Will a Restrictive Covenant Prevent Your Development?

Quite possibly the answer is- no!

The case of Harrington v Greenwood Grove Estate Pty Ltd [2011] NSWSC 833, is very instructive with respect to both a local Council’s ability to override covenants and the circumstances in which an owner can have contractual provisions declared unenforceable.

The case decides that where a Council has requested a restrictive covenant or design guidelines be included in a subdivision and these are carried forward in the contract special conditions (even if not contained in a s88B instrument) then the contractual provisions are enforceable against an owner.  However, if Council didn’t make the request and subsequently approves a development contrary to the contract, then the contract is not enforceable against the owner-even though the owner was a party to the contract.  This is because of the power of councils to ignore a covenant if they are approving a lawful development.

S 3.16 of the Environmental Planning and Assessment Act (formerly s28) provides the legislative authority and most councils today have a provision in their Local Environmental Plans consistent with s 28 or the later s 3.16.  The only condition is that the Governor or Minister’s consent is required for the LEP provision, which would not be there if consent had not been granted.

Therefore, local Councils have the power to simply ignore a covenant and the cases say that the covenant is rendered null and of no effect if council lawfully approves a development which is contrary to the covenant.  Moreover, if the council didn’t ask the developer to create the covenant the developer can’t insist that you comply with it on contractual grounds.

Further information:

Restrictive Covenants

For more information or to make an appointment in either our Canberra or Queanbeyan office please do not hesitate to contact Rod Anthes:

+61 2 6206 1300 | e: info@elringtons.com.au

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Trusts and Increased Taxes in NSW

by Rod AnthesRod Anthes

“You might be Australian but is your Trust a deemed foreign person?”

– If it is you may have to pay a lot more state tax than you thought.

Potentially, a foreign person is liable for double stamp duty at the time of purchase.  In addition, the foreign person is then liable for much more land tax for each year that they own the property.  There is no threshold value applied when the tax is calculated so it becomes higher than usual from the start.  But then there is also a surcharge payable annually.  This fluctuates but at the moment if a foreign owner owns residential property worth $1mil the current land tax bill is $36,000 per annum.  A non- foreign owner (where it is not principal residence) would be liable for $6,500 per annum.

So who is a foreign person?

The definition of ‘foreign person’ is such that if any actual or potential beneficiary of a trust is a foreign person then the trust is deemed to be a foreign person!

If that trust owns property, land tax ($36,000 p.a. on a property worth $1mil) becomes payable each year.

You may be familiar with the wording in trusts which provides for almost everybody ever in a person’s family to be a potential beneficiary-even if they are not yet born.  A person is foreign if they are not:

  • an Australian or New Zealand citizen;
  • a permanent-resident;
  • on a permanent (Spouse) Visa AND having spent more than 200 of 365 days overseas in the last 12 months.

This means that if one of the actual or potential beneficiaries marries or partners with a foreign person then the extra taxes are payable.  For example; this may be a marriage by one of your grandchildren to a foreign person!  Possibly even more remote.

Risks if foreign companies are beneficiaries

If a trust deed permits another trust or company to be a potential beneficiary, where that other trust or company is a foreign person under these rules then the trust also becomes foreign. Also if another company or trust (even if it is an unrelated third party) owns shares in a corporate beneficiary, then that corporate beneficiary could become a foreign person and then by extension the trust could again be considered a foreign person.

 It doesn’t take much for a company to be considered “foreign”.  Under these rules – 20% or more share ownership by one foreign shareholder, or a combined 40% or more ownership by multiple shareholders is sufficient to render a company a foreign person – and that is sufficient to render a discretionary trust to be a foreign person.

Of course if the trust is deemed to be foreign then the extra (double) stamp duty would also be payable when buying property.

The possibilities are very real and the consequences very expensive.

What can you do?

The risk can be overcome by a variation of the trust deed to exclude the possibility of a foreign person (as defined in the legislation) from ever being eligible to be a beneficiary of the trust.

If you think you need to vary your trust deed, get in touch with us.  We will assess your situation and make a recommendation free of charge.  If we advise that a variation to the trust deed is necessary, we will give you a clear indication of what it will cost before you are obligated.

p: +61 2 62061300   | e: ranthes@elringtons.com.au

Appointing an Enduring Guardian and Enduring Power of Attorney

Planning ahead

Many people put a great deal of thought into their Wills – and rightly so, however, many of us do not give a second thought to how our affairs will be managed when we are not in a position to manage them ourselves. This may be as a result of an accident, a serious illness or even due to travel arrangements.

Appointing an Enduring Guardian and Enduring Power of Attorney

Implementing an Enduring Power of Attorney and/or Appointment of Enduring Guardian (depending on which State you reside), allows you to choose the people you trust in order to manage your financial, property affairs, as well as your lifestyle and health care decisions when you cannot. If it becomes too late, it may be left to an independent tribunal to make these decisions on your behalf.

What benefits are there with appointing an Enduring Guardian and Enduring Power of Attorney

Having an Enduring Power of Attorney (POA) and/or Appointment of Enduring Guardianship (AEG) prepared while you still have capacity, can help avoid your loved ones from incurring substantial costs (both legal and medical) on obtaining the appropriate orders so that decisions can be made, it can allow them to make decisions on your behalf efficiently and minimise their stress at a difficult time.

Who benefits from having a POA/AEG

If you are a son or daughter of an elderly parent, ensuring that they have a valid and up to date Enduring Power of Attorney and/or Appointment of Enduring Guardianship could allow you to make decisions on their behalf regarding the health care and living arrangements. If you decide that your parents are unable to live by themselves, it can allow you sell their family home in order to fund the accommodation bond for a nursing home or substituted residence.

If you have a partner that extensively travels with work, having an Enduring Power of Attorney and/or Appointment of Enduring Guardianship allows you to manage the finances for the family or if you are in the process of buying or selling property, your attorney(s) can execute the relevant documentation on your behalf and liaise with any financial institution.

What if someone I know has already lost capacity and does not have a Power of Attorney and/or Appointment of Enduring Guardian.

You should contact our Estate Planning Team so that they can commence the necessary arrangements for you and assist you with applying and obtaining the relevant orders from the appropriate regulatory body.

p: 6206 1300| e:  info@elringtons.com.au

How much will your “free” will really cost?

By Rod Anthes

A lot of people think that it is easy to make a Will and that they can do it themselves. They go off to the newsagent and buy a Will Kit follow the instructions and then hope for the best.

The Will Kit doesn’t cost as much as Solicitors do – but are you being ‘a penny wise and a pound foolish’?

Unfortunately, a lot of things can go wrong.  From the writer’s experience of some 30 years I have never seen a home-made Will that is legally correct. Wills may not comply with all State and Territory legislation. They are often signed incorrectly, phrased incorrectly, ambiguous or incomplete and can therefore be challenged. I have seen homemade Wills which are not signed by the Testator (the person making the Will), insufficiently witnessed (only one witness, not two) and even without naming any beneficiaries. Some have parts crossed out or added in or just written over and not properly initialled, all in different coloured pens or in pencil. There are rules about this.  The NSW Trustee and Guardian has noted a significant rise in the work to unravel issues with D.I.Y Wills as they have become more available on the internet.[1]

If there is a problem with a Will and it is found to be invalid then your wishes may not be carried out. There will be more expense to the family of the deceased person- usually much more expense and certainly much more than a solicitor would have charged for the Will in the first place. These expenses will normally be taken out of the estate leaving less for the beneficiaries.

Trying a do-it-yourself Will can not only result in extra costs result it may also lead to delay, uncertainty and additional stress to the family.  Also, some problems with Wills can only be resolved by the Supreme Court!

Why do I need a Will?

A Will is a legal document which states who will receive your property, money and possessions when you die.  If you have a good, valid Will you give yourself the best chance of making sure your assets will go where you want them to and also to people who are dependent on you.

Who can sign a Will?

Remember, a Will must be in writing, it must be signed by the person making the Will and that signature must be witnessed by two other people who need to be there at the time the Will is signed and they need to see each other sign the Will.  It must also be clear and it must take account of Family Provisions Legislation. That is why solicitors write them.

What happens if I don’t make a Will?

If you die without a Will, a standard formula is used to divide your property and money – this can become very complex in today’s society and again your loved ones will incur more expense.

Spend your money wisely at the start consult a solicitor and you will save a lot of time, expense and stress for your loved ones at the end.

For more information please contact Rod at:

e: ranthes@elringtons.com.au | p: 02 6206 1300

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1. NSW Trustee and Guardian – http://www.tag.nsw.gov.au/verve/_resources/TAG_Connect_Dec_2011_file.pdf

Register your PPS interests – Update

Personal Property Securities Bill 2009

Are you the operator of a business that:

  • uses retention of title clauses in sale agreements
  • sells on consignment
  • sells goods with serial numbers, including motor vehicles
  • supplies goods via hire purchase or equipment lease
  • is a “factoring” business (purchases accounts receivables from other businesses)?

If so, you should be aware of the reforms to the PPS Register that brings the different Australian Government state and territory laws and registers for security interests in personal property under one national system.

Why PPS reform?

The old PPS registration regime in Australia was patchy and differed from state to state. Because of this, suppliers and lenders were reluctant to accept anything other than land or motor vehicles as security for borrowings or for delayed payment arrangements. Historically it was risky to accept personal property as security – personal property includes cars, boats, machinery, shares, contractual rights and intellectual property.

The reform aims to tighten the registration regime so that lenders, credit providers, and people who accept personal property as security as part of their business operations can better secure their position in the event of a default by the other party. In this way, the regime will improve the ability of individuals and businesses, particularly small-to-medium size businesses, to use all of their property in raising capital.

The two key elements of protecting your business under this regime (by protecting your interest in the personal property security) are:

  1. ensuring that your documentation complies with new PPS legislation; and
  2. registering your interest in the property on the new register.

A national Personal Property Securities Register  introduced that is computer-based, updated in real time and accessed publicly. Failure to register could give other registered creditors priority to seize and sell personal property from defaulting debtors – there were cases of entities getting caught out and losing their security altogether when similar legislation was introduced in NZ.

It is essential that supply contracts, leasing contracts and consignment agreements be overhauled to accord with the Personal Property Securities Act, and to allow for registration of the supplier’s interest. Equipment leases, consignment agreements, and contracts with individuals do not currently fall under the PPS regime but will under the act (excluding short-term rental arrangements). Systems and processes in all leasing businesses need to be reviewed to ensure that all relevant agreements (not just leases of vehicles that REVS currently captures) are registered, and IT systems should  be upgraded to communicate with the PPS register and record the registration. Staff will need training in relation to the new regime.

Factoring businesses will be greatly affected by the new regime – purchasers of receivables may not gain title to the receivable, and can lose their security or their ranking if they do not ensure that the purchase of the receivable is entered into and perfected in accordance with the PPS legislation.

Manufacturers and product suppliers who use retention of title clauses will find that all existing rules and case law about these clauses are overturned by the new regime. Instead of a supplier or manufacturer retaining title in goods until full payment is made, the buyer of the goods assumes title and the supplier’s interest is a secured interest. Compliance with the new legislation and effective registration is of utmost importance because a supplier or manufacturer will not be able to take legal action as if they still have a right of ownership to the goods. However, the PPS regime does give a supplier with a compliant, registered retention of title clause a higher ranking priority position to other claimants.

You may also have PPS contracts that are currently registered such as charges on the ASIC company register, or a bill of sale in NSW against an individual. It is intended that these interests will be migrated to the new PPS register, but businesses will need to identify these security interests and ensure that they have been properly migrated.

“All assets” charges will continue to exist – however there will be an increased number of instances in which you as a secured party may lose priority and thereby lose out to another creditor coming later in time, despite the later creditor having knowledge of your  earlier interest. “All assets” charges must be properly constructed to ensure that you are protected.

Under the new regime, documentation that complies with PPS legislation and effective registration are the two important guarantees to good security, regardless of when your security came into being and how it was worded. Timing is critical, and if a competing creditor beats you to register, you will lose priority. If a debtor becomes insolvent, your security may fail altogether if it does not comply with the PPS legislation or it is not properly registered.

For more information or to make and appointment contact our Business Services team:

p: 02 6206 1300 | e:  info@elringtons.com.au

 

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1. Personal Property Securities Amendment (Registration Commencement) Bill 2011 http://parlinfo.aph.gov.au/parlInfo/download/legislation/billsdgs/1164046/upload_binary/1164046.pdf;fileType=application%2Fpdf#search=%22r4686%22

2. S Bowers, ‘Securities register hits hitch’, Australian Financial Review, 2 September 2011, p. 21,  http://parlinfo.aph.gov.au/parlInfo/search/display/display.w3p;query=Id%3A%22media%2Fpressclp%2F1050762%22