Category: Property Law

Property Law Articles

What you need to know about selling your business!

Posted onAuthorMitchell EvelynLeave a comment

Selling a business can be a very complicated affair. You are doing much more than simply selling an asset – you could be severing or transferring a multitude of contracts to the buyer, transferring both tangible property (for instance, stock or equipment) and intangible property (such as Intellectual Property, goodwill, or even social media accounts), and extricating yourself from the complex network of promises, personal guarantees, and personal business relationships.

Selling a business – and doing it properly – involves taking each of the small components which together make your business run, and transferring them to someone new. Most of these will not follow the business automatically. Some of the most common considerations which need to be taken into account in any sale of business are listed below:

You may also be interested in our article – What to know before you buy a business.

For more information or to make an appointment in either our Canberra or Queanbeyan office please do not hesitate to contact Shalini Sree or Mitchell Evelyn:

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

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Why your bank is making you see a lawyer!

Posted onAuthorMitchell Evelyn

By Mitch Evelyn

The banks are under increasing scrutiny and stringent regulations these days to ensure that they practice responsible lending. To meet these obligations, and to comply with the National Credit Code, your bank will often require you to have loan or guarantee documents reviewed by a lawyer, and insist that your lawyer provide a certificate confirming that they have given this advice. This means that a bank can lend to you, or accept a personal guarantee, confident that you understand exactly what your obligations are.

What will my lawyer do?

We often get enquiries from people saying that they just need a lawyer “to witness something” or “to sign off on some forms”. A lot of people are annoyed or upset when they show up at their lawyer’s office, documents in hand, to find that their lawyer is refusing to sign them – at least right away.

It is important to bear in mind that your lawyer is not just witnessing your signature on these documents – they are certifying that they have given you legal advice. This means that your lawyer needs to:

  • Read the documents
  • Understand the documents in context – who is borrowing, who is guaranteeing, and why
  • Understand the key players – for instance, is the borrower a family member, a family trust, or a company?
  • Understand the protections afforded to you by law and how these might affect the documents you are signing
  • Review the security being provided and what could happen to you or to your family if that security is called upon
  • Comply with the additional regulations placed on lawyers when providing this specific service
  • Meet with you in person to explain the documents and their effect to you

What can I do to speed up the process?

Chances are that you – or someone you care about – are in the middle of a large, exciting, or time sensitive transaction when you need one of these certificates signed.

Here is what you can do to help your lawyer give you fast, and accurate legal advice:

·         Get the documents to your lawyer as quickly as possible so that they can review them. Keep in mind that these are often long, and complicated documents – they may take a few hours to review, especially if you are not using a bank whose standard forms your lawyer is familiar with.  Often your lawyer will also need to prepare additional documents which we are legally required to retain on file.

·         Make an appointment – do not walk in and expect a lawyer to drop what they are doing. Remember, they are not only witnessing your signature, they are certifying that they have given you legal advice. You should allow your lawyer at least two or three days to review everything.

·         Provide all relevant background and related documents as soon as you can. Often, the bundle of documents your bank provides will have all related documents in it, such as copies of trust deeds, or registered mortgage terms. If they do not, then your lawyer may ask to see these.

·         Make sure your lawyer knows who they are advising. If there are multiple guarantors, make sure your lawyer knows whether they are advising only you, or whether they are also advising other guarantors. This is very important, as your lawyer needs to ensure they comply with additional regulations that may apply when asked to advise multiple guarantors at the same time.

·         Make sure that you have everything your bank asks for. Some smaller banks will have very onerous identification requirements – make sure that you bring copies of all relevant ID, and check that none of the documents have expired.

What does it cost?

Legal costs will vary depending on the complexity of the documents, the number of people involved, and the banks requirements. You should send a copy of your documents through to your lawyer so that they can ascertain how much time will be involved, and provide you with an estimate of what their fees will be.

If you need someone to provide independent advice on documents provided by your bank, contact us at either our Canberra or Queanbeyan office and ask to speak to one of our experienced commercial or property lawyers. Please bear in mind that your lawyer will need to meet with you in person at least once in order to provide you with this advice.

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

 

Trusts and Increased Taxes in NSW

Posted onAuthorRod Anthes

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

How much do Retirement Villages really cost?

Posted onAuthorMitchell Evelyn

By Mitchell Evelyn

Retirement Villages have recently received a lot of recent negative media attention following a recent joint investigation by Four Corners and Fairfax, who have criticised some agreements as heavily favouring the villages, encouraging a “churn” of residents, and incorporating massive exit fees. This is not to say that Retirement Villages should be avoided, or that they are all bad. However, like any other large financial transaction, it is very important that you read and understand the agreement very carefully, and seek the advice of a qualified legal professional before committing to anything.

What are you buying?

It is important to understand exactly what you are buying, as this will have a significant effect on what happens when you vacate your unit. Depending on the Village, you may actually be buying the unit you reside in, otherwise you may simply be buying a long term lease or licence to occupy.

How much is this really costing me (or my children?)

The Retirement Village industry is unique, in that it makes a very large proportion of its profit not by providing you with a service or selling you a unit, but through fees charged when you leave. These fees (called exit fees or departure fees) are a large, one-time fee paid in addition to other costs you might pay while living in the Village. They may be deducted from a substantial Accommodation Bond you paid upon entering the village, which are often financed by selling your primary home. This bond (less any fees) is generally repaid either to you (or, if you have died, your Estate) when moving out of the Village.

These fees are determined both by the contents of the Residency Agreement, and the Retirement Villages Legislation in your state or territory. Generally, an exit fee is calculated as a fixed percentage of your initial contribution per year that you reside in the Village. Depending on this amount and the length of your stay, an Exit Fee can potentially enter into the hundreds of thousands of dollars.

This fee is payable if you move out of the Village, or if you die, but is probably not the only fee you (or your Estate) needs to pay. Each provider has its own Agreement, and may put in place different fee arrangements. These can include:

  • Monthly service charges to maintain the Village facilities
  • Maintenance fees
  • Refurbishment and cleaning fees (upon vacating the unit)
  • Marketing fees (to find a new resident for your unit after you have vacated or died)
  • The Village Operator’s legal costs of preparing your Residency Agreement

When will my bond be repaid?

Your Accommodation Bond is often not refundable until a new resident is found to take your unit. In the meantime, any other fees may continue to be charged and may be deducted from your Accommodation Bond when the unit is eventually sold. If you have lived in the Unit for a very long time, and the unit is also on the market for a very long time, the majority of your Bond could be consumed in fees.

What about the Capital Gain on the unit?

If your unit is eventually resold at a higher price than when you bought it, it is very important to pay attention to who can claim the Capital Gain on the unit. It may not necessarily all go to you (or your Estate).

What will my lawyer do?

elringtons have expertise in reviewing and advising on Retirement Village Agreements. Having operated in the ACT and NSW region for more than a century, we are familiar with most of the standard agreements offered by the local retirement villages in the region and are able to provide comprehensive advice on their operation, as well as guide the matter to settlement on your behalf.

We encourage clients to take a holistic approach to their affairs when preparing to transition into a retirement village. We offer services in a broad range of legal areas, and are also able to assist you in the sale of your current residence, as well as review your Will, Power of Attorney, and Guardianship documents.

Appointing an Enduring Guardian and Enduring Power of Attorney
When should I change my will?
What happens if I exclude someone from my will?

For more information or if you wish to make an appointment to discuss your queries, please contact our Property and Commercial team:

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

Development Management Agreements: a win-win for everybody

Posted onAuthorShalini Sree

Do you currently have a substantial portion of your family’s wealth tied up in real property assets that are not generating the income that you had once hoped?

Are you looking to boost your superannuation or cash flow position leading into retirement?

It is becoming increasingly common for owners of substantial rural or semi-rural land parcels, particularly on the fringes of high priced capital cities, to be entering into development arrangements with experienced and well-resourced developers in order to subdivide and on sell rural land parcels in a cost effective and timely manner that would not have been possible if the landowner were to undertake the project themselves.

This type of arrangement is becoming particularly popular in metropolitan centres where “urban sprawl” is rife, and young first homebuyers are being forced to the more affordable outer suburbs of cities in order to secure their first homes.

The benefits of a Development Management Agreement (DMA) mean that landowners who have little to no property development experience, and also have minimal working capital available to cover the upfront costs of undertaking such a development, can outsource these responsibilities to a party who has both the financial resources to undertake the initial stages of the development, and also has the experience of working closely with local councils, planners, surveyors and marketing agents in order to speedily develop the land and bring it to market

The results? The landowner is able to develop their previously stagnating asset without investing significant upfront costs and time into the project, while the developer is able to use their financial resources, skill set and professional network to develop a parcel of land which they are not fortunate enough to own themselves. The outcomes therefore of a well drafted DMA mean that both parties are able to pool their resources together in order to bring about a mutually beneficial arrangement for both parties to the agreement.

If it sounds like this type of commercial arrangement would suit your circumstances, please contact our office to make an appointment with one of our experienced property and commercial lawyers to discuss your options. Our lawyers have extensive experience working alongside both landowners and developers in achieving cost effective and timely results for both parties to a Development Management Agreement.

Contact Jacob Powell

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