Mortgages and Redevelopments

What constitutes a redevelopment under the Unit Titles Act 2010 (the Act) is set out in section 8 of the Act.

Briefly, a redevelopment includes:

  1. the subdivision of a unit or units, or a unit or units and the whole or part of the common property into two or more new units;
  2. the enlargement of a unit by including part of another unit or part of the common property;
  3. the transfer into the common property of a unit or part of a unit; or
  4. the erection of 1 or more new units on the common property.

This article is specifically concerned with a redevelopment that is in the nature of (2) above, that is, where a unit is enlarged by adding part of another unit or part of the common property.

The scenario
When an existing unit is to be enlarged by adding part of another unit or common property, the redevelopment shall be completed respectively under sections 65-67 or sections 68-71 of the Act.

In either case the surveyor will prepare a unit plan that shows the boundaries of the enlarged unit [s 66(a) and s 69(1)(a)] and the enlarged unit must be marked with letters or numbers not already used on the unit plan [s 66(b) and s 69(1)(b)].

Mortgages and redevelopments diagram


Though the redevelopment plan number is the same as that already deposited, the enlarged unit on the redevelopment plan is dimensionally a different unit to that shown on the existing plan. The enlarged unit will have a new legal description and new dimensions/boundaries.

The problem
Thought should be given to the impact of the redevelopment on any mortgage of the existing unit.

Bearing in mind that the enlarged unit is a different unit to the existing unit (both dimensionally and by legal description), if the mortgage were not otherwise dealt with, it would be brought forward onto the enlarged unit as to part only (the “part” being the (former) existing unit). There is no authority in the Act for the RGL to automatically extend the mortgage over the full extent of enlarged unit.

The primary problem is the impact on the mortgagee’s power of sale. If the mortgagee took steps to exercise its power of sale, the mortgagee would be unable to transfer the whole of the enlarged unit to a third party as the mortgage would only affect the part that was the former existing unit.

Also it is not possible to transfer an undefined part of a unit.

The mortgagee would be unable to give title to either part or the whole of the unit.

The solution
If a mortgage over the enlarged unit is required the simplest option would be to discharge the mortgage as to the existing unit (lodged in front of the application to deposit the redevelopment plan but in the same dealing) and lodge a new mortgage as to the enlarged unit.

This will ensure that the mortgage is properly secured.