3. Future Trajectories of Land Law

Land law focuses on creating interests in and over land and protecting and enforcing property interests. However, to date it has generally not been concerned with creating obligations towards, or even encouraging, sustainable land use practices. While environmental and planning laws have stepped in to the gap left by land law, these laws still fall short in adequately addressing the climate crisis, and further amendments will be required. As the pressures of mitigating climate change and adapting to its impacts increases, further changes to property and environmental and planning laws will be needed to accommodate more stringent regulation of property rights and land use. While the future trajectories for land law are unknown, there are areas where development of new regulatory frameworks seem imminent, including:

• risk of climate change to security interests;
• disclosure of climate risk upon sale of land; and
• managed retreat from land at significant risk of climate damage.

3.1 Mortgagee Risk

In a mortgage transaction, an owner of a fee simple estate (the mortgagor) borrows money from a bank or other lender (the mortgagee). In doing so, the mortgagor not only promises to repay the debt but also grants the mortgagee an interest in the land. This interest entitles the mortgagee, in the event of a default (when the mortgagor does not repay the debt as promised), to take possession of the land or sell it to recover the outstanding debt. The parties’ relationship is illustrated in Figure 6.

The rights and obligations of the parties arise from common law, equity and statutes, including land registration statutes and the National Credit Code (which applies to mortgages granted by individuals for domestic purposes). While each jurisdiction has its own formulation, fundamental obligations owed by a mortgagor to a mortgagee commonly include the duty to keep the land insured against loss or damage, and the duty to preserve the land in its current state. These obligations operate in the mortgagee’s favour, safeguarding the value of land and ensuring that it does not fall below the level needed to recover the debt if the mortgagor defaults on repayment. Against this background, mortgagors and mortgagees have reason to be concerned about climate change in two respects.

First, in relation to climate change mitigation, mortgagees are increasingly subject to pressure from their shareholders to cease financing emissions-intensive activities such as mining and fossil fuel energy generation, particularly considering corporate mitigation targets and net-zero commitments (see Climate Change and Company Law). As a result, mortgagees are likely to influence land use choices by declining to finance GHG-intensive developments, or by imposing increasing climate related requirements on mortgagors, such as the preparation and implementation of emissions reduction plans.^[1]

Second, mortgagees face both direct and indirect financial risks arising from the physical impacts of climate change on land. Direct financial risk occurs where the secured land is physically damaged or destroyed by climate related events. Indirect risk arises where land is perceived to be vulnerable to such impacts, even if no physical damage has yet occurred. In both situations, the value of land may decline — either due to market perceptions of risk or because of government-imposed restrictions on certain land uses.

As these actual and perceived risks increase, insuring land against loss or damage becomes more difficult. In some areas affected by natural disasters, insurers have begun refusing to provide coverage altogether or have raised premiums to levels that landowners can no longer afford. This shift in insurance availability and cost has heightened mortgagees’ concern that greater financial risk will be transferred onto them as more land becomes vulnerable to climate related damage or destruction. Looking ahead, land law will need to adapt to this context to address how the burden of managing climate related risks — particularly in relation to insuring land against loss and damage — is allocated between mortgagor and mortgagee.

3.2 Disclosure of Climate Risks Upon Sale of Land

One of the most common transactions handled by property lawyers is the sale of land from one person (the vendor) to another (the purchaser). In such a transaction, a fee simple estate in land is transferred through a process known as conveyancing. Conveyancing includes tasks such as negotiating and drafting contracts for the sale and purchase of land, completing due diligence on land and title issues, and completing documentation necessary to register the purchaser as the proprietor of the relevant property interest. While Figure 7 shows the process of traditional Torrens conveyancing, the process has been largely moved online through e-conveyancing platforms such as PEXA and Sympli with small (but notable) changes shown in Figure 8.

In Australia, the purchase and sale of land is subject to strict consumer protection legislation. In some jurisdictions, this legislation requires the vendor to disclose certain information about the land to prospective purchasers at the time of sale. For example, under Sale of Land Act 1962 (Vic) s 32, a vendor must provide a vendor’s statement to the purchaser before entering a contract of sale. This statement must disclose matters such as financial outgoings (including land tax and council rates), notices and other matters affecting the land, building permits, owners corporation or strata arrangements, connected utility services, and evidence of title. Much of this information is obtained from searches of government databases.

Some of the information disclosed in a vendor’s statement is relevant to climate change, including whether (1) the land is in a flood or bushfire zone; (2) planning laws apply to the land and whether its current uses comply with zoning or overlay requirements; and (3) buildings on the land comply with building regulations. Law societies, such as the Law Society of New South Wales, have already issued guidance to practitioners on the types of risks climate change may present in property transactions. In future, statutory disclosure requirements could be expanded to require information about the specific climate related risks affecting the land.

3.3 Managed Retreat / Buyback of Land

As discussed above in the context of solar or rolling easements, environmental and planning law regulations can do a lot to permit or restrict certain uses of land in specific locations to manage risks posed by climate change. However, there may come a time where a more strategic approach needs to move people and their associated assets (houses, commercial premises, public buildings and infrastructure) out of harm’s way.^[4]

Leading Australian environmental lawyer Jan McDonald has observed that:

there is considerable anecdotal evidence in Australia that local authorities in coastal regions have avoided or delayed the introduction of retreat policies in their planning schemes because they cannot afford compensation claims brought by property owners complaining of lost development rights and lower property values.^[5]

Planned retreat is widely recognised as both a political and financial challenge, due largely to the scale of Australia’s population living on and near coasts and waterways. However, inaction also carries significant legal and economic risks. By continuing to approve residential and commercial developments in vulnerable coastal and riparian zones, governments expose themselves to liability and broader economic losses, many of which are uninsurable.

Planned or managed retreat on such a large scale is unlikely to be carried out by regulating land use alone. Instead, managed retreat might require the State to take back property rights granted to private citizens that allow use of land in the first place. In Australia, private property is protected by both Commonwealth and state constitutions, as well as by statute. While the State may legally take private property, it must be taken for specific purposes (eg a public purpose) and only upon providing compensation. In the future, land law may need to be developed to give effect to managed retreat through taking of property rights.