1 Chapter 11 Property and securities: Concepts of ownership Copyright © Nelson Australia Pty Ltd 2003

2 Outline 1.Property 2.Trusts 3.Real property 4.Personal property 5.Intellectual property 6.Property as security 7.Securities over personal property 8.Securities over land 9.Commercial securities

The concept and meaning of property

4 What is property? Blackstone – ‘The right of property is that sole and despotic dominion which one man claims and exercises over the external things of the world, in total exclusion of the right of any other individual in the universe.’ Anything capable of being owned exclusively, including rights in or over other property

5 Types of property

6 Real and personal property Real property – Ownership rights in land Personal property – Ownership rights in other things capable of being possessed, either tangible or intangible

7 Legal and equitable interests Legal interests – Property interests recognised by the common law Equitable interests – Property interests protected by equity; equity will intervene to prevent a legal owner acting so as to deprive others of interests in the property to which they are entitled.

Trusts

9 What is a trust? A device that allows legal ownership and equitable ownership to be separated Legal ownership vests in a trustee who holds the property for the benefit of the equitable owner, the beneficiary. Why are they used? Wealth management Tax minimisation Property protection

10 Elements of a trust Settlor – One who creates the trust Trustee – Legal owner of the trust property; must act for the benefit of the beneficiary under the terms of the trust Trust property – The subject matter of the trust Beneficiary – The person for whose benefit the trust was created

11 Duties of the trustee To act in accordance with the terms of the trust To preserve the trust property To refrain from dealing with the trust property for the benefit of the trustee To ensure that its personal interests do not come into any position of conflict with its duty

12 Classification of trusts Express trust – A trust clearly expressed, usually in writing (and often in a will), by its creator Resulting trust – When a trust fails, the trustee holds the property under a resulting trust in favour of the settlor Constructive trust – A trust created by the court in the interests of justice

13 Fixed and discretionary trusts Fixed trusts – The interests of the beneficiaries are pre-determined, e.g. a unit trust. Discretionary trusts –The trustee has a discretion regarding the distributions of income and property, e.g. income splitting.

Real property

15 What is real property? Ownership, possession or other interest in land

16 What is land? Everything under it to the centre of the earth, everything above it to the heavens and everything affixed to it? The Crown usually reserves to itself rights in minerals under the ground. Interest in land only extends to such height as is necessary for the ordinary use and enjoyment of the land and the structures upon it.

17 Fixtures That which is fixed to the land becomes part of the land, e.g. buildings and things fixed to buildings. Is it a fixture? Yes, if the person who affixed it intended it to become a permanent part of the land. In determining intention, take into account: the ease of removal the damage caused by removal.

18 Fixtures Tenant’s fixtures may be removed before the end of the tenancy as long as the removal does not damage the building.

19 Freehold estates Life tenancy – Owner owns land for life only, but loses it upon death Tenancy in remainder – The interest of the person who receives the property after the death of the life tenant Tenancy in fee simple – Virtually absolute ownership

20 Co-ownership Joint tenancy – Ownership is shared equally; there is a ‘right of survivorship’. Tenancy in common – Ownership may be held in varying proportions; there is no right of survivorship.

21 Dealing with real property A contract for the sale of real property must be in writing, otherwise it is not enforceable. Under common law, a seller of land proves ownership by tracing a ‘good root of title’. Under the Torrens System of title, the government issues a certificate of title which is conclusive evidence of ownership, and maintains a register of all interests in the land; a registered proprietor has indefeasibility of title.

22 Strata title Strata title legislation creates title in blocks of airspace above the surface of the land, making it possible to create separate ownership of units in a multi-storey building. The legislation also creates a body corporate (consisting of the various owners) to own and control common property.

23 Other interests in land Lease – A possessory interest in land vested in a tenant in return for rent Licence – Permission to enter and remain on land Profit a prendre – Permission to enter upon land and take something from it Easement – Right granted over land to enable better use of other land Restrictive covenant – Prevents the owner from doing something with their land

Personal property

25 What is personal property? Whatever is not real property is personal property. Usually divided into: choses in possession choses in action

26 Choses in possession Physical things, e.g. cars, timber, books, furniture, etc. Ownership may be: Absolute – A right to ownership superior to any other Possessory – A right to ownership arising from mere possession, and subject to being overridden by the absolute owner but otherwise good title CASE: National Crime Authority v Flack (1998)

27 Choses in action Intangible things, e.g. copyright, shares, insurance policies, debts Can only be claimed or enforced by legal action, not by taking physical possession

28 Dealing with personal property Choses in possession can be transferred by: sale gift deed will. A transfer of a chose in action must be: absolute signed by the assignor notified to the person responsible for performance (e.g. debtor).

29 Sale of personal property The time at which ownership passes is important because from that time: the buyer can exercise rights of ownership risk in the goods passes to the buyer. The Sale of Goods Act (SGA) contains a set of default rules which determine when ownership passes. A Romalpa clause may provide that ownership does not pass until the seller is paid in full.

30 The nemo dat rule No person can pass a better title than that person possesses. Example: The sale of a car by a thief

31 The nemo dat rule Exceptions to the rule include where the seller: is acting with the owner’s authority or consent is a mercantile agent is exercising a power of sale has a voidable title is a seller in possession after another sale is a buyer in possession after another sale.

32 Buyer’s remedies If the seller breaches the contract by non- delivery, delayed delivery or defective goods, the buyer has a right: to damages to repudiate the contract if the seller breached a condition of the contract.

33 Buyer’s remedies The right to repudiate is lost if the buyer has accepted the goods by: intimating to the seller that the goods are accepted, or doing an act inconsistent with the seller’s ownership, or retaining the goods for a reasonable period without rejecting them.

34 Seller’s remedies Personal remedies include: action for damages for non-acceptance action for the price. Real remedies include: lien stoppage in transitu right of resale.

35 Bailment Arises where one person (the bailee) takes possession of the goods of another (the bailor) but does not assume ownership Examples: Leaving your computer with a repairer Storing your goods in a warehouse Leaving your car in a car park Leaving your coat at a restaurant

36 Bailment The duties of a bailee, if not specified in a contract, include: the duty to retain possession of the goods during the bailment and to care for them the duty to return the goods upon expiration of the bailment.

37 Liens The right of a person in possession of property to maintain that possession against the owner until the owner has satisfied any outstanding claims

Intellectual property

39 What is intellectual property? A variety of rights conferred by law for the protection of creative effort and the economic investment that underlies it

40 Types of intellectual property

Property as security

42 The nature of security The general concept of security involves a transaction whereby a person to whom an obligation is owed by another person, called the debtor, is afforded, in addition to the personal promise of the debtor to discharge the obligation, rights exercisable against some property of the debtor in order to enforce discharge of the obligation. Frequently when a person lends money or money’s worth to another, he or she is disinclined to accept nothing more than the often flimsy word of the debtor, and demands that certain property be placed in such a position that it can be made available to him or her on default by the debtor.’ Sykes, The Law of Securities, 1962

43 Types of security Mortgage Charge Possessory lien Non-possessory lien Pledge

Securities over personal property

45 Securities over personal property Each State has enacted legislation enabling registration of securities over personal property. Each State has a public record of such securities searchable by any member of the public. Each State has also passed legislation establishing registers to record ownership and financial interests in motor vehicles.

Securities over land

47 Securities over land Security over land is called a mortgage, the owner is the mortgagor and the creditor is the mortgagee. Real property legislation in each State requires registration of a mortgage on the register of land titles.

Corporate securities

49 Corporate securities The Corporations Act 2001 provides for registration of charges given by a company over its assets.