May 15, 2022 | Property Law
The usual procedure in contracts for sale of land
During the usual procedure for 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 typically 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 authorise 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 to be 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.
Get Legal Advice
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 message us here.
May 14, 2022 | Property Law
Disclaimer: Since the publishing of this article, the New South Wales State Government has announced a 20 year plan to replace stamp duty with a property land tax. Please use caution if you are citing legislative material from this article as laws are subject to change. We recommend that you seek the most up-to-date law.
Avoiding the Hidden Costs of Buying a House
Buying a property in Sydney is expensive enough as it is – don’t leave yourself open to the hidden costs of buying a house. Here are 5 issues you should consider before purchasing a property, to avoid unexpected costs.
1. Capital Gains Tax
If you are purchasing an investment property, you should always be mindful of being liable for Capital Gains Tax (CGT). CGT applies when you sell your property, if you’ve rented it out.
If you rent out a property for a few years to help with the mortgage and then decide to move into the property, you should only be liable for CGT for the time the property was rented out. There is a CGT discount method, which means that by living in a property for 12 months, you can reduce your capital gains liability by 50%.
2. Stamp Duty
Stamp duty is a levy charged on the transfer of land in New South Wales. It needs to be paid before the completion of the contract can occur. The amount is based on the purchase price of the property, and payable within three months of the contract date (the date of exchange). There is an exception for off-the-plan properties, whereby it can be delayed by twelve months.
Stamp duty can be a large sum and it is important that you factor in this amount when purchasing a property.
3. Organising Your Finances
Once you have exchanged contracts (both you and the seller have signed) you will be bound to complete the contract on or before settlement. You should liaise with your broker or receive some form of pre-approval from your financier before you purchase a property. If the preparation of the financial approval and the signing of the loan documents is left to the last minute, it can delay settlement. If you delay settlement you will become liable to penalty interest on the balance of the purchase price.
The seller may also be able to rescind the contract, meaning you will lose the property and your deposit. It is therefore vital that you liaise with your broker or financier to ensure that the finances will be ready in time for settlement.
4. Pest & Building Report
An informed purchaser is a good purchaser, which is why it is important to obtain a pest & building report from a reputable company. The report lists the issues and damage that is found on the property and the cost in repairing it. This is important for a purchaser as it will show the additional cost behind the purchase of the property — detailing pipes and cracked tiles that will need to be repaired, as well as any leakages or dampness around the property. It will also show if there is any evidence of termite or other insect damage to the property. Relying on a set of reports supplied by the selling agent can have its risks, that is why we recommend using an independent builder who has a reliable track record.
5. Survey Report
A survey report is useful for houses or vacant land. It shows the boundary of the property so you know if the neighbour’s fencing or structures encroach onto your property or vice versa. This can also be useful for a purchaser who will be building a structure on the property and will require council approval, as this is one of the important documents the council will need.
Consulting a Solicitor
These are some of the issues that can befall home buyers. It is important that a prospective purchaser speak to a solicitor who knows the process and can help the purchaser navigate these issues. To discuss your property matter, please contact Etheringtons Solicitors on 9963 9800 or via our contact form.
May 13, 2022 | Property Law
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 important 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.
In NB2 Pty Ltd v P.T. Ltd [2018] NSWCA 10 the lessee challenged the primary judge’s decision to award payment of damages to the landlord 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 the lessee failed to pay rent, the lease was terminated by the landlord who 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 regarding the extent of their personal obligations under this agreement.
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.
May 9, 2022 | Property Law
Strata title is a recent phenomenon, created with the introduction of legislation in 1961. Strata title now covers nearly all apartment blocks and unit properties. Prior to 1961, there was no strata title, and all these types of property were covered by company title. This is less common today and most units have converted to strata title (though company title still exists in certain places). Prospective purchasers often have an aversion to company title properties and steer clear of them. In reality, it is just another form of property title, alongside the widespread torrens title and strata title properties, although it has unique features.
What is Company Title?
Company title emerges when a company owns a unit complex. The usage of the individual units in the complex is granted by the purchase of shares in the company that owns the complex. An example would be a company that owns a unit complex that has four individual apartments. There are forty shares in the company and each owner purchases ten shares. Each owner purchasing ten shares is entitled to the use and enjoyment (but not ownership) of an apartment in the complex. It is important to re-emphasise here that the owner of the unit does not enjoy title that he/she would normally enjoy if it was a strata unit. Instead, they own a portion of the shares in the company and this allows them to use the property. The company itself has the title.
Advantages
An advantage of company title is that it is valued less than an equivalent strata unit. This is because there is reduced administration fees and the nature of the title brings the value of the property down.
There may be long term advantages with company title property, as it may be converted into strata title and increase the value of the property.
The possible restrictions on the use of the property may suit some purchasers. For example in some company title properties, rules could be imposed on shareholders to regulate security of the building matters.
Disadvantages
A disadvantage of company title is the possible restrictions on the use of the unit or apartment being purchased. As a company owns the complex, it is governed by a constitution or articles of association. This is unlike strata title, which is governed by legislation and by-laws. This means that it can be more restrictive and can limit what a potential purchaser can do. It is important for a prospective purchaser to review a company title constitution with a solicitor, so they are aware of what these restrictions will be.
Another disadvantage is the approval process that may be required to purchase the shares of the company. When purchasing a unit in company title, it is subjected to the approval of the Board of Directors. This means that while a prospective purchaser may have all the capital required to purchase a unit, it does not mean they will be able to purchase it. The approval process from the Board of Directors changes from company to company, and it is crucial for a purchaser to discuss this process with their solicitor, who will be able to advise them of the requirements.
Consulting a Solicitor
As seen above, people should not be turned off by a company title property. It is simply another form of property title with its own unique features. A potential purchaser should discuss with a solicitor whether this type of property is right for them. 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 via our contact page.
Apr 26, 2022 | Property Law
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 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, this may modify the amount of rent.
- Rent Increases: Rent will usually increase annually during the term of the lease, with increases determined by a fixed percentage, market based values or based on the Consumer Price I. 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 (e.g. not paying rent). The security is usually for an amount equal to 3-6 months’ rent and is by way of bank guarantee or security 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 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 areas and parking spots. A plan of the property should also be included.
- Signage: Any restrictions on putting up signs, such as those that are visible from the street, must be included in the It is also important to 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 (e.g. 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 such as utilities, property rates & taxes, insurance, and
- 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 An exclusivity clause will prevent your landlord from renting space to a competitor. If there is no exclusivity clause in the initial lease, this is something you should consider.
- 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 for a period.
- 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 make good clause sets out how a tenant should leave a property at the end of the lease term. A tenant should carefully review the make good obligations in the Often these can be onerous and involve considerable expense on the tenant, and they may impact your plans for the property.
- Termination: The circumstances under which the lease will be terminated should be set out in detail in the
- 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.
Apr 23, 2022 | Property Law
For a long time, the ‘Great Australian Dream’ has been to own property. It is usually the largest asset you will own and provides you with a sense of freedom. However, this could be more akin to a pipe dream for some people due to the huge price tags associated with home ownership. If this is you, you may think an off-the-Plan (“OTP”) property may be the alternative you are looking for. However, OTPs can carry some significant and inherent risks.
What Does Buying off-the-Plan Mean?
When you buy off-the-plan you commit to buying a property before it has been built. In general, prices are cheaper than buying an existing unit. One other benefit is that you will move into a brand new property. Most developers will have mock-up displays or presentations to show you what it will look like once built. However, you can’t be sure exactly what you’ll end up with.
Flexible Contracts
The interests of developers can be quite different to your interests as a buyer. Developers want as much freedom as possible in the terms and conditions of the contract. This is so they can make changes to the plans later. For example, their display model of the building might have parking allocated in a certain way. If this is not specified in the contract’s terms and conditions they can change this at a later date.
Restrictions of Use
Off-the-plan properties often come with restrictions on their appearance (covenants) and use (easements). For example, the external colours might be mandated and cannot be changed even after the property is completed. Make sure you check the contract for these restrictions.
Risk of Delays
When looking at buying off-the-plan you will be given an estimated time of completion. This could change due to unexpected circumstances. For example, suppliers could be out of stock or renting equipment delayed. Prepare for delays; make sure you have somewhere to live until your property is complete.
Risk of Non-Completion
With OTPs there is also a risk that the property will not be completed and your contract becomes terminated. Lenders such as banks might provide developers with a preliminary loan approval before construction starts. The loan is likely to have conditions, such as selling a minimum number of units. If the developers can’t meet the conditions the loan won’t be granted and construction can’t continue. There are several reasons a contract might be terminated, which you should discuss with a solicitor.
Get legal advice
If you are looking to purchase an off-the-plan apartment we recommend you discuss the risks with a solicitor. We can provide advice and help negotiate the terms of the contract in your favour. For more information, please contact us on (02) 9963 9800 or send a message via our contact form.
