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The Fraudulent Conveyances Act of 1571 is still voiding fraudulent property transfers 450 years later

The law may change but human nature doesn't change. People still try to transfer properties to family to avoid paying their debts ... Despite a law that's been around for centuries designed to stop this.

For more see
 


 

Are Short-Term Loans risky for lenders and borrowers?

Short-term loans have high interest rates, at least 8% pa. They have high loan fees, and often require the interest to be paid up front.

They are risky for borrowers because the high interest rate quicky eats away the equity in the property, and if they default, the interest rate jumps to 16% pa or more.

They are risky for lenders because the court may re-write the loan by reducing or eliminating interest, if the loan is secured by the borrower’s home and if no background checks are carried out on the borrower to ensure that the borrower is able to afford the repayments.

Two recent Court decisions show that short-term loans secured by residential property can be risky business for lenders.

The Courts found that the loans were unconscionable and ordered that the loan interest and charges were not recoverable. Only the amount advanced needed to be repaid. In one case all interest was eliminated, and in the other, the interest rate was reduced to 4% pa.

The first case was Stubbings, which was decided by the High Court of Australia. The High Court found that the lender acted unconscionably, that is, against good conscience, for these reasons:

  • The loan was a 12 month loan secured by mortgage over a residential property in the personal name of Stubbings. It was his home.
     
  • The loan required regular monthly repayments, but Stubbings had no job or income or cash on hand to make the repayments, and inevitably defaulted after only 2 months.
     
  • The lender did not ask for any financial information from Stubbings, but relied only on the value of the property in lending 70% of the value.
     
  • The Court found the lender was exploiting Stubbing’s desperation for a loan, and that the loan was a scheme to absorb the equity, by charging interest at 10% pa (the default rate was 17% pa), and then forcing the sale of the property to recover its loan.

The punishment was that the borrower needed only to repay the principal, and not the interest and extra charges.

For more, see my case note Five Wise Judges reject the Three Wise Monkeys approach to moneylending

The second case was Creatrix, which was decided by the Supreme Court of NSW. For similar reasons, the Supreme Court ordered that lender’s interest rate be reduced from 69.5% pa to 4.1% pa, when the principal was repaid.

For more, see my case note Court asks ASIC to investigate avoidance of the National Credit Code, cuts interest rate on loan from 69.588% to 4.1% pa.

Cordato Partners Lawyers advises on short-term loan disputes If you need advice, do not hesitate to to contact us by email or phone for a short consultation free of charge.

We advised the successful borrower in Creatrix, and had the interest rate dramatically reduced, as well as eliminating the need to repay the amount advanced to cover loan fees.


 

Neighbour’s CCTV turns factory fire alibi into ashes

It seemed like the perfect alibi. While his bedding products factory was ablaze, John Cassimatis said he was at home with his family, watching television.

Perfect, except for one small detail click here for the story


 

Why is it so hard to repair a home unit building?

If you own a home unit, you can decide for yourself to update your kitchen and bathroom. But if your balcony needs repair, the other home unit owners need to agree.

The reason the other home unit owners need to agree to the balcony repair is that a balcony is common property, just like roofing and guttering, foyers and stairs, and fences.

The cost of maintenance and repair for common property is paid from the capital works fund, which is funded by strata levies. When an expensive repair is required, a Special Levy is needed.

In a well-functioning strata scheme, there will be a 10-year capital works fund plan which includes a budget for maintenance and repairs within the next 10 years. Strata levies will cover the cost. Special Levies will need to be raised occasionally – such as in the balcony repair pictured which cost $40,000 per balcony.

But some strata schemes are dysfunctional. They don’t have a proper 10-year plan, don’t have money in the capital works fund and won’t raise Special Levies.

What can a strata unit owner do in a dysfunctional strata scheme?

A strata owner can apply to the NCAT Tribunal for an order for repair orders and compensation orders. This is an expensive and uncertain process.

In a recent review of the strata laws, the NSW Office of Fair Trading has proposed it be given power to order repairs. This would be a great advance on the current situation.

For the full story, see NSW Fair Trading proposes to force strata schemes to maintain and repair the common property.

Balcony renovations in progress, completed to the left, work in progress to the right - the cost is $40,000 per balcony
 


 

Home loan introducers will soon be a thing of the past

For too long, the major banks by-passed mortgage brokers to source home loans.

The NAB operated a spot and refer program from 2000; the ANZ Bank an introducer program from 2005. The NAB program continued until 2019; the ANZ Bank program continued until 2020. The programs were very successful. For example, in September 2018, 10% of all home loans sold by ANZ were introducer loans.

The banks promoted introducer programs to by-pass mortgage brokers, who are professionals and holders of an Australian Credit Licence, in favour of introducers, people recruited off-the-street with no training or licence. The introducers were cleaners, real estate agents, and the like, who received a ‘spotter’s fee’ for introducing loans to the bank.

After credit licensing was introduced under the Credit Act in 2010, the role of the introducers was changed to pre-vet the proposed borrower. The problem emerged that many loans were granted ‘on false information’ or made to borrowers ‘beyond their capacity to pay’.

In 2019, ASIC took the NAB to court and in 2020, the NAB was fined $15 million for breach of the Credit Act by conducting business with an unlicensed person (i.e. the introducers).

Now, ASIC has taken the ANZ Bank to court for what look to be more extensive breaches, to have the Court order a fine and the engagement of an expert to conduct a review of ANZ’s existing home loan customer referral arrangements. The fine will be considerably higher than $15 million given the much larger number of problem loans in the ANZ Bank case.

These actions taken by ASIC to enforce credit licensing, are good news for mortgage brokers because they are likely to spell the end of unlicensed home loan introducers.

For more detail on the Court proceeding click:

 


 

Don’t lose your right of way!

If you need to pass over someone else's land to reach your property, you need to have a right of way.

Is a right of way granted over 100 years ago for the "dunny man" to use to take away "nightsoil" from your outhouse, able to be used these days to take bicycles and sporting equipment in and out?

Or has the right of way been lost because it is no longer used for taking away "nightsoil" and has not been used for many years?

It’s a valuable right which needs protection. Are there ways to avoid losing your right of way?

You’ll find the answer in my latest article - Rights of way – if you don’t use them, do you lose them?


 

Allowing a family member to live in the family home is fraught with danger

Allowing a family member to live in the family home is fraught with danger

UNLESS

  • There is a written agreement
  • There is a clear definition of what is a default (particularly a payment default)
  • The responsibility to carry out and pay for repairs and maintenance is clear
  • How and when the arrangement is to end

To see what can happen when a family arrangement turns sour see - A licence to occupy to a family member needs careful drafting


 

Crime doesn't pay (not even arson)

Arson is a crime where a person sets fire to a building for financial gain.

Often it is the owner looking for an insurance payout who sets fire to their building.
But it can be someone else who is promised a pay-off from the owner who sets fire to the building.

The person who sets fire to the building must hide the fact that they caused the fire. They must make it look like the cause is an electrical spark or arcing in old wiring, or a heat source such as a heater. The fire must spread quickly and destroy the building so that it is not easy to determine the cause.

In all cases, the best evidence is direct - someone sees them 'in the act' or the person boasts later about how they started the fire.

But if there is no direct evidence, then circumstantial evidence must be overwhelming to convict a person 'beyond reasonable doubt'.

This was the situation that two arsonists faced in the NSW Court of Criminal Appeal recently.

For more, see

 


 

What to do when bamboo blocks your view

When planting bamboo, a neighbour is looking for privacy.

Bamboo hedges can grow up to 8 metres high and are very effective green screens.

But which prevails? Is it privacy or the view?

See my article on how to remove a bamboo hedge which is blocking the view


 

Court tears up non-bank loan agreement

In a significant decision by the NSW Supreme Court, the Court found that a non-bank loan (a ‘non-coded loan’) was subject to the National Credit Code.

As a result, the Court tore up the Loan Agreement and ordered the repayment of only the loan amount the borrower had received plus interest at the Court rate of 4.1% per annum, instead of at the loan rate of 4.5% per month.

The loan was a short-term loan used to finish construction of a duplex, with one dwelling to be sold and the other used as a family home by the borrower. The title was in the name of an individual (the 'natural person').

If the loan was made in the normal way, the loan would have been made to the 'natural person' for 'improving a residential property' and would have needed to have been Code compliant.

But the lender wanted to make the loan outside of the Code (a non-coded loan). And so, the loan was structured in this way:

  1. The loan was made to a company, as opposed to being made to the ‘natural person’;
     
  2. The borrower signed a business purposes declaration.
    This structure is common for non-coded loans.

So where did it all go wrong?

  1. Using the company was not effective because in the Loan Agreement the 'natural person' was made jointly liable to repay the loan; and
     
  2. The business purposes declaration was a sham - the company had no legal interest in the property and did not receive any benefit from the loan.

The result was that of a loan of $623,295.46, the lender was allowed to recover only $440,384.45, which was the loan amount actually received, net of interest and charges. And instead of being able to receive default interest at the rate of 69.588% pa (effective rate), the lender was able to receive interest at the Court rate of 4.1% per annum.

The Loan Agreement was also torn up for a second reason - unconscionable conduct - but that is a story for another day.

For a full account of decision click


The hidden trap i paying a 5% deposit on a property

Paying a 5% deposit instead of a 10% deposit under a Contract to purchase a property is very popular when property prices are high.

It makes sense when buying and selling at the same time because the deposit money is tied up in the property to be sold.

But as a recent Court decision illustrates, it is not a free ride for buyers.

Not only do buyers need to come up with the other 5% of the 10% deposit if they don't buy the property but they could lose the property if they don't pay the other 5% strictly on time.

In the Court decision, the vendor successfully terminated the Contract and kept the deposit because the buyer was two days late in paying the second instalment of the deposit.

For more, click on my article.
 


NSW Govt short-stay traveller accommodation policy – what you can and can’t do

There are three parts to the NSW Government short-term rentals policy:

Part 1 – Strata Schemes

Short-term rentals can be partially outlawed in Strata Schemes (home units, apartments and townhouses) if a strata by-law is made. The strata by-law can prohibit short-term rentals where the property is used as an investment. But it does not apply to owner-occupiers – they are entitled to rent out their property for up to 180 days per year.

Part 2 – Code of Conduct

The Code of Conduct contains ‘responsible renting’ provisions which impose obligations on booking platforms, on letting agents, on hosts, on guests, and on representatives of booking platforms and letting agents. Non-compliance may lead to disciplinary action, including being placed on the exclusion register.

Part 3 – Planning Rules

Local Council permission is not required to use a residential dwelling as a short-term rental, but a whole range of other rules apply. For example:

  • A 180 day limit restriction for investment property rentals applies in many parts of NSW
  • A rental does not count for the 180 day limit if it is for an investment property and is for at least 21 days
  • Minimum fire safety standards apply
  • Registration on the Premises Register is mandatory

For more information, click on NSW Govt short-stay traveller accommodation policy – the latest update


 

Does putting the house in the wife’s name keep it safe from legal claims?

Entrepreneurs, businesspeople, company directors and professionals risk being sued because of their business activities. Is it a good way to protect the family home by putting it into the spouse’s name?

Ever since 1688, the Courts have protected assets placed by a husband in a wife’s name from claims by creditors and the Trustee in Bankruptcy, provided certain rules are followed.
In a recent case, the Federal Court upheld that principle of law known as the ‘presumption of advancement’.

In the case, the Federal Court denied the Commissioner of Taxation’s claim to recover a tax debt of $10 million against the wife of a venture capitalist in whose name a luxury mansion had been placed.

The venture capitalist husband followed the rules by not claiming an interest of any kind in the family home and by buying the house before the tax debt came about. That is, the husband did not buy the house in the wife’s name to defeat claims by the Commissioner.

When we say the husband ‘bought’, the husband took out a loan jointly with his wife, which was secured by a mortgage over the family home, but the title to the family home was put into the wife’s name only.

You may be wondering if this applies to the situation where a wife buys a house in the husband’s name or to partners in a same sex marriage or to ‘life partners’ (de facto couples)? The answer is – not as the law currently stands.

You might also note that it cannot be used to deny a husband an interest in the house, because the Family Law Act and after death the Family Provisions Act grant the husband an interest.

For more information, click on the case note


 

Will a Court correct an error in a contract if they are obvious?

A Court will correct missing words or incorrect clause numbers in a contract because these are obvious errors.

But how far will a Court go?

What errors are obvious and what errors are not?

The NSW Court of Appeal recently examined three errors in a Contract for the Sale of Land.

Click to see an example.


 

Do property joint ventures need to be in writing?

Property developers don't beat around the bush. So when John Cappello phoned John Scrivener to ask for his share of the joint venture profits, Scrivener told him “You’ve got nothing in writing … Good luck if you want to try and get anything in court”.

The property development was the amalgamation of three 5 acre parcels of land at Rouse Hills, Sydney, for a medium density subdivision (see image). Put & Call Options were obtained, a Development Consent was granted, and the site was sold at a large profit.

But while the property development was a great success, the relationship between the partners was not. This was because after securing the site, and contributing to an option fee, John Cappello had taken a backseat role as a silent partner, allowing John Scrivener to pursue the development project in his name. This led to John Scrivener thinking it was all his project.

The property joint venture made a $9 million profit. So it was well worth John Cappello taking his claim to the NSW Supreme Court, in a trial which lasted 7 days and cost hundreds a thousands of dollars in legal fees.

John Cappello's weakness was that there was no joint venture agreement in writing. There was no Joint Venture Agreement, no Joint Venture Company, not even a Heads of Agreement to document the joint venture.

The evidence was an unsatisfactory mixture of emails and recollections of conversations at meetings, in phone calls, at a cafe and over lunch, many years before.

The good news for John Cappello is that the NSW Supreme Court awarded him a one half share of the joint venture profit treating his relationship with John Scrivener as a partnership.

For my case note click Do joint venture partners need to put their property venture into writing? (a case study)


 

Parents and Children at war over who can stay in the family home

This is the story of how a daughter, with the best of intentions, saved the family home from being sold from under her parents feet by the ANZ Bank, only to find it all fall apart later.
This is what happened:

  • The father was a builder. He built a house at Pennant Hills in 1985, and he and his wife raised their family in it.
     
  • The father was forced to retire in 2012 due to a heart condition. His financial affairs were in a mess. He owed the ANZ Bank $740,000 and had other creditors and was being threatened with legal proceedings.
     
  • He had a plan. He converted the house into two units, an upstairs unit and a ground floor unit with separate entrances. He invited his daughter, her husband and two sons to move into the upstairs unit provided they paid off the Bank debts.
     
  • The daughter raised $840,000 which was enough to pay out the ANZ Bank and the other creditors. The title to the property was transferred into her name as security for her loan.
     
  • Four years later, they were at war because the new co-habitation arrangement did not work out - the father kept tinkering with building materials he stored in the drained pool area; he was rude to the daughter's husband and children. The police were called more than once.
     
  • In the court proceedings that followed, all the parents wanted was to stay in the house for life. But the daughter and her family could take it no more and wanted them to leave. The Court agreed with the daughter and issued an eviction order.

We have not heard the end of this story because the parents have appealed and the eviction order has been put on hold. But there will be no winners. The appeal judges will most likely order the house to be sold and the proceeds divided up between the parents and the daughter.

All this because they did not tie up loose ends when they went into the transaction. Specifically, the living arrangements and the payment arrangements were left up in the air.

To read my case note click here - Parents are evicted from their home because they transferred title without safeguarding continuing occupation rights

2 Schofield Parade, Pennant Hills


Stamp duty on property options

Property options are used to acquire properties for purposes such as:

  1. Property Subdivisions of acreage
     
  2. Small scale townhouse developments
     
  3. High rise apartments or offices
     
  4. Flipping properties

The stamp duty regime is favourable provided you steer clear of put and call options.

  • On grant of call option or put and call option - no duty is payable
     
  • On exercise of option - duty is payable on the Contract on the full price
     
  • On nomination of someone else to exercise the option - the nominee pays duty on the fee paid, and if a put and call option, the nominator pays duty on the full price.
     
  • On assignment of the option - the assignee pays duty on the fee paid, and if a put and call option, the assignor pays duty on the full price.
     
  • On lapsing of the option (i.e. it is not exercised) - no duty is payable

Note: this is the situation in NSW. Other states have similar, although not always the same, regimes.

For more details click on my article When is stamp duty payable on property options in NSW?

 


Is your rental property fit to live in?

Some landlords refuse to spend any money to keep their rental properties in good shape - to make them fit to live in / fit for habitation. The kitchen cupboards are from the 1960s, the carpet is worn out and the flyscreens are torn.

These are cosmetic defects and mean that the property is rented at a low rent.

But there may be more serious defects, often structural defects, which are a threat to health and safety. It is these defects which can make a rental property not fit to live in.

The NSW Government has introduced minimum standards for rental properties, to start on 23 March 2020, which will make it compulsory for landlords to offer properties for rent which are fit for habitation. Landlords will need to answer Yes to these questions:

  • Are the premises structurally sound?
     
  • Does the premises have adequate natural or artificial lighting in each room; ventilation?
     
  • Are the premises supplied with electricity and gas, and have adequate electricity or gas outlet sockets?
     
  • Are the premises connected to a water supply service; are there bathroom facilities; is there adequate plumbing and drainage?
     
  • Are there signs of mould or dampness; pests and vermin; has any rubbish been left on the premises; and are the premises listed on the Loose-Fill Asbestos Insulation Register?
     
  • Have the smoke alarms been installed and checked and found to be in order; have the batteries been replaced within the last 12 months?
     
  • Are there safety issues, visible hazards relating to electricity or gas?
     
  • Is a telephone / internet line connected?

    Are water efficiency compliance measures in place?

If the answers are No, the tenants can break the lease without a break fee, and be compensated by a refund of part or all of the rent.

For more click on my article Is your rental property fit for habitation?


Is a seller responsible to fix a water leak after settlement of the sale of a house?

Properties are 'sold as is', as the legal maxim, caveat emptor (let the buyer beware) warns.
Caveat emptor means that if a real estate buyer wants a price reduction because of a building defect they must point it out to the seller before the Contract for Sale becomes unconditional. Otherwise, the buyer cannot complain about the condition of the house.

For this reason, buyers commonly obtain Building and Pest Inspection Reports before the Contract becomes unconditional. The real value of these reports is to find defects which are not obvious to the untrained eye such as dampness in walls or ceilings caused by water entry or below the shower caused by a waterproofing failure. As you will find out, these Reports can protect the seller as well as the buyer.

Imagine the shock that Ms Ashton received when after settlement of the sale of her renovated terrace house in Darlinghurst, in inner city Sydney, she received a demand from her purchaser to compensate him for a long list of building defects!

What made Ms Ashton different from other sellers was the fact that two years previously, she had extensively renovated the terrace house, with Council Consent. She had an owner-builders licence and managed professional tradespersons to carry out the building work.

This was residential building work which meant that the defects warranties in the Home Building Act applied. These warranties are that the work is to be carried out with due care and skill and in accordance with building standards.

The Consumer Tribunal ruled that she was liable to pay the purchaser a total of $42,317.77 in compensation for defective waterproofing of the first floor balcony and improperly installed cladding to the exterior of the attic and bedroom. She was also ordered to pay the purchaser's legal costs. The amount could have been much higher, but the Tribunal rejected many of the purchaser's claims.

The lesson here is that if a seller sells a property in which extensive building work has been carried out within the previous 6 years, then they may be liable for defects after settlement, despite caveat emptor. The exception is that if the purchaser has purchased with "full knowledge" either by obtaining Building and Pest Inspection Reports or if the vendor has pointed out the defect.

For more information, click Can a home buyer claim compensation for a water leak after settlement?

Paint bubbling from a water leak


 

Is this the most expensive letterbox in Sydney?

It probably is. It cost $400,000.

This is letterbox #9 in the Watermark Apartments, Victoria Street, Manly.

In the image, the letterbox is locked. This was not always the case.

When Trish moved into apartment 9 in July 2016, she decided to keep the letterbox unlocked to allow the postman to place small packages into the box which would not fit through the slot.

This drove the strata committee to distraction. One month after she moved in, Trish received this email from Gary, the chair of the owners corporation - “I notice your mailbox has been left unlocked for quite a while?”

Trish continued to leave the letterbox unlocked. She continued to receive emails from Gary asking her to lock the box because thieves can use an open letterbox to identify the lock barrel and make a skeleton key to access all letterboxes to steal mail for identity theft. She ignored these emails.

On 24 May 2017, Gary sent her an email, which he forwarded to all owners - he said that her leaving the mailbox open “is the likely cause” of thieves obtaining a skeleton key, that all boxes may have to be re-keyed, and that compensation would be sought from the owner of Unit 9.

The next day, Trish replied by email which she copied in to all owners. The email was sarcastic but not malicious -

Your assertion/s that a single unlocked letterbox has allowed a criminal milieu to stalk the watermark building, and spend the time necessary to copy barrels/locks in order to then construct a master key is farfetched.

Your consistent attempt to shame me publicly is cowardly. It is also offensive, harassing and menacing through use of technology to threaten me. Please stop!

Gary brought a defamation suit based on that email. He was awarded $120,000 at the trial in the District Court for his humiliation.

But on appeal, the NSW Court of Appeal decided to apply a 185 year old precedent case from England of Toogood v Spyring (1834) to decide that although the comments in the email were defamatory, they were protected by a common law privilege.

As a result, the NSW Court of Appeal dismissed the defamation suit and ordered Gary to pay Trish's legal fees for both the trial and the appeal which I estimate are at least $200,000. In addition, Gary has to pay his own legal fees which could be at least $200,000.

The total Gary must pay $400,000 for taking the letterbox dispute to court. And he remained humiliated.

For more information, see my case note The unlocked letterbox -> the group email -> the defamation suit -> the legal fees

 


 

What's new in conveyancing? These are six trends to keep an eye on

Conveyancing, the legal side of a property sale, is adapting to new trends.

Trends such as electronic conveyancing settlements, auction contracts, personal guarantees for company purchasers, subject to finance, tree problems and tax clearances.

This is a summary of these six trends:

  1. Electronic Conveyancing Settlements - settlements are the business end of a property sale when the title is transferred in exchange for payment of the price. E conveyancing has replaced the paper based settlement process of bank cheques, titles and transfers. It's all now done on a computer screen.
     
  2. Auction Contracts - Purchasers often request, and vendors often agree to two changes to the contract - (1) a 5% deposit instead of 10% and (2) a longer settlement period than 42 days, to give time to sell their current property.
     
  3. Personal Guarantees - the directors of a company are now expected to provide their personal guarantee when they buy in the name of their company.
     
  4. Subject to Finance - In Queensland and Victoria, contracts often contain a subject to finance
    clause. But not in NSW - unconditional contracts are the norm.
     
  5. Tree Problems - Don't assume you can remove a tree easily from a property you are buying.
     
  6. Tax Clearances - If a property is sold for $750,000 or more, the vendor must obtain an ATO Tax Clearance, otherwise the purchaser must pay 10% of the price to the ATO.

For more details click on my article Conveyancing trends in NSW

Screenshot from a PEXA workspace as a property settlement is taking place


 

Do you have a right to peace and quiet (if your neighbour is a hotel)?

If you buy an apartment or house next door to a long-established hotel, do you have a right to complain about the crowd noise from patrons or the loud music?

Complain is what Mr Ammon did after he bought a luxury three bedroom apartment in the Raffles Hotel (Apartments) which overlooked the beer garden and the Riverside function room of the Raffles Hotel (see the low building in the centre of the image).

He brought the little-known legal action for tort for private nuisance. He claimed that the loud noise from the hotel caused a 'substantial and unreasonable interference' with his peaceful enjoyment, especially on Wednesday, Thursday, Friday and Saturday evenings when the music was played after 9:00 pm at night. He complained he was unable to sleep, read his book, and watch the TV, even with the balcony doors and windows closed.

The Court of Appeal of Western Australia were not convinced.

But it was not the 'hotel was there first and so don't complain' argument that won out.

It was the 'what do you expect when you buy close to two highways where the traffic noise is higher than the crowd noise and the music from the hotel most of time' that won the day.

As the court said, you have no right to peace and quiet. You must ask whether the noise is reasonable for the locality. In this case, it was.

The lesson is that if the owner of the hotel applies to extend the hours of operation, or applies for a permit for renovations or extensions, the time to complain is when the application is made.

It is a lot easier for a local authority to impose and enforce a condition or regulation relating to noise levels than it is for a neighbour to succeed in an action for private nuisance for noise pollution.

For my case note click Do you have a right to peace and quiet (if you live next door to a hotel)?

Raffles Hotel Apartments – low building centre


 

Keeping the wolf from the door - protecting the family home from the Trustee in Bankruptcy

What's the best way to protect the family home from claims by creditors and the Trustee in Bankruptcy?

Many professional people, company directors and business owners put the title to the family home in their spouses' name, to put it out of reach of creditor claims.

But does this provide effective protection against a bankruptcy claim by the Trustee in Bankruptcy?

According to a Federal Court of Australia decision last week, the family home may not be protected even if the title is not in the name of the bankrupt.

Applying what is known as a common intention constructive trust, the Federal Court said that the Trustee in Bankruptcy can claim an interest in the family home if:

  1. A common intention existed between spouses / partners to buy the home as their matrimonial home / place of residence; and
     
  2. The bankrupt made a contribution to the costs of acquisition or improvements or maintenance.

The interest the Trustee can claim is proportionate to the contribution.

Is it possible to defeat that claim? The answer is yes: if the bankrupt has good legal advice, they may be able to find a way around the common intention and contributions traps when buying the family home, and protect it from the Trustee in Bankruptcy.

For my case note on that decision, in which the home owner was successful in protecting the family home from the Trustee in Bankruptcy, click Is it possible to save the family home from the Trustee in Bankruptcy?


Whatever you do, don't annoy the voters!

New laws for Airbnb rentals to start in 2019 in NSW

The Castle is a great movie because it captures the emotional attachment Australians have to their home and to living a friendly and peaceful neighbourhood.

Town planning laws support this by strictly separating residential from business and commercial areas, with exceptions for home offices and occupations.

However, Airbnb style short-term rentals have disturbed the neighbours, especially in strata buildings, because the guests come and go frequently, some are noisy, some hold parties and some cause damage. They have disturbed the Local Councils because Airbnb rentals introduce a commercial activity into residential areas.

For the past three years, the NSW Government has been searching for a compromise between encouraging tourism and allowing people to make extra money on the one hand, and complaints by voters of increased levels of noise and disturbance in residential neighbourhoods on the other.

Now the NSW Government has introduced new laws to regulate short-term rentals.

In summary:

  • Homestays are legal all year round if the owner-occupier is renting a spare room, a flat or a studio as a short-term rental in their home. No Council approval is needed.
     
  • Whole house or apartment short-term rentals are legal up to 180 days per year, where the owner-investor is not present. This limit applies to Greater Sydney. Elsewhere in NSW, there is no upper limit on the number of days. No Council approval is needed.
     
  • If the apartment is in a strata building, the Owners Corporation can totally ban owner/investors from using their apartment for short-term rentals, but not owner/occupiers from using the apartment for short-term rentals when they are away, such as on holidays (for up to 180 days per year). A special by-law is needed, passed by a 75% majority, to ban short-term rentals
     
  • All hosts will need to register their property. Airbnb hosts, guests, holiday letting agents, etc will need to comply with a code of conduct to keep the neighbourhood peaceful, and observe rules for parking and garbage disposal.

Of course, there are many fine details. To find out more click Be ready for the new Airbnb / short-term letting laws which will start in 2019 in NSW


New NSW policy welcomes short stay rentals (Airbnb style)

On 5 June 2018, the New South Wales Government announced a new policy for hosts for short-term Airbnb style holiday letting. The new policy will affect both owner-occupiers and investors.

The key is a new cap of 180 days in any one year on short-term lettings for an investment property, meaning a property that is not owner-occupied. The cap does not apply to owner-occupiers who rent a spare room or rooms.

Owner-occupiers - who rent 'rooms' in houses and home units anywhere in NSW - There is no cap on the number of days in a year that rooms can be let for short-term lettings. This applies to owners who let part of the house for short-term lettings, and live in another part. If breakfast is served, a B & B Licence might be needed from the Local Council.

Investors - who rent 'whole' houses and home units outside of Sydney - There is no cap on the number of days in a year that the whole house or home unit can be let for short-term lettings.

Investors - who rent 'whole' houses and home units in Greater Sydney - there is a cap of 180 days in any one year for short-term lettings. The boundary line for the Greater Sydney Region is yet to be drawn.

Investors - who rent home units in Sydney - If the Owners Corporation passes a 75% majority resolution (a special resolution) then it can ban short-term lettings by investors of 'entire' home units in the building. This cannot affect owner-occupiers who let rooms. It is not clear whether existing bans will be allowed to continue, or whether a new resolution will be needed.

For all short-term lettings, there will be a new mandatory Code of Conduct that hosts and guest must follow, accompanied by a two-strike policy, whereby hosts or guests who commit two serious breaches of the code within two years will be banned for five years and listed on an exclusion register.

For more details on the new rules, click Is the new NSW Government policy a win-win for short-term (Airbnb style) holiday letting?


An investment loan is not repayable without proof of the money trail

When Michael Howard invested in the Great Southern 2006 Organic Olives Income Project he took up the loan offer from the finance arm of Great Southern to fund the total cost of $24,490. In turn, Great Southern Finance nominated ABL Nominees, a company associated with the Bendigo and Adelaide Bank to be the lender.

For three years Michael Howard paid interest on the loan to Great Southern Finance. Not long afterwards the project was wound up because it had run out of money to cultivate the olive trees. He never received one dollar in return from his investment.

Seven years later, Michael Howard was served with a Statement of Claim from the Bendigo Bank to recover the loan, which by then had grown to $66,569.32 with interest. He decided to fight the claim.

Last week, he succeeded in defeating the claim, not because the project failed, but because the Bendigo Bank was unable to prove that a loan advance had been made. It had a paper trail - a loan deed and associated documents. But did not have a money trail to show that the money had been transferred to Great Southern to pay for the investment.

So in a roundabout way, justice was done. Michael Howard was not forced to pay the investment loan for a failed project. And the Bendigo Bank was ordered to pay his legal costs.

This decision has significance far beyond Michael Howard. He was one of 22,000 investors in Great Southern Projects who used the finance arm to fund their investment, and one of several thousand investors who dispute their loan.

Michael Howard's victory shines a light which may help these investors. For my case note click on No evidence of a loan advance sinks the Bendigo Bank's loan recovery action against a Great Southern investor.


Purplebricks real estate promises greater fee transparency for sellers

Real estate agents charge sellers a commission, which in Sydney is currently 1.65% of the price - $16,500 on a $1m property; plus marketing expenses of about $5,000 which cover a signboard, photography, listings on domain.com.au, realestate.com.au and its own website, brochures and auction expenses.

Online marketers are disrupting this traditional business model. They are doing away with shopfronts, and operate virtual agency models. By doing so, they are able to lower their cost base and charge less for selling a property.

The most prominent online marketer is Purplebricks real estate, which charges a fixed fee, instead of a commission, for selling a property. It advertises prominently a fixed fee of $5.999 in NSW & VIC, and $4,999 in QLD, WA & SA. The fixed fee includes the services of a 'Local Property Expert', photography and write up for listings on the domain.com.au, realestate.com.au and its own website, a generic signboard, and inspections booked on the internet.

You might think that the fixed fee includes accompanied viewings, marketing reviews, marketing upgrades, an auction and so forth. But you would be wrong! In the fine print, you will find that these are additional services for which additional fees are payable.

Consumers complained to the Queensland Office of Fair Trading that Purplebricks was being misleading in advertising fixed fees, when additional fees were payable. The OFT agreed, and as a result, Purplebricks has changed its advertising to make the additional fees payable more prominent, and has agreed to pay $10,000 to the OFT as a 'fine'.

When carrying out its investigation, the OFT found that Purplebricks was in breach of many of the real estate licensing requirements, and fined Purplebricks another $10,000.

For more information on the action taken by the OFT, click on my article Purplebricks promises no misleading advertising of fixed fees and additional services, and admits breaches of the real estate licensing law


Are you selling your home or investment property? Is a flat fee online agent better than a traditional estate agent? Is it the difference in marketing?

Digital disruption has come to real estate agents in Australian in the form of online agencies which are offering marketing and sales services to assist sellers in selling their property for a low fixed-fee. They are undercutting full service real estate agents which charge a sales commission.

Purplebricks is an online agency. For a look at the Purplebricks Real Estate operating model, and how it is attracting owners to list properties in the Australian Real Estate market, click here


Don't sign a personal guarantee to a lease unless you absolutely need to!


When a businessperson negotiates a lease of a shop, their focus is on the rent, the rent free period, the term, the options to renew, the security bond and the permitted use.

The personal guarantee for the rent is an afterthought, unless giving one means a 1 month security bond is negotiated instead of 3 months security bond without one. The fact that giving a director's guarantee removes the asset protection of leasing in a company name is rarely considered.

Fast forward, and for whatever reason, the business is going bad because it cannot make enough sales. The tenant falls behind on their rent. The landlord terminates the lease.

What was once an afterthought becomes the major source of financial stress as the landlord pursues the director's personal guarantee: for rent up to the lease termination, then for rent lost until the shop is re-rented, and finally for make good expenses. Legally, there are few defences to claims made by landlords under personal guarantees.

Two recent decisions by the NSW Court of Appeal demonstrate how financially ruinous a personal guarantee can be:

  • The directors of the ex-tenant - Panetta Fruits at Westfield Miranda were ordered to pay $3,674,555.53 under their personal guarantees, which was equivalent to over 3 years rent.
     
  • The director of the ex-tenant - Circa Newsagency at CircaRetail Bella Vista was ordered to pay $602,178.35 which was equivalent to several years rent.

What options does a tenant have when the landlord demands a personal guarantee? The best option is to offer more security bond - 3 months is common - instead of a personal guarantee. The second best option is to limit the personal guarantee to say 3 or 6 months. The third option is to walk away from the lease.

For my detailed comments on the two Court of Appeal decisions, click Two retail tenancy failures expose directors who gave their personal guarantees to the landlord to ruinous losses


Do car parking spaces add value to a home?

Along with the number of bedrooms and bathrooms, the number of car parking spaces is one of the three standard criteria commonly used in marketing a home.

Click here to read more about their value


Is it a good idea to switch from a family trust to a company to save tax?

With family trusts under threat as a tax shelter, are companies looking like an attractive tax effective alternative?

The tax effectiveness of a family trust is that profits are distributed to members of the family, as you choose, every year. This means diverting the profit distributions away from high income earners to low income earners (such as adult children) to take advantage of the tax free threshold of $18,200, and the 19 per cent tax bracket up to $37,000, so as to avoid distributions to high income earners who have tax brackets of 37 per cent from $87,000 up to $180,000 and 45 per cent above.

The threat (currently the federal opposition policy) is for family trust distributions to be taxed at a rate of 30 per cent. For example: if the low income earner is earning wages (from casual or part-time work) of $15,000 pa, then that is tax free because it is earned income. But on every dollar of trust distribution which tops up income up to $37,000, the tax rate is proposed to be 30 per cent. Trust distributions which top up income above $37,000 will be taxed according to the tax bracket, which is 32.5 per cent.

Company profits are kept by the company - they do not need to be fully distributed each year - unlike profits from a family trust which must be distributed. After paying company tax, the profits do not need to be paid out as dividends. Therefore, if the shareholders are high income earners, they can avoid receiving income which is taxable in a high tax bracket.

The icing on the cake is the recent company tax rate cuts, which for a company with an annual income of less than $25 million, means a tax rate of 27.5 per cent instead of 30 per cent. This means that small company can retain more of its profits.

But the 27.5 per cent tax rate is available only if 20 per cent or more of the company's income is from business activities. That is, pure investment income does not qualify, such as rent, interest, dividends, capital gains and trust distributions

Conclusion: If a flat tax rate of 27.5 per cent is attractive, then it's a good idea to switch to using a company for a new active investment or business.

For more information, click - Real estate investment companies must pass the 80% passive income test to qualify for the company tax rate cut


If you are moving out of a shop or office, do you repaint or leave it as is?

If you own or rent a shop, office, warehouse or factory, the ‘make good’ covenant in the lease usually requires the tenant to repaint the inside. The question is, can the landlord recover what the cost of repainting would be, without actually doing the repainting?

For more click - If you are moving out of a shop or office, do you repaint or leave it as is?


Does Airbnb give Boutique Hotels and B&Bs a competitive edge?

Traditional hotel chains and large resorts have long dominated the accommodation industry because of their strong brand marketing and distribution channels.

But as with so many other industries, the internet is disrupting the traveller accommodation industry. Through internet booking platform operators such as Airbnb, Stayz, eDreams and Bookings.com, the internet is providing small accommodation providers with easy and cheap access to a global market for travellers, whether it is for business or pleasure.

There are four services which Airbnb provides, which give Boutique Hotels and Bed & Breakfasts a competitive edge over traditional hotels and resorts, and which allows them to by-pass the traditional travel agents (brick & mortar or online) in making bookings:

  • Marketing
  • Bookings Management
  • Payments Platform
  • Property Damage & Injuries cover

These services are increasing lodging occupancy and pricing power for small accommodation providers.

For more information about how Airbnb is empowering Boutique Hotels and B&Bs to build their business, Click for more


The law is catching up with Airbnb hosts

Until now, many Airbnb hosts have flown under the radar. That all they are doing is making a little extra money by renting out a spare room in their home.

But as it becomes more like a short-term holiday letting business, as promoted by Airbnb, Stayx, eDreams and others, it becomes more mainstream and widespread, and the government has taken an interest in regulating it. The NSW Parliamentary Inquiry has now issued its report, and the Victorian Parliamentary Inquiry is currently considering submissions on how to regulate it.

These trends are emerging as the law develops:

  • Town Planning Law - If more than 2 or 3 rooms are rented, and if breakfast or cooking facilities are provided, it is a commercial use and a planning approval or a licence as Bed and Breakfast Accommodation is necessary. If a whole house or apartment is rented, planning approval may be necessary either as a separate dwelling on the ‘home block’ or as Serviced Apartment if it is in a strata apartment block.
     
  • Insurance - Renting a room in a home is the same as having a home office for insurance purposes - both are a business use which is not covered by a standard Home Owner policy when it comes to coverage for injuries. It is different for Landlords policies, where coverage is provided for property investments.Malicious property damage is not covered by any policy. Airbnb fills these gaps by providing “Host Protection Insurance” to cover injuries and a "Host Guarantee" to cover property damage by guests.
     
  • Taxation - For income tax purposes, all rents are income and expenses are deductible. For capital gains tax purposes, there may be a partial loss of the main residence exemption because the property has a business use.
    For GST purposes, GST does not apply unless the use is a commercial use.
     
  • Strata Law - The Courts have ruled that any strata by-law which restricts the use of apartments for short-term holiday letting is invalid. Body Corporates cannot bar Airbnb lettings, but can control noise and damage to the common areas. The rest must be left to the planning authority - the Local Council

For more information about the current status of the law in these areas, click: What laws apply to an Airbnb host in Australia?  Click for more


Passionate about property - Property as a superannuation investment

Does property have a place in a super fund? As discussed in chapter 6 of the book 'Super Rich: How to create a tax-free income for life'', there are arguments for and against. The chapter looks at the advantages of property as a super investment.

I’ll explain how property works as a tax shelter outside and inside an SMSF, and how to find and acquire suitable property. Click for more.



Without liability insurance, home owners are exposed to million dollar law suits

Personal injury law suits represent the single largest threat to a home owner's and landlord's assets.

Compensation awards can exceed $1 million for head injuries or spinal cord injuries caused by falling from a ladder, slipping on stairs, and tripping over.

For this reason, it is essential for home owners and landlords to have Liability insurance cover as part of their Home Insurance / Landlord's Insurance policy.

The importance of having Liability insurance cover was recently highlighted in a decision of the Supreme Court of Tasmania. The court ordered the home owner (i.e. their insurer) to pay their roofer over $1.1 million in compensation for his severe head injuries because they owed him a duty of care for his safety while working on the roof.

Without Liability insurance, such an award would have been devastating for the home owner. They would have been forced to sell their home to pay the award, and face bankruptcy for the shortfall.

For more information, click - Roofer falls off ladder set up by home owner; Court orders home owner to pay $1.1m



How liable are you if a visitor slips or trips when entering your property?

VERY LIABLE according a Victorian Supreme Court decision of Scott v Wanklyn.
Of course, liability is not automatic. The property owner/tenant must be at fault (i.e. negligent) in some way.

There is little or no liability if the visitor is at fault, for example, if they are not looking where they are stepping because they are texting on their phone or are wearing slippery footwear.

But if the owner has done something like digging a shallow trench which is hidden by fallen leaves (as in the Victorian decision) or has not repaired a wobbly step or uneven paving, then they are liable.

Public liability insurance covers owners and occupiers liability for injuries to visitors. It is often called the forgotten insurance because it is packaged into the main insurance:

  • For home owners and landlords, it is in their home insurance.
     
  • For business owners, it is in their business insurance.
     
  • For tenants / renters, it is in their contents insurance.

With court awards of hundreds of thousands or even millions of dollars, if a visitor is seriously injured and loses their income, it is public liability insurance that could save your house and save you from bankruptcy.

To read my summary of the Victorian decision, click - Occupier's liability - Aged visitors and uneven access ways are a recipe for injury
 



SHOULD YOU SELL THE FAMILY HOME WHEN YOUR PARENTS MOVE TO AN AGED CARE HOME?

A son, seeking to protect his inheritance, used his power under his mother’s Enduring Power of Attorney to transfer her home unit into his name. This left the mother without assets or funds to pay for her aged care costs.

See Full Article



JOINT VENTURE AGREEMENTS WITH MONEY PARTNERS (INVESTORS)
FOR REAL ESTATE INVESTMENT

See Full Article



THE EFFECT OF THE GST UPON REAL ESTATE

What impact will the GST have on real estate? In this article, we will examine the impact of the GST on residential and commercial real estate, and end with some views on its impact upon the real estate market.

See Full Article



HOW DOES PROPERTY FIT INTO SUPERANNUATION?

Property investment strategies suitable for Super.
Creative ways to get existing property into Super.

See Full Article



VENDOR FINANCE FOR PROPERTIES

With the GFC heralding demise of the sub-prime lenders and the Banks tightening up their lending criteria, between 10% and 20% of potential homebuyers no longer have access to traditional finance to buy their own home.

This gap in the marketplace is gradually being filled by non-traditional financiers, who offer what is known as vendor finance or seller finance to help homebuyers to buy their own home.

Selling homes using vendor finance helps sellers as well as buyers. Sellers can broaden their property’s appeal because the buyers don’t have to find their own finance, and can sell at the price the property is worth.

There are several different kinds of vendor finance, all of which use traditional legal documents.

There is Rent to Buy, Rent to Own, Instalment Contracts, Second Mortgage Carry Backs, Deposit Finance, and Delayed Completion Finance.

See Full Article


For more information, visit our other website www.vendorfinancelawyer.com.au 

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