The Community Titles Act 1996 (SA) (“the Act”) was introduced in 1996 to regulate the development and administration of community titles.

Community titles are created by deposit of a plan of community division, commonly known as a Community Plan. The Plan creates community lots and common property, as well as any development lots. Unless the scheme is small, a Community Plan is accompanied by a Scheme Description, which sets out the details of the proposed development. Those documents may also be accompanied by By-Laws and a Development Contract, which regulate any ongoing rights and obligations of land owners within the Community Plan (eg, the purpose for which the lots can be used).

If a Scheme specifically contemplates further division or development, it will be accompanied by a Development Contract. The Development Contract is a binding contract between parties, including the original developers, Community Corporation and the owners of the Community and Development Lots from time to time.

Increasingly, we have found that mortgagees are exercising rights of possession and sale over community titled land, both in the development and post development stages. It is important, when dealing with that situation, that you understand what obligations this may impose upon mortgagees.

The Development Contract

The main purpose of a Development Contract is to place a binding obligation on the developer to develop a development lot, common property or community lot in accordance with the Scheme Description and/or the By-Laws.

The Act allows any party to the Development Contract to sue to enforce it, including by suing a developer to undertake obligations of development under the scheme documentation.

The effect of various provisions in the Act is that a mortgagee who has been in possession of a community lot or development lot for over 12 months will be bound by the Development Contract from the end of that period, and can be sued in relation to it.

What does this mean for mortgagees?

Particular obligations will be set out in the documentation specific to the lot in question but this could mean that, to the extent that work is outstanding, a lot owner or the Community Corporation may be able to sue for performance of those works or for damages for failure to perform those works.

At the extreme, this could result in a mortgagee being sued to complete a complex development or for damages in lieu.

Other issues – Disclosure in sales process

Scheme descriptions and By-Laws often place onerous obligations on lot owners and circumscribe what they can and cannot do with the property. These obligations may not always be obvious.

It is particularly important for any contract of sale to clearly state that the mortgagee makes no representations about the compliance with or validity of the scheme documents or the uses to which the land can be put as there is a significant risk of parties claiming misrepresentation if they later become cognisant of restrictions or obligations embedded in those documents and the Act.

How can mortgagees protect themselves?

Obligations in relation to a particular community titled property will depend on the scheme documentation specific to that property, and to the particular lot in question.

If a mortgagee is at risk of being in possession of a development lot for longer than 12 months, it may wish to consider a Receivership appointment instead as Receivers will not be personally bound by the Development Contract. However, a Receivership approach will not be suitable in all situations and it is recommended that you seek legal advice.

When selling a community titled property, special care should be taken with respect to disclosure obligations and appropriately worded “buyer beware” special conditions should be included in the contract.

If you have any specific queries with respect to community title, it is advisable to seek legal advice.