Avoiding Conveyancing Traps

Avoiding Conveyancing Traps

Conveyancing is the process involving the transfer of legal title of real estate from one person to another. The conveyancing process is designed to ensure that the buyer obtains good and marketable title to the property together with all the rights that run with the property and is notified of any restrictions or rights in advance of their purchase.

For most people, buying a property is the most significant transaction they will enter into in their lifetime, both from an emotional and financial point of view. There can be significant consequences if it is not done properly.

Why do searches and enquiries?

When buying a property, there are some statutory obligations on the seller to make certain disclosures to the buyer about the property before the contract is signed.

However, there is no obligation on the seller to tell you everything about the defects in a property and many enquiries about the property are not done until after the contract is signed or becomes unconditional.

The onus is on the buyer to undertake searches and enquiries to satisfy itself in relation to the property. The old saying caveat emptor, or, “Buyer Beware” applies as the contract may not protect against adverse search results in all circumstances. Searches will help you to find out if the property is affected by any current or known future plans or licenses issued by government which affect the property directly such as by inclusion on any heritage listing or environmental management registers.

Mortgages or encumbrances registered on title

A review of the searches attached to the contract is necessary to confirm that the seller actually owns the property and has the right to sell it to you.

Searches will also provide information about any encumbrances on the title.

Examples include:

  • Mortgages registered against the property: mortgages must be removed from the title before settlement.
  • Easements to the local council or utility company who may have the right to use a portion of your property (possibly above or below ground) for things such as sewage, electricity, telephones or gas.
  • Restrictive covenants which affect how the property can be used: for example, a neighbourhood may have building size and design requirements.

Special Conditions – avoiding conveyancing traps

Your lawyer can include special conditions in the contract, before it is signed, to deal with specific issues not covered by the standard form contract, which may arise from searches or the property that you are purchasing.

A special condition can provide a buyer with additional protection or rights in relation to adverse search results. For example the contract could be made subject to satisfactory searches, work to be completed or can oblige the seller to compensate the buyer as a result of adverse search results.

Where the contract has already been signed there is generally no opportunity to add special conditions. In some limited circumstances it may be possible to negotiate amendments to the terms of the contract if there is a cooling off period or while the contract is still conditional.

Examples of useful special conditions

If a buyer signs a standard contract unaware of building or pest issues with the property there may be no protection if you subsequently find out that, for example, the foundations are sinking or the property is infested with termites. If a building and pest inspection has been carried out before the contract is entered into and problems are discovered then there may be a possibility of addressing those problems in the contract.

If you are buying a property that requires repairs or maintenance then you may wish to make the settlement conditional upon the completion of specified work and a satisfactory inspection before you are ready to settle the purchase.

If there is a special condition in the contract a buyer may be able to delay or refuse to settle if the issues are not rectified.

Get legal advice

We can help you navigate the process to ensure that you are able to obtain good title on any prospective property and that there are no unknown restrictions on the property before you buy. If you need assistance with a conveyancing matter (either buying or selling) or would like more information please call us on (02) 9963 9800 or via our contact form.

Sunset Clause for off-the-Plan Purchases

Sunset Clause for off-the-Plan Purchases

When you purchase off-the-plan you are buying an apartment before it is built. Off-the-plan properties come with significant risks that you should consider before committing to buy. One of these risks is the sunset clause.

Off-the-plan contracts specify the time by which the project must be completed. This is called the sunset clause or sunset date. If the project is not completed by the sunset date, the contract can be rescinded and your deposit returned to you. In the event of delays outside of the developers’ control – such as weather conditions, strikes and issues with council – the sunset clause can be extended.

What is the Purpose of a Sunset Clause?

A sunset clause provides a timeframe for when the project must be completed. The ability to extend the sunset clause provides developers with more time to deal with any issue that arises beyond their control. As a result, off-the-plan contracts are usually completed before the sunset clause.

What are the Risks of a Sunset Clause?

As the sunset date is typically a few years after the exchange of contracts, the price of the property is locked in. This is irrespective of any changes in the market. This means that if you buy a property for $300,000, by the time of completion it could be worth $500,000 due to an increase in property values. Upon completion, you could end up with a property worth much more than you paid for.

Although this can be a good thing, it presents a risk of developers getting greedy. Developers need your initial deposit for loan approval and to start construction, but once complete they know they can sell the apartment for a higher price than originally agreed upon some developers try to rescind (cancel) contracts, return your deposit and then re-sell the apartment at current market prices. While this is uncommon there are still come instances of this occurring. Effectively, they have taken advantage of you as property values rise.

Legislation on Sunset Clauses

This issue has led to new legislative changes for sunset clauses. Now, a developer that wants to rescind your contract on the sunset clause must have your permission to do so. This means that developers need to provide an explanation for why they are seeking rescission. They need to specify why completion of the project cannot be fulfilled as per the sunset clause.

If you do not agree with the developer’s reasons the developer must obtain an order from the Supreme Court to rescind the contract. This precaution is designed to protect you when buying an off-the-plan property.

Seek legal advice

If you are interested in purchasing an off-the-plan property it is important that you seek the advice of a solicitor. We can advise you of your rights and obligations and the protection provided to you. This is by the contract itself and the law. Please contact Etheringtons Solicitors if you have any questions by using the contact form or calling us on (02) 9963 9800.

Swimming Pool Registration

Swimming Pool Registration

Homeowners are required to attach a certificate of compliance or non-compliance to the Contract of Sale when they sell their property. The owner of a property must register their swimming pool and/or spa on the NSW Swimming Pool Register. In this blog we review how to register a swimming pool and what the requirements are.

How Do You Register a Swimming Pool?

Swimming pool registration is a straightforward process. It is performed online using the NSW Swimming Pool Register website. A Registration Certificate is obtained after entering the required details about the pool or spa.

How Do You Obtain a Certificate of Compliance?

You can seek a Certificate of Compliance from either a private certifier or from their local council. This involves the certifier or local authority inspecting the barrier around a pool or spa. They are checking that it is compliant with the legislative regulations. If it is compliant, you will receive a Certificate of Compliance which is valid for three years. If you are selling the property or leasing it out, you will need the certificates. The Registration Certificate and the Certificate of Compliance must be attached to the sale Contract or to the Residential Tenancy Agreement. This does not apply to strata properties (with more than two lots), or in a community scheme.

What Is a Certificate of Non-Compliance?

If the pool or spa does not follow to the regulations, the certifier or local authority will provide a Certificate of Non-Compliance. They will also provide a written notice on why it is non-compliant and the steps that can be taken to ensure conformity. A Certificate of Non-Compliance can be attached to a Contract for Sale or Residential Tenancy Agreement in lieu of a Certificate of Compliance. It can only be attached if the notice received by the inspector does not deem the pool to be a hazard to public safety. If it is deemed to be a hazard the seller will have to rectify the problem.

If a Certificate of Non-Compliance is attached the responsibility will transfer to the Purchaser. They will become responsible for bringing the pool or spa into compliance within 90 days after settlement. Unlike the Certificate of Compliance, the Certificate of Non-Compliance is only valid for one (1) year; if it lapses the owner will have to apply for a new certificate.

Purchasing a Property with a Swimming Pool

When purchasing a property with a swimming pool it is important for your solicitor to check the compliance status of the swimming pool. They can check if the swimming pool registration is missing, or the pool is non-compliant. Your solicitor will do this by requesting the notice provided by the certifier or the council from the seller’s solicitor. This can be useful in negotiating the price of the property, and it will let you know what steps you need to perform post-settlement, on bringing the pool into compliance.

Seek Legal Advice

Should you require any assistance in relation to swimming pool registration or compliance, get in touch with our expert team by calling us on (02) 9963 9800 or via our contact page.

 

Understanding a Commercial Lease

Understanding a Commercial Lease

When renting a property from which you intend to run a business, it is important for both Landlords and Tenants to understand the relationship they are entering into and the rights and obligations that they each have. The document that governs this relationship is usually a Commercial Lease.

So, what is a Commercial Lease?

A lease is a legally binding contract that gives you certain rights to a property for a set term. A commercial lease is used when leasing property that is used primarily for a business.

You should never sign a lease without understanding all of its terms and conditions. If you don’t understand what you are agreeing to you could experience serious financial and legal problems.

It’s important to properly investigate the property and lease document before you sign. It is a good idea to ask your lawyer to explain each clause of the lease to you. Your lawyer can give you legal advice, draft new clauses and help you negotiate the terms and conditions to suit you.

Important issues to consider when entering into a lease

A commercial lease will usually contain terms dealing with items such as:

Rent: How much is the rent and when is it due? The amount of the rent will usually be calculated based on the area of the premises. This may not always be as simple as it sounds. For example, if the shape of the property is irregular or the area includes a lift, more than one floor, outdoor area or interior walls.

Rent Increases: Rent will usually increase annually during the term of the lease, with increases determined by a fixed percentage, market based values or tied to the CPI. It is common for CPI or fixed reviews to occur during the term of a lease and for a market review to occur at the expiry of the initial term and each option period.

Security Deposit: The landlord will usually ask for some form of security from the tenant in case the tenant defaults on their obligations (eg. not paying rent). The security is usually for an amount equal to 3-6months’ rent and is by way of bank guarantee or security deposit. If the tenant is a company then personal guarantees from the company’s directors may also be required. The lease should also specify the terms regarding its return.

Term of the lease: The lease should set out the length of the lease and any options to renew the lease and any terms relating to the renewal. A landlord will generally want a longer initial lease term (typically 3, 5 or 10 years) whereas the tenant is likely to want a shorter period (1-3 years).

Option to Renew: An option allows the tenant to continue leasing the property on similar terms at the end of the period of the lease for a further defined period and rent (subject to any review). An option gives the landlord potential greater security of income and the tenant the ability to make longer term plans for their business.

Knowing the procedure for exercising the option, especially when the option can be exercised, is critically important

Improvements: A lease should address what improvements or modifications can be made to the property, who will pay for the improvements and whether the tenant is responsible for returning the property to its original condition at the end of the lease.

Description of the property: The lease should clearly describe all of the property being leased, including bathrooms, common areas, kitchen area and parking spots. A plan of the property should also be included.

Signage: Any restrictions on putting up signs, say that are visible from the street, will be included in the lease. Also, check local zoning regulations to determine what other limitations may apply.

Use of the property: Most leases will include a clause defining what the tenant can do on the property (eg. What type of business). A tenant should ask for a broad usage clause just in case the business expands into other activities. Ask your local council if your business can operate in your desired location. Also consider the council’s development plans for the area.

Outgoings: The lease will set out who is responsible for costs like utilities, property rates & taxes, insurance, and repairs.

Insurance: You should contact your insurance company and discuss the clauses referring to insurance so you fully understand what is covered by the lease.

Exclusivity clause: This is an important clause for retail businesses renting space in a commercial complex. An exclusivity clause will prevent a landlord from renting space to a competitor.

Assignment and subletting: A tenant should maintain the right to assign the lease or sublet the space to another tenant. Usually the tenant is still ultimately responsible for paying the rent if the business fails or relocates, but with an assignment or sublet clause in place, the business can find someone else to cover the rent.

Maintenance & Repair: The lease should clearly set out who is responsible for maintaining or repairing the property and the fixtures and fittings during the term of the lease.

Make Good: A tenant should carefully review the make good obligations in the lease.  Often these can be onerous and involve considerable expense on the tenant having to reinstate the premises to their original condition when the lease commenced.

Termination: The circumstances under which the lease will be terminated should be set out in detail in the lease.

Costs: The landlord may want the tenant to pay the costs of preparing the lease, this should be clearly set out in the lease.

Retail lease or general commercial lease?

The Retail Leases Act 1994 has specific legislation relating to retail leases. This legislation is designed to promote fair leasing arrangements, improve communication and provide access to low cost dispute resolution for the retail industry.

For a new retail lease the landlord is legally required to give the tenant:

  • a written lease with matters agreed to and signed off by both parties.
  • a disclosure statement.
  • the NSW Retail Tenants Guide, which gives notice of some of the tenants’ rights and obligations and some commercial matters that the tenant should be aware of.

The disclosure statement outlines important information about the lease, it must be in the prescribed form and contain a statement notifying the tenant that independent legal advice should be obtained. It would also normally include details about:

  • the term of the lease
  • whether there are options for further terms
  • the occupancy costs for leasing the premises (including rent and any outgoings)
  • specific information for shopping centre leases
  • tenant’s fit out requirements
  • if there are any relocation or demolition clauses

Conclusion

Although many of the terms of a commercial lease are fairly standard it is important that you fully understand your rights and obligations, especially the provisions which relate to retail leasing.

It is a good idea to ask your lawyer to explain what each clause in the lease means and to get their assistance in negotiating the terms and conditions that suit you.

If you or someone you know wants more information or needs help or advice, please contact us on (02) 9963 9800 or via our contact form here.

The financial risk in giving personal guarantees in leases

The financial risk in giving personal guarantees in leases

If you are a director of a company entering a commercial or retail lease, a landlord will likely require you to give a personal guarantee for the company’s obligations under the lease. In such cases, directors should fully comprehend the extent of the guarantee they are providing and obtain appropriate legal advice to minimise financial exposure.

There are two court cases that are dire reminders of the risk that a director takes when guaranteeing the performance of a company’s obligations.

In Lin v Solomon [2017] NSWCA 328 the landlords were entitled to recover personally from the guarantor, after the lessee company defaulted under the lease. The landlords, who owned the CircaRetail Shopping Centre at Bella Vista, were awarded damages comprising unpaid rent, outgoings, contributions to the retail centre’s promotional levy and GST.

The guarantor claimed that he was ‘induced to enter into the guarantee of the lease by misleading and deceptive representations’ made by the leasing agent. The alleged misrepresentations were that the leased premises, comprising a newsagency, would soon attract increased foot traffic due to the predicted employment of some 1,500 people at a nearby site.

The Court found the misrepresentations as pleaded were not established and, in any event, there would have been no reliance on such representations as the guarantor was an experienced newsagent. In fact, apart from paying a deposit and providing a bank guarantee, the lessee company failed to make any lease payments or outgoings under the five-year lease which commenced in May 2009 and was terminated by re-entry by the lessors in December 2012.

The primary decision was upheld on appeal and the guarantor was ordered to pay the respondents the sum of $602,178.35 plus interest and costs

Incidental to the issue of the misrepresentation, but significant to the appeal, was the appellant’s allegations that the primary judge had not been impartial and should be recused from the case. The appellant was also unsuccessful on this point.

In NB2 Pty Ltd v P.T. Ltd [2018] NSWCA 10 the lessee / appellant challenged the primary judge’s decision to award payment of damages to the landlord / respondent after the lessee company breached the lease.

The lessee had entered a ten-year lease for a fruit and vegetable shop at Westfield Shopping Centre, Miranda. After defaulting in paying rent, the lease was terminated by the landlord which then sued the lessee company and the guarantors under the lease.

In the primary hearing, the appellant claimed that it had been misled by the landlord during negotiations after expiry of its previous lease, when it promised the lessee exclusivity as the ‘sole independent speciality fruit and vegetable retailer’ within a defined area at the centre. Subsequently, nearby Franklins re-opened its refurbished premises selling fresh fruit and vegetables, which detrimentally affected the lessee’s turnover.

The alleged misrepresentations were not made out. The Court considered that the expression ‘sole independent fruit and vegetable retailer’ did not constitute retailers such as Franklins as it was not a ‘specialty retailer’.

The primary judge entered judgment in favour of the landlords for $3,537,040.50 against the two directors of the lessee company. This was upheld on appeal and the appellants were ordered to pay the respondent’s costs.

Joint and several liability

As many companies have more than one director, both or all directors are usually required to guarantee the company’s performance of a contract with a third party. In such cases, it is important to understand that the third party will be able to call upon either one or all of the joint guarantors for the outstanding liabilities of the company.

The third party need not exhaust all options to recover the debt against the company and will usually pursue the director/s in the most favourable financial position.

Directors who give guarantees should seek legal advice regarding appropriate asset management to safeguard personal assets.

Conclusion

A guarantor is at considerable risk of personal exposure if the company is unable to meet its responsibilities under a contract, and in such cases may face financial disaster.

Personal guarantees for lessee companies can seldom be avoided. However, the risk for guarantors may be minimised by paying a higher bond or arranging a bank guarantee in exchange for limiting the guarantor’s financial exposure.

Companies and their directors are advised to obtain legal assistance before entering a leasing arrangement and independent advice regarding the extent of their personal obligations under a guarantee arrangement.

It’s easy to let the prospect of a new venture curtail a comprehensive review of the terms of a lease, however these cases provide thoughtful insight into the importance of treading carefully when it comes to guarantees.

If you or someone you know wants more information or needs help or advice, please contact us on (02) 9963 9800 or via our contact form here.

The Pitfalls of Release of Deposit Clauses

The Pitfalls of Release of Deposit Clauses

The usual procedure in contracts for sale of land

The usual procedure on the exchange of Contracts for a property, the Purchaser gives to the Vendor’s agent the cheque for the deposit. The deposit is consideration given by the Purchaser to the Vendor and it is what makes the contract valid. The amount can vary, but is usually 10% of the purchase price. This is usually held in the trust account of the Vendor’s selling agent, or in some cases by the Vendor’s solicitor. On settlement, the Purchaser’s Solicitor sends an order to the selling agent (via the Vendor’s solicitor) to authorising the release of the deposit to the vendor. The selling agents will deduct their commission from the deposit and the balance is released to the vendor.

Release of Deposit Clauses

A release of deposit clause is sometimes requested before the contracts exchange. This clause allows for the Vendor to have access to the deposit funds before completion. This is usually requested because the Vendor wants access to the funds to use in their own property purchase. The funds can be used to either pay for stamp duty or to pay for the deposit on a property the Vendor is purchasing. The funds may also be requested if the Vendor needs it released simultaneously with settlement because the mortgage balance on discharge is higher than the balance payable on settlement. On some occasions, the estate agent will ask the Vendor to request it, so they are able to get their commission quickly.

The release of deposit clauses are heavily cautioned by the Law Society. The reason why the release of deposit clause is discouraged is because it can become difficult to recover if the Contract falls over because of the actions of the Vendor. The recovery can have significant legal costs involved. Some of the situations which can occur where it may be difficult to recover the deposit are if the Vendor dies, or they go bankrupt, or an order affecting the Vendor due to a Family Court order.

It is important to seek the advice of a solicitor about these issues if you are going to purchase a property. If you would like more information on how we can assist you with your matter, do not hesitate to contact us on 9963 9800 or at [email protected]