method of calculating transfer duty on a major property project.
Victorian Urban Development Authority (VicUrban) was the owner of a number of parcels of land in the Docklands area of Melbourne.
Lend Lease agreed to buy the land from VicUrban and to design, construct and sell large residential and commercial buildings on the land. Lend Lease was required to contribute to the development costs incurred by VicUrban. VicUrban also was to share in the gross revenue Lend Lease would receive from the sale of the residences, offices and other buildings which Lend Lease was to design and construct.
The agreement provided for Lend Lease to make a number of payments described as the stage land payments which were to be made prior to title passing to it.
Lend Lease submitted that the only payments that should be the subject of duty was the consideration payable for the transfer of the parcels of land. The Commissioner submitted that the consideration for the transfer was the total of the payments to be made by Lend Lease both before and after the transfer of title.
The Duties Act 2000 (Vic) imposes duty on the dutiable value of property. It defines dutiable value as being the greater of the:
- consideration for the dutiable transaction; and
- unencumbered value of the dutiable property.
A similar definition is contained within the Duties Act 2008 (WA).
The Victorian Court of Appeal held that duty was only payable in respect of the payments payable by Lend Lease prior to the transfer of title.
The Court of Appeal placed reliance upon an earlier decision in the case of Bambro. In Bambro the vendor transferred land to the purchaser and the purchaser then engaged the vendor to construct a shopping centre on the land. Separate prices were agreed for the transfer and for the building works. In that case it was held that duty was only chargeable on the price allocated to the land and not on the price allocated to the building works.
The Court of Appeal thought that the fact that the pieces of land were undeveloped at the date of transfer to be most relevant.
The High Court held otherwise. The High Court took the view that as it was the vendor who was the builder in Bambro it was materially different from the Lend Lease case where the purchaser was the builder. It stated that the consideration for the transfer does not depend upon the state or condition of the land. The consideration for the transfer was greater than the market value of the land at the time of transfer.
It was Lend Lease’s submission that the sums that were payable by it as its contribution towards the cost of the development work performed by VicUrban and the sums that were to be paid by it as a share of the amount Lend Lease would receive from the ultimate sale of the land did not form part of the consideration for the transfer. This argument was rejected by the High Court.
The consideration which moved the transfer by VicUrban to Lend Lease was the performance of all of the payment obligations set out in the development agreement. It was only in return for the promise to pay the total sums that VicUrban was willing to transfer the land to Lend Lease.
For more information on this update please contact partners Greg Mohen and David Miller on (08) 9321 3755.
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