Strata Title in the Solomon Islands: A Regional Perspective
The Solomon Islands Strata Titles Act 2018 (Act) passed Parliament on 22 August 2018.
We have followed the progress of this legislation with interest, and you can read our updates here.
In this article, we provide our views on this legislation, and we discuss how the Act compares to its Melanesian neighbours.
The passing of the Strata Titles Act 2018 (Act) in August 2018 represents an exciting change to land law in Solomon Islands, by providing a mechanism to address the shortage of affordable residential housing in Honiara.
A strata scheme divides buildings and lands into strata lots and common property. The owner of each unit owns the inside portion of the building and together the owners are, through a strata scheme corporation, common owners of, and responsible for, the common property of the building such as gardens or paths. Strata schemes (and other similar arrangements) have been adopted all over the world, with the concept originally stemming from Australia in the 1960s.
The Act aims to facilitate higher density development in Solomon Islands, recognising the scarcity of land coupled with Honiara’s dense population. The division of land into strata titles will allow greater innovation and diversity in development in Solomon Islands, attracting the interests of developers while also allowing land owners to better capitalise their assets.
Overview of other Melanesian countries
PNG has no strata title legislation. Instead, it uses the company model whereby a company owns the head lease and individual unit owners purchase shares in the company. The unit owners’ interest is also registered with the Registrar of Titles as a sublease. Financiers can register their security via charges over the unit owners shares and also register a mortgage over the sublease.
In Fiji, the Unit Titles Act applies. Similar to Solomon Islands, this land is subdivided into units which are owned by individual proprietors, common property is owned by all unit proprietors as tenants in common, and the proprietors to constitute a body corporate. It does not include any fiduciary obligations on the part of managers and developers, although it does impose certain duties on the body corporate.
Vanuatu does have a strata title regime, implemented under the Strata Titles Act 2000 (as amended) (Vanuatu Act). Similar to the Solomon Islands, upon registration of a strata plan in Vanuatu the proprietors of the plan become a body corporate. The body corporate has several duties in relation to the strata scheme, including insuring the building and keeping it in a state of good and serviceable repair.
A notable difference between the Solomon Islands and Vanuatu laws is that developers do not have a fiduciary obligation to the body corporate under the Vanuatu strata legislation. While the Vanuatu Act provides for the duties and powers of the body corporate to manage a strata scheme, it does not provide the same guidance for developers. In comparison, the Solomon Islands Strata Act regulates developers in their dealings with strata schemes and manages the relationship between developers and other owners of strata lots. In this way, the Strata Bill encourages development and facilitates the growing relationship between developers and other owners of land.
Training, development and infrastructure
The Act is highly technical in nature, so it is important that the infrastructure and stakeholders of the Act have the corresponding technical capacity needed to implement it and receive adequate training on processing these strata title applications.
Under the Act, priority is given to applications for strata schemes over other instruments lodged under the Land and Titles Act. However, land registration in Solomon Islands can take some time, with a planned upgrade and digitisation of the land registration system facing delays and setbacks.
We hope that the modernisation and digitisation of the land registry is prioritised, so that the infrastructure which is needed to support the strata titles regime is available once the strata scheme regime has hit the ground running.
Importantly, while the Act has passed Parliament it has not yet commenced in Solomon Islands, which gives regulators time to ensure that all stakeholders receive the capacity training, development and upskilling needed.
The Act requires appropriate insurances be obtained for the application for strata division to be approved. Having such comprehensive insurance requirements is needed in order to properly insure the building against risks, and these requirements are certainly attractive from a lenders’ perspective. These robust requirements also represent a positive improvement from some of Solomon Islands’ Melanesian neighbours.
Section 25 of the Act requires an amount of SBD$50 million “…or such other amount as is specified in the regulations…” for public liability insurance. This requirement to maintain public liability insurance of $50 million (irrespective of the size of the development) is somewhat high; however, it is broadly reflective of the position in Australia, where public liability insurance requirements are frequently AUD10 million (which is roughly equivalent). The wording in the Act also provides some flexibility so that it can be changed in future if it is found to be unreasonable.
Powers given to the Minister in the regulations
The Act identifies the type of land that may be divided by strata scheme, so in this way, should avoid some of the difficulty which Vanuatu has faced in terms of strata of vacant land strata divisions (with a number of those being on rural / customary land).
Section 7(3) of the Act provides that the regulations may specify other parcels of land that may be divided by registration of a strata scheme. We would comment that to give this power to the Minister (rather than having to be addressed by way of legislative amendment) places a somewhat large burden on the Minister to “get it right”.
We make this comment with the background knowledge we have of a number of issues and disputes which have arisen for rural strata title developments in Vanuatu – from chronic surveying errors, deficiencies in the legislation concerning custom owner consents, and in particular “off the plan” sales into Asia and secondary and tertiary dealings with those lots without any foreign investment control or landowner consents/benefits from capital gain.
The Commissioner of Lands has noted that this provision makes it easier strata title to be extended for specific parcels of land extended in the future without having to go back to Parliament. If, at some point in the future, there is overwhelming demand to extend strata to other areas, the regulators can perhaps look at legislative amendments to, for example, allow strata on all registered land in the country.
Management of strata schemes
The Act sets out the duties and obligations of strata scheme managers, imposing a fiduciary obligation on managers (as well as developers), expressly imposing on managers a duty to disclose any conflicts of interest, and requiring strata scheme managers to maintain professional indemnity insurance.
Given the issues we have seen with strata management across the region, enshrining these requirements in the Act is important to help ensure that strata corporations are not exposed to mismanagement.
Foreign Investment Issues
One of the more emotional issues that we have encountered in Fiji, Vanuatu and PNG is the position regarding the sale of strata type lots (or company title styled lots) to foreigners. We have found universally that land developments of this type have ended up as land spruiking opportunities for foreign investors, and the original intent of the legislation to help develop a middle-class property-owning demographic is lost.
We have seen many instances where the sale of a ‘lot’ to a company owned by a foreigner subsequently on-sells its parcel with either no or little regard for the local law regulation/compliance requirements. This has been a cause for some angst, particularly where developments occur in a heavily concentrated zone and many of the lots remain unoccupied (this isn’t obviously just a Pacific phenomenon – Sydney is a good example of this as well).
Interestingly in all the time that Vanuatu has had strata title legislation there has only been 168 strata plans registered and we understand that more than half of those are not “operative”, and a large part of the residue have survey/management/landowner issues. Conversely, there is a lot of building activity and interest in urban strata developments in Honiara, and we certainly hope this trend continues.
The history of strata title in the Pacific, notably in Vanuatu, has been fraught with difficulties. It is important for any new scheme in Solomon Islands to deal with and address the need for proper strata management businesses, the provision of essential services for all lots (in whatever type of sub-division is proposed) and the protection of the rights of all lot owners concerning access to and maintenance of common areas.
As a general comment, our view is that the Act is a robust and comprehensive piece of legislation, comparing favourably to its Melanesian neighbours, and it includes mechanisms that address a number of shortcomings that other jurisdictions have experienced.
We think that this regulatory framework will encourage investor confidence in the regime on the one hand while at the same time, protecting the interests of individual lot owners. The Act should lead to more affordable residential homes, as well as the development of large-scale strata scheme projects by developers, provided of course that the supporting infrastructure is in place.