Stamp Duty Liability and the Lend Lease High Court Decision
Monday 5 January 2015 @ 1.12 p.m. | Taxation
In a follow up to the High Court Decision handed down on 10 December 2014 in Commissioner of State Revenue v Lend Lease Development Pty Ltd [2014] HCA 51, property developers have been warned that the High Court’s decision will have broader implications for development arrangements involving the transfer of land in conjunction with obligations on the purchaser to make payments for infrastructure and other things in addition to the purchase price of the land.
Background to the Case
As stated in our previous TimeBase Article, the case revolved around the amount of duty that should be payable by Lend Lease under the Duties Act 2000. Section 20(1) of the Act provides that:
“The dutiable value of dutiable property that is the subject of a dutiable transaction is the greater of—
(a) the consideration (if any) for the dutiable transaction (being the amount of a monetary consideration or the value of a non-monetary consideration); and
(b) the unencumbered value of the dutiable property.”
The Commissioner assessed duty according to the consideration for each transfer of land, which it determined to be the total of the sums payable by Lend Lease to VicUrban under their development agreement. However, Lend Lease objected to these assessments, saying that the consideration for the land was simply the “Stage Land Payment”, for which there were separate Land Sale Contracts. Lend Lease appealed the initial assessments to the Supreme Court of Victoria, and lost, but succeeded in a further appeal to the Court of Appeal. The Commissioner appealed to the High Court.
Decision
In a unanimous judgment, the High Court allowed the appeals. They found that contrary to the holding of the Court of Appeal, the fact that the land was undeveloped was irrelevant. They also held that the development agreement was a single, integrated and indivisible transaction. Instead, the title to the land was only transferred when the various promises and payments were made (not just the Stage Land Payment), and that the Commissioner was correct in including these amounts when assessing the consideration.
Impact of the Decision
The High Court focused on the issue of what the consideration was that moved the transfers of the land from VicUrban to Lend Lease. In deciding that the performance by Lend Lease of the promises under the development agreement to make additional payments other than the purchase price of the land formed part of the consideration for the land transfers, the High Court implicitly endorsed the ‘but for’ test that had been rejected by the Court of Appeal. That is, but for the performance of the additional promises made by Lend Lease, VicUrban would not have transferred the land.
Pitcher Partners lawyer, Craig Whatman, states that:
"The High Court’s decision has broader implications for our clients in the property development space. It is particularly relevant to clients who enter into arrangements under which the purchaser of the land has additional obligations to the vendor in terms of infrastructure contributions, sharing of revenue from the sale of the developed land or other similar obligations. The difficult question that must now be addressed is whether the consideration for the land transfer is limited to the purchase price of the land, or whether it potentially includes the value of other promises agreed to by the purchaser, including the promise to make other payments or provide other services in addition to paying the purchase price of the land."
And further:
“It is reasonably common for property contractual arrangements to be structured in such a way that the purchaser of the land agrees to make payments in addition to the purchase price of the land or to provide some form of services.
As occurred in the Lend Lease case, for example, where the sale is being made by a government entity or public authority, the purchaser is commonly required to make contributions to infrastructure and/or to share a portion of the proceeds of sale from the developed land.
Likewise, in dealings between two private sector entities, one example is where the purchaser may be required to perform specific development works on part of the land, which are then made available to the vendor by way of lease.
In all of these cases, it will now be necessary to consider whether the additional payments the purchaser agrees to make over and above the purchase price of the land, or the value of the services they agree to perform for the benefit of the vendor, need to be included as part of the consideration on which stamp duty is payable.”
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