Property Law

At Felicio Law Firm, we understand the inherent complexities and potential pitfalls involved with co-owning property with another. While purchasing with someone such as an intimate partner, friend, relative or business partner can bring financial advantages and increase borrowing power; it must be approached carefully and with legal support to achieve lasting benefits.

The Importance of Choosing the Right Ownership Structure

One of the most critical decisions to make when buying property with someone else is the ownership structure. In New South Wales, co-owners have two primary options: joint tenants or tenants in common. This choice will have significant and far-reaching implications for estate planning, taxation, and the ability to dispose of one’s share in the property.

Joint Tenants: Under a joint tenancy arrangement, each co-owner holds an equal and undivided interest in the property. This means that no individual co-owner can claim a specific portion of the property as their own. The most notable characteristic of joint tenancy is the right of survivorship – if one owner passes away, their interest automatically passes to the surviving co-owner(s), regardless of any provisions in their will or estate plan. This type of ownership is often chosen by couples or family members who wish to ensure that the property remains within the family in the event of one owner’s death.

Tenants in Common: In contrast, as tenants in common, each co-owner holds a distinct and separate share in the property. These shares can be equal or unequal, depending on the agreement between the parties. For instance, if two co-owners contribute different amounts toward the purchase price, their ownership shares can reflect their respective contributions. Upon the death of one co-owner, their share in the property does not automatically pass to the surviving co-owners but rather becomes part of their estate, allowing them to bequeath their share to chosen beneficiaries through a will or trust.

The choice between joint tenancy and tenancy in common should not be taken lightly, as it will have significant implications for estate planning, taxation, and the ability to dispose of one’s share in the property. It is essential to carefully consider factors such as the nature of the relationship between co-owners, estate planning goals, and potential future scenarios before making this decision.

Drafting a Comprehensive Co-ownership Agreement

Regardless of the ownership structure chosen, it is essential to have a legally binding co-ownership agreement in place. This document serves as a contract between the co-owners, outlining their respective rights, responsibilities, and obligations, and can help prevent disputes and provide clarity on various issues that may arise during the co-ownership period.

A well-drafted co-ownership agreement should address the following key aspects:

1. Contribution to expenses: Clearly defining how expenses such as mortgage payments, property taxes, insurance, maintenance costs, and utilities will be shared among co-owners. This can be based on their respective ownership percentages or an agreed-upon arrangement.
2.  Use and occupancy: Establishing guidelines for the use and occupancy of the property, including any restrictions or limitations on areas that can be accessed or modified by each co-owner.
3. Decision-making processes: Outlining the procedures for making major decisions regarding the property, such as renovations, refinancing, or the potential sale of the property. This may involve establishing voting rights, majority requirements, or other decision-making mechanisms.
4. Dispute resolution: Providing a framework for resolving disputes among co-owners in a fair and efficient manner. This may involve mediation, arbitration, or other alternative dispute resolution methods.
5. Exit strategies: Establishing provisions for situations where one co-owner wishes to sell their share or buy out the other(s), as well as procedures for the potential sale of the entire property. This may include rights of first refusal, valuation methods, and timelines for completing the transaction.
6. Management and maintenance: Outlining responsibilities for the day-to-day management and maintenance of the property, including delegating tasks and determining how costs will be shared.
7. Insurance and liability: Addressing insurance requirements, such as property and liability coverage, and specifying how premiums and deductibles will be shared among co-owners.

Navigating Financing and Mortgage Considerations

When purchasing property with someone else, it is crucial to carefully consider the financing arrangements. Co-owners may choose to jointly apply for a mortgage or have separate financing arrangements, each with its own implications and potential challenges.

Joint Mortgage Application: If applying for a joint mortgage, lenders will typically assess the combined income, credit history, and financial obligations of all co-owners. It is important to understand that each co-owner will be jointly and severally liable for the entire loan amount, meaning that the lender can pursue any or all co-owners for the full outstanding balance in the event of default.

This arrangement can be advantageous for co-owners who may not qualify for a sufficient mortgage individually, as their combined income and assets will be considered. However, it also means that the financial decisions and creditworthiness of one co-owner can impact the others, potentially creating friction or complications down the line.

Separate Financing Arrangements: Alternatively, co-owners may opt for separate financing arrangements, where each party is solely responsible for their portion of the mortgage and associated costs. This approach can provide greater independence and flexibility, as each co-owner is solely accountable for their own financial obligations.

However, separate financing arrangements may also involve additional legal complexities, such as determining how ownership percentages align with mortgage contributions and establishing mechanisms for addressing situations where one co-owner defaults on their portion of the mortgage.

Regardless of the financing approach chosen, it is advisable to seek professional guidance from mortgage brokers, lenders, and legal experts to ensure a clear understanding of the financial obligations, risks, and potential implications involved. At Felicio Law Firm, we work closely with a network of trusted financial professionals to provide our clients with comprehensive guidance and support throughout the property co-ownership process.

Tax Implications and Estate Planning Considerations

Co-ownership of property can have significant tax implications, particularly when it comes to capital gains tax, rental income (if applicable), and deductions for expenses. It is essential to seek professional tax advice to understand the tax implications specific to your situation and to ensure compliance with relevant laws and regulations.

For example, if the co-owned property is an investment property that generates rental income, the co-owners will need to determine how that income will be reported and taxed. Additionally, when it comes time to sell the property, there may be capital gains tax implications that need to be addressed.

Estate planning is another crucial consideration when co-owning property. Co-owners should have a valid will in place to ensure their share in the property is distributed according to their wishes upon their passing. Additionally, co-owners may want to consider other estate planning strategies, such as setting up trusts or establishing power of attorney arrangements, to protect their interests and those of their beneficiaries.

Relationship Changes and Exit Strategies

Relationships and circumstances may change over time, and co-owners should have plans in place should any unanticipated events arise. A co-ownership agreement should address provisions for either co-owner to sell his/her share to or purchase out another co-owner(s), as well as procedures pertaining to selling all or part of a property if irreconcilable differences or significant life events (ie divorce/bankruptcy etc) require it (such as irreconcilable differences / sale process for total property sales etc).

Divorce or separation in co-ownership situations can be particularly complex due to legal and financial entanglements that become complicated as legal battles ensue over valuation, buyout or sale procedures and mechanisms for dealing with outstanding mortgage obligations or division of equity issues. When faced with this circumstance, an effective co-ownership agreement should provide clear procedures for valuation, buyout or sale procedures as well as mechanisms for dealing with outstanding obligations or dividing equity among co-owners.

When one co-owner faces bankruptcy or significant financial strain, their co-ownership agreement should provide guidance as to how best protect the interests of all other co-owners and ensure continued viability of property ownership arrangements.

Arguably the key component of any co-ownership agreement, having clear exit strategies outlined will help avoid conflicts and ensure an orderly dissolution process.

First Home Buyer Benefits and Eligibility

In New South Wales, first home buyers may be eligible for various grants and stamp duty concessions when purchasing a property. When buying a property with someone else, it is important to understand the eligibility criteria and ensure that all co-owners meet the necessary requirements.

For example, if you and your partner are both first home buyers, you may be eligible for a combined First Home Owner Grant and a stamp duty concession on the purchase price, provided that both parties meet the eligibility criteria set by the NSW Government. These criteria typically include factors such as income thresholds, residency requirements, and the value of the property being purchased.

However, if one of the co-owners has previously owned a property, it may impact the eligibility for these benefits. In such cases, it is essential to seek professional advice to determine whether any exemptions or partial benefits may still be available.

The Importance of Professional Guidance

Purchase of property jointly in New South Wales can be an enormously complex and financial endeavor, which necessitates professional guidance to protect both parties involved throughout. At Felicio Law Firm we understand these complexities well and strive to offer comprehensive legal support for our clients throughout this journey.

Our experienced lawyers will collaborate closely with you to understand your individual circumstances, goals, and risks before providing tailored legal guidance throughout every aspect of the process – from structuring ownership arrangements and co-ownership agreements, tax implications and estate planning considerations, as well as potential exit strategies.

As every co-ownership situation is distinct, our approach to co-ownership arrangements varies accordingly. Our legal professionals collaborate closely with trusted financial advisors, accountants and other specialists in order to make sure that every aspect of co-ownership arrangements are considered and addressed properly.

At our firm, we take great pride in maintaining an atmosphere of open communication and transparency with all clients, keeping them up-to-date at every turn and ensuring they fully comprehend any legal or financial implications related to decisions they are making.

Purchase of property with another can be an intensive and daunting endeavor; with legal assistance and support from Felicio Law Firm’s partnership, however, this journey will become both manageable and fruitful. Our firm serves as your reliable ally who strives to safeguard your interests while maximizing investment returns.

Conclusion

Acquiring property with someone else in New South Wales requires thoughtful deliberation and expert legal guidance. At Felicio Law Firm, we understand the complexities and potential pitfalls involved with co-ownership arrangements and are dedicated to providing our clients with comprehensive legal advice and support.

Rising house prices in New South Wales are pushing many young Australians to seek financial support from the “Bank of Mum and Dad”. According to a Finder survey, parents in NSW plan on contributing an average of $81,642 towards their children’s home purchases – this financial help may help overcome obstacles to saving enough deposit, especially considering Sydney’s median property price of around $1.2 million (median property price Sydney).

However, this trend comes with its own challenges. While some parents may welcome helping their children financially, others may struggle to afford such a significant contribution. Furthermore, legal considerations must also be taken into account such as whether the money should be considered a gift, loan or guarantee on loan agreement; both parents and children need a clear understanding of these agreements so as to prevent misunderstandings or financial strain down the road.

Here are some additional points to consider:

• The First Home Loan Deposit Scheme: The Australian government offers this scheme, which allows eligible first home buyers to purchase a property with a deposit as low as 5%. This can significantly reduce the upfront financial burden.
• Financial advice: It’s always a good idea for both parents and children to seek professional financial advice before entering into any financial agreements. A financial advisor can help ensure that the arrangement is fair and sustainable for all parties involved.

By carefully considering all of these factors, families can make informed decisions about using the “Bank of Mum and Dad” to help achieve home ownership dreams in New South Wales.

The Significance of the “Bank of Mum and Dad”

According to recent data from the Australian Bureau of Statistics (ABS), the mean price for an Australian home has reached a staggering $912,700. In New South Wales, where property prices are among the highest in the nation, the task of accumulating a substantial deposit has become a formidable challenge for many young buyers. This reality has given rise to the phenomenon of the “Bank of Mum and Dad,” where parents step in to provide financial assistance to their children, often in the form of gifts or loans to cover deposits, mortgage payments, or even the entire purchase price of a property.

While parental support offers undeniable benefits, such as enabling children to enter the property market sooner and potentially securing more favorable mortgage rates, it also introduces legal complexities that must be addressed proactively. Failure to properly document and structure these financial arrangements can lead to disputes, uncertainties, and potential legal consequences down the line.

Securing Parental Interests: Mortgages and Caveats

When parents act as the bank for their children’s property purchases, it is crucial to establish legal mechanisms that protect their financial interests. Two commonly employed strategies are mortgages and caveats.

1. Mortgages:

If parents are providing a loan to their child for the property purchase, registering a mortgage over the property in favor of the parents is highly advisable. This mortgage serves as security for the loan and grants the parents a legal interest in the property until the loan is fully repaid.

The mortgage should clearly outline the terms and conditions of the loan, including the repayment schedule, interest rates (if applicable), and consequences of default. This legally binding document not only secures the parents’ financial interests but also sets clear expectations and obligations for the child borrower.

By registering a mortgage, parents can ensure that their financial contribution is protected and that they have a legal claim over the property in the event of non-payment or default by their child. It provides a level of security and recourse that is essential when substantial sums of money are involved.

2. Caveats:

Alternatively, parents can register a caveat on the property title. A caveat is a legal notice that alerts anyone interested in the property that the parents have a claimed interest or right over the property. This interest could be the unpaid loan amount or any other financial obligation owed by the child to the parents.

A caveat serves as a temporary measure, providing legal protection to the parents and ensuring that their interests are not overlooked in any subsequent dealings with the property. It acts as a placeholder until a more permanent arrangement, such as a mortgage, can be established.
Caveats are particularly useful when time is of the essence, as they can be registered relatively quickly and serve as an interim solution while more comprehensive legal documentation is being prepared.

Binding Financial Agreements: Protecting Parental Interests in De Facto Relationships and Marriages

When children receiving financial help from their parents become part of de facto relationships or marriage, additional legal considerations arise. Under the Family Law Act 1975 (Cth), property acquired with assistance from their parents may become matrimonial assets subject to division upon relationship breakdown or divorce.

As part of protecting their financial interests and to avoid their property becoming part of matrimonial assets, parents may wish to enter a binding financial agreement (BFA) with both their child and partner.

A BFA is a legally-binding contract that sets out how assets, such as real property, will be divided and treated following relationship dissolution or divorce. This helps safeguard both parents’ contributions while prioritising their financial interests.

A BFA should clearly state that the property belongs solely to the child while parents retain legal interest through mortgage or caveat until loan payments have been fully repaid. Furthermore, this document must detail any financial obligations or consequences due to nonpayment or default that apply directly or indirectly to each party involved.

By creating and signing a legally drafted BFA, parents can protect their financial interests and ensure their contribution towards property purchase is protected, even in the event of relationship breakdown or divorce between their child(ren). By taking this proactive measure now, potential legal battles and losses down the line could be minimized and mitigated altogether.

BFAs also help ensure there is complete clarity and transparency regarding all parties involved, which reduces disputes or misunderstandings among them.

Importance of Professional Legal Advice and Proper Documentation

Given the complexities involved in these legal arrangements, seeking professional legal advice from an experienced family law practitioner is essential. A skilled lawyer can ensure that the BFA is drafted and executed in accordance with the Family Law Act 1975 (Cth), ensuring its validity and enforceability.

Furthermore, lawyers can assist in drafting and registering mortgages and caveats, ensuring that all legal requirements are met and that the parents’ interests are adequately protected. They can also provide guidance on the potential tax implications and asset protection strategies related to these financial arrangements.

Proper documentation is paramount in these situations. Clear and comprehensive records should be maintained, including tax returns, settlement sheets, directions to pay, and any other relevant documents that can support claims of beneficial ownership and intentions.

Navigating the Legal Landscape: The Role of Felicio Law Firm

At Felicio Law Firm, we understand the complexities associated with “Bank of Mum and Dad”, including any legal considerations which need to be addressed. Our experienced legal team is equipped to guide clients through this complex legal landscape while protecting their interests every step of the way.

Designed to enhance transparency and accountability in the strata management sector, NSW Fair Trading launched the NSW Strata Hub online portal on April 1, 2023. The portal’s purpose is to streamline reporting obligations for strata management companies and create a more efficient and accessible system for managing strata schemes.

The online portal followed the implementation of the Strata Schemes Management Amendment (Information) Regulation 2021 (‘Information Regulation’), introduced to address long-standing issues in the strata management sector, including inadequate reporting, lack of transparency, and the challenges faced by owners in accessing vital information about their strata schemes.

The hub is also designed to improve monitoring of maintenance and defect management in more than 83,000 strata buildings across NSW.

Under the new regulation, strata management companies were mandated to submit comprehensive reports on their clients’ strata schemes by December 31, 2022. These reports provided crucial financial data, operational details, and other relevant information for the purpose of creating a centralised database of strata scheme information accessible to owners, tenants, and other stakeholders (including local council and emergency services).

These stakeholders plus other authorised individuals are able to log in to the portal to securely view essential information such as financial statements, meeting minutes, maintenance schedules, and insurance details.

Other key information entered on the portal includes:

• Strata plan number and address;
• Number of lots;
• Classification as residential, commercial or mixed use, for example;
• Contact details for the strata committee, strata managing agent, building manager, etc;
• Date of most recent annual general meeting;
• Cash balance held within the capital works fund (updated annually);
• Due date for annual fire certification; and
• Insurance replacement value.

Deadline for compliance

NSW Fair Trading set a final deadline of June 30, 2023 for all strata schemes within the state to comply with the regulation. The introduction of this grace period was designed to allow strata schemes extra time to gather and organise their data to make the transition to the NSW Strata Hub effective. Non-compliant schemes face potential penalties and restrictions until they fulfil their reporting obligations – these are not intended to be punitive but to encourage compliance for overall improvement of the strata industry in NSW.

For those buying or selling a property within a strata scheme, it’s important to consider whether the scheme has complied with the regulation. Those schemes that embraced the new reporting system have provided confidence for owners, tenants, and prospective buyers, and easier access to financial records so that owners have sight on how strata levies are employed for greater financial accountability.

An additional claimed benefit is improved communication between strata managers and owners, with prompter responses to queries and concerns on issues such as property maintenance and improvement, and faster dispute resolution.

Administration and enforcement of the new portal is funded through a lodgement fee of $3 per lot (GST exclusive) with the strata scheme’s annual report, inclusive of parking and other utility lots if they are deemed to be separate lots for levy contributions. The fee will need to be included in the scheme’s annual budget as an ongoing compliance cost.

Seek expert advice if unsure

At Felicio Law Firm, helping both buyers and sellers with the complexities of strata schemes is one of our specialities. If you have questions or concerns about a strata scheme’s compliance with the requirements of the NSW Fair Trading’s Strata Hub online portal, contact us today for a discussion about how we can help.

Probably the most common situation where someone guarantees a loan taken by another person is that of parents doing so for adult children who wish to buy a house.

In other situations, a person may be a guarantor for a business loan taken out by someone else.

In either situation being a guarantor for the loan – meaning you become legally responsible to the lender that you will pay back the loan if the person the money is lent to fails to make repayments – is an admirable thing to do, but also carries some pronounced risks.

Let’s take a more detailed look at some of the pros and cons of being a guarantor below. Before you agree to be a guarantor, however, or ask someone else to go guarantor on your loan, seeking professional advice from legal specialists with expertise in the rights and responsibilities of this role is essential.

What are the risks of going guarantor on a loan?

Before you agree to be a guarantor on a loan, you should ask yourself some searching questions. Becoming legally liable for someone else’s debt is a considerable burden, and could severely impact your own lifestyle and future.

Particularly in family situations, where a parent may take on the guarantor role to help an adult child take out their first home loan, emotion can sometimes cloud reason.

The key risks to be aware of are:

• Being liable for the entire loan, plus interest and fees, if the borrower can’t make the repayments and defaults. If you are also unable to meet the terms of the loan, the lender may proceed to repossess the asset/s you nominated as security for the loan, including your house.
• As a guarantor, your own ability to apply for a loan may be affected. You will be required to inform a lender of any other loans on which you are a guarantor.
• Should you as guarantor, or the borrower, be unable to meet the terms of the loan, your credit report will be adversely affected and your ability to borrow in the future may be impaired.

A guarantor also needs to consider the possible effect of a family member defaulting on a loan for which they are guarantor. The relationship may be irretrievably broken if the trust implicit in the arrangement is breached.

Guarantor on business loans

Whereas a family member will generally be the guarantor on a home or personal loan, partners, investors or associates are also commonly guarantors when someone applies for a business loan.

With this type of loan, the lender will generally need to be convinced that the guarantor has a genuine relationship with the borrower, an interest in the business and sufficient assets to guarantee the loan.

A residential or a commercial property would usually be considered a sufficient asset to be offered as security for the loan.

Where the loan is for a new business, the guarantor will generally be guaranteeing 100 per cent of the loan because the new business has no assets to use as security. If the loan is to purchase commercial property, the guarantor will usually guarantee a 30 or 40 percent portion of the loan.

Important final questions

As we mentioned earlier, a potential guarantor needs to ask some important questions before signing on to guarantee a loan.

Does your financial situation allow you to take the risk of losing the asset you have offered as security? Are there are other ways you could help achieve the aim of the borrower, such as loaning the money to them directly? How strongly do you trust the borrower to make the necessary repayments?

It’s crucial that before agreeing to be a guarantor, you examine the loan contract, business plan or any other relevant documentation the borrower needs to provide to the lender. The best advice is to treat the loan you’re guaranteeing as if it were your own.

The process can be time-consuming and involved. Expert legal advice from experienced advisers such as Felicio Law Firm is essential. Whether it’s a home or business loan you’ve been asked to guarantee, we can provide understanding and relevant guidance on how to approach the question.

For the majority of people, contracts are not a fun thing to deal with in life. For most of us, they’re just small print.

Therein, however, is the danger. Many people entering into a contract find themselves in a difficult situation when a problem arises, such as one party not fulfilling their end of the deal or where there is some other dispute. If the issue is not dealt with in the contract, or not expressed to be in your favour, then you may be in a weak position with no recourse.

This situation can be particularly common in domestic building contracts. In their enthusiasm to have their renovation started, or their new house built, people often skim the details of the contract with the builder and are left in a vulnerable position if a dispute or disagreement emerges.

This article will look at the essentials of domestic (rather than commercial) building contracts in NSW and Queensland, where Felicio Law Firm has a proud track record advising clients over many years on what they need to know before putting pen to paper on this type of contract.

Essential things to know about building contracts

Unlike the old days, relevant statutory organisations such as Fair Trading NSW now provide ‘model’ plain English contracts which make it easier for consumers to access guidance on what a building contract should and should not include.

In any building contract, some key things to take note of include:

• That the contract is written in clear English; states the names and addresses of the parties to the contract; includes the builder’s current registration and/or licence number.
• The contract sets out all the terms relating to the building, including detailed descriptions of the work to be carried out, plans, specifications and any other relevant documents.
• That special requirements and finishes used in the building are set out and specified. Ideally, fixtures and fittings are also detailed in the contract, including their costs, as ‘prime cost’ items. If their nature and price are not yet known, they should be included as ‘provisional sum’ items.
• States the total price for the works, including the amount of the deposit and any schedule of progress payments (including ensuring progress payments relate to work completed and not time on the job).
• That the date on which the contract becomes effective is stated, as well as a clause about the cooling-off period. It should also include state a start and a finish date for the work, with allowances for delays.
• A section defining words and key phrases used in the document.
• Details on any implied warranties, including their duration.

NSW building contracts

In NSW contracts relating to residential building are governed by the Home Building Act 1989, whether you’re building a new home, or altering or renovating an existing one.

Any such project valued at more than $5000 requires a contract. Even for building projects valued under that amount, you should consider a contract or written agreement.

Building projects valued between $5000-$20,000 can be covered by a ‘small jobs’ contract. These contracts contain most of the points covered above, including the details of both parties; the contractor’s licence number; detailed descriptions of the work, including plans and specifications; and a contract price, if known.

This type of contract in NSW should also have clauses relating to:

• ‘Quality of construction’, which states that the proposed work will comply with the Building Code of Australia, as required under the Environmental Planning and Assessment Act 1979.
• Other relevant codes, standards and specifications that the project must comply with.
• The conditions of any relevant development consent or complying development certificate.
• Limitation of the contractor’s liability for failure to comply with work compliance clauses because: a design or specification prepared by or on behalf of the home owner (but not the contractor); or a design or specification required by the home owner if the contractor has advised the home owner in writing it goes against the ‘work compliance clause’.

A more detailed written contract is required for work costing more than $20,000. It should include all the details included in a small jobs contract, as listed above, as well as:

• Relevant statutory warranties required by the Home Building Act 1989 (such as that the work be done with ‘due care and skill’).
• The contract price, including warning provisions where the price is subject to change or is not known.
• A prominent clause about the cooling-off period of five clear business days for both parties once the contract has been received, for contracts valued over $20,000.
• A checklist of essential matters to tick off, such as the contractor having a current licence, details of when variations can be made to the contract, the costs of insurance or another indemnity scheme, termination clauses, etc.
• A progress payment schedule, covering fixed payments, interval payments or a combination of both.
• A termination clause.
• A note that the contractor must give you an insurance certificate under the Home Building Compensation (HBC) Scheme.
• A clause that any variation to the contract or its plans and specifications must be in writing and signed by both parties.
• A clause that the work will comply with the Building Code of Australia, and all other relevant codes, standards and specifications that the work is required to comply with under any law.
• A clause limiting the liability of the contractor for failure to comply in certain circumstances.

A builder or tradesperson must give the owner a copy of the contract within five business days after it has been signed.

Queensland building contracts

In Queensland domestic building contracts are covered by the Queensland Building and Construction Commission Act 1991 (‘the QBCC Act’), which sets out contract requirements for the erection or construction of a detached dwelling (i.e. a single, free-standing home or duplex) or the renovation, alteration, extension, improvement or repair of a home, as well as for other domestic building work such as a driveway, fence or swimming pool.

QBCC provides standard form contracts, as do Queensland industry associations, or the parties can create their own, though if this latter course is taken, legal advice from experienced contract lawyers such as Felicio Law Firm should be sought.

Introduction of Schedule 1 B in the QBCC Act introduced two levels for domestic building contracts in Queensland – Level 1 contracts for jobs priced between $3301 and $19,999, and Level 2 contracts for those costed over $20,000.

Requirements in a Level 1 contract are similar to those for NSW contracts listed above. The contract must be in writing, dated and signed by or on behalf of the contractor and the owner; contain the names of the contracting parties including the name and licence number of the building contractor; a description of the contracted work; the contract price; the date for practical completion or how the date is to be determined; a copy of any plans and specifications; notice to the owner about cooling-off period rights; and clear identification of the site where the building work is to take place.

A fully signed copy of the whole contract must be given to the owner within five business days after the contractor enters the contract. Variations or changes to the contract after it is signed must be detailed in writing in a compliant variation document and approved in writing by the owner before the variation work commences.

Implied warranties in this contract include that materials must be new and suitable for purpose; work is carried out in accordance with all relevant laws, legal requirements and the plans and specifications; work is carried out with reasonable care, skill and diligence; and that a home will be suitable for occupation when the contracted work is finished. Breach of these warranties can result in legal action which must be commenced within the warranty period (i.e. within six years for a breach resulting in a structural defect, or one year in any other case).

A Level 2 contract for work valued above $20,000 includes all the same points for Level 1 contracts plus:

• Provision of the QBCC Consumer Building Guide to the owner before the owner signs the building contract.
• The start date (as well as a date for practical completion), or how it is to be determined, must be stated.
• Relevant statutory/implied warranties must be stated in the contract.
• The contract price (if fixed) and a price change warning (detailing provisions which could cause the contract price to increase or decrease) must be prominently featured on the first page of the contract schedule.
• Where the contract price is not fixed, the method for calculating the price including any allowances (e.g. for Prime Cost Items or Provisional Sums) must be stated in the contract schedule.
• Within 10 business days of work commencing on site, the contractor must provide a Commencement Notice to the owner stating the date work commenced on site and the date for practical completion.

The need for legal advice

While there is plenty of official guidance on domestic building contracts these days, it is always wise to ask for guidance from a law firm with many years’ experience advising clients on obtaining a contract that clearly establishes all of the responsibilities of both parties and also protects their rights.

Call Erina Lawyers today for further guidance on your domestic building contract. (02) 4365 4249.

An issue many people may be facing in these tough economic times – whether caused by the COVID-19 pandemic or other factors – is falling behind on their home mortgage.

Potentially losing your home is a frightening prospect for anyone and the situation is often exacerbated by the fact an individual is facing the power and resources of the major financial institution who lent them the money to buy the house.

This article is designed to give you the basics on what happens when your mortgage is in arrears and your financial lender takes action to possess or foreclose on the property so that they can satisfy your debt to it, including your rights and obligations.

You’re in arrears on your mortgage repayments – what next?

A borrower is in arrears as soon as they miss a mortgage repayment. Other than providing a reminder notice and perhaps offering a hardship variation of repayments so that the borrower can catch up on repayments, most lenders refrain from serious action on mortgages in arrears until 90 days have passed (usually equating to three months, or three mortgage payments missed).

At any stage once a borrower is in arrears, a lender may issue a default notice allowing the borrower 30 days to fix the default by making the missed repayments, or applying for a hardship variation. If the borrower takes no action within this time period, the lender has the right to seize and sell the mortgaged property in order to recover the whole debt.

The next steps will see the lender serve a statement of claim or summons on the borrower for the arrears, and/or the whole debt, and/or the possession of your home. You then have a set period to respond by filing a defence or lodging a complaint with the Australian Financial Complaints Authority (AFCA).

If you do not respond within the specified period, the lender receives a court judgment in its favour and may apply for a writ to take possession of the property. This is followed by a Notice to Vacate with details on when you will be evicted from the property.

Even if legal proceedings have been commenced by a lender to repossess a property, a person with a mortgage can enter into dispute resolution to try and achieve the best outcome in their circumstances, such as a good sale price for the home. This may constitute a financial hardship arrangement giving them time to sell the property. A negotiation on this basis may involve providing evidence to the lender that the home is on the market, such as a contract with a real estate agent, a marketing plan and ‘for sale’ ads for the home.

After a court judgment about repossession, the dispute resolution process is only available in very limited circumstances and expert legal advice should be sought.

The important difference between repossession and foreclosure

Many people are confused by the difference between repossession and foreclosure. While foreclosure is quite common in places like the United States, repossession is more common in Australia.

This is because foreclosure involves a court proceeding in which the lender applies to have the borrower removed as the title-holder of the property and itself substituted as the owner. With repossession, the lender obtains a court order to take over the property in order to sell it, but the title remains with the borrower.

Because foreclosure can be a lengthy and costly process, repossession of a property where the owner is in arrears is more common, particularly in Australia.

In order to repossess the property in NSW, the lender needs to obtain an order from the Supreme Court. If your property is tenanted, the tenant must be notified, however the court can still make the repossession order even though the tenant did not know about the proceedings.

Supreme Court orders for possession are enforced by the NSW Sheriff’s Office, who will serve the home owner or the tenant with a notice giving the tenant at least 30 days to vacate the property. If you do not move out within this period, the Sheriff can remove you from the property.

What are your options once the property is repossessed or foreclosed?

If your property is repossessed by the lender, it is possible to apply for the judgment to be set aside in some circumstances, provided you can provide a good reason for not stating a defence earlier and you have a cross-claim against the lender. The guidance of legal representatives with experience in mortgagee repossession is vital here.

You can also seek a stay of enforcement of the court order in order to gain more time to sell the house, refinance, or find alternative accommodation. It may even be possible to negotiate a hardship variation with the lender if you’re granted a stay, which are generally only granted for short periods.

Property sale and the place of mortgage insurance

The lender has certain obligations to the property owner in selling the repossessed property.

Specifically it must:

• take reasonable steps to sell the property at market value;
• act in good faith;
• not recklessly sacrifice the interests of the title-holder.

While the lender must account for the sale of the property, it does not need to keep the title-holder informed about the progress of the sale, nor does it have an obligation to improve the property for sale. It may also charge you for its reasonable costs in taking possession of the home and the sale process. These costs can be challenged if they appear unreasonable.

After sale, any money in excess of the loan amount will be forwarded to you as the title-holder. But if the sale of the property results in a shortfall on the loan amount, you are still liable to the lender for the amount owed, including interest, costs and fees.

If you took out mortgage insurance with the lender when the home loan was negotiated, the insurer will pay this shortfall to the lender but also seek reimbursement from you as the policy-holder. Without insurance, you will be pursued by the lender for the outstanding amount on the loan.

In this situation you may need to apply for a release from the debt on compassionate grounds or by citing long-term financial hardship. A repayment plan or even filing for bankruptcy may be the most sensible options thereafter.

Seek expert legal advice

In real life, the steps outlined above are terrifying and stressful. For most people their home is likely their only major asset. To lose it is devastating.

At Felicio Law Firm we have years of experience helping people facing repossession or foreclosure when they fall behind on the mortgage. We can guide you through by providing realistic, workable solutions designed to achieve the best possible outcome in your situation.

Contact us today for an initial appointment on (02) 4365 4249.

Discretionary trusts are a legal instrument that offer control and flexibility in both holding and distributing property or other assets to beneficiaries of the trust.

There are also significant tax advantages for property and assets held in such a trust, which is one reason they are a popular structure for small businesses, particularly family businesses.

A discretionary trust – sometimes also referred to us a ‘family trust’ –invests in the trustee the power to determine the nominated beneficiaries of the trust and the discretion to distribute property and income to them in whichever amounts they choose. This means beneficiaries have no interest in the trust property unless the trustee exercises its discretion. The trustee is not held to predetermined arrangements or agreements about distributions, as in a fixed or unit trust.

Beneficiaries will usually be close family members, other family companies or charities. Significantly not all beneficiaries need to be included at the establishment of the trust; they can be added later under the trust instrument.

Below we’ll briefly outline the key advantages and disadvantages of establishing a discretionary trust. If you are thinking this structure may suit your circumstances, you should seek the guidance of a legal practitioner with expertise in the area of trusts to ensure you are fully aware of both the benefits but also the drawbacks.

The advantages of a discretionary trust

Asset protection: Property and assets held within a discretionary trust are held beneficially for the beneficiaries by the trustee. This structure means trust assets cannot be taken by creditors in bankruptcy proceedings, unless the claim relates to a debt of the trust.

Some discretionary trusts use a corporate structure in which the directors of the company act as the trustees. This form is preferred by some people because companies are perpetual and on the death of a director, a new director can be appointed without affecting the company. Even in this situation, property held by a company as trustee is not accessible by creditors in a liquidation of the company, unless the debt is a debt of the trust.

Estate planning: Generally speaking, the ownership of assets held in a trust cannot be passed on through a person’s will. But by making a testamentary discretionary trust under a will, which only takes effect on death, the trustee can exercise discretion in the payment of income and capital of the trust to the beneficiaries.

This is a strength of a discretionary trust to protect against the situation where a beneficiary is or becomes bankrupt. Where a person inherits assets in their own name, these pass to the trustee in bankruptcy. In a testamentary discretionary trust, the beneficiary’s inheritance is protected, provided they have not transferred wealth to the trust with the intention of defeating creditors.

Likewise that inheritance is in general protected in the event the beneficiary experiences a marriage or de facto relationship break-up and the ex-partner seeks access to the assets or income via a Family Court order, though it should be noted the Court may still consider any assets owned by the discretionary trust as a form of financial resource which could become a factor in the split of assets.

Tax effectiveness: Discretionary trusts can be a tax effective structure as a holding entity for investing in real estate, other fixed assets, shares or units in trusts. Income derived from these assets is held in the trust, which distributes it at its discretion in any particular year.

Each beneficiary pays income tax on his or her allocated share of income, according to his or her normal tax rate. In a simple discretionary trust held by a husband and wife, for example, if she earns much more than he does in a year and is taxed at the top marginal tax rate, it makes sense to distribute a greater share of trust income to the husband, who will be taxed at a lower marginal rate.

There is a significant capital gains tax advantage, too. If the investment is held in the trust for more than 12 months, any gain on the value of the investment is eligible for a 50% capital gains tax discount when it is sold, but only if the capital gain is distributed to an individual beneficiary.  Expert tax guidance from a tax lawyer or accountant would be required.

Flexibility: Beneficiaries can accumulate assets within the trust structure. Unlike superannuation funds, there are no contribution limits or restrictions on where to invest, unless specified by the trust deed.

Trusts can also represent a simpler reporting structure when it comes to tax liabilities, debt deductions and dividends on investments.

And the disadvantages…

Beneficiaries lack legal or equitable interest in property: Since beneficiaries do not own the assets of the trust, they do not hold a legal or equitable interest in trust property, meaning the trustee or trustees can employ their discretion to change allocations from the trust on a whim.

There may also be a restriction on who can be distributed to if you need to make a family trust election (FTE). An FTE entitles the trust to certain tax concessions when claiming losses from prior years or imputation credits on franked dividends received. Making an FTE, however, means family trust distribution tax is imposed when distributions are made outside the family group.

Only profits are distributed: Losses are trapped in the trust and cannot be distributed to a beneficiary in order to reduce their taxable income.

Complexity and compliance: Depending on whether your discretionary trust is a close family trust or uses a corporate structure, and the number of beneficiaries, the trust instrument can be complicated. There can also be onerous compliance obligations, particularly when it comes to taxation, adding to the administrative costs of maintaining a trust.

Attracting investment: Investors can be more difficult to attract to a business where a trust structure is employed. Banks who are unfamiliar with the terms of the trust deed may express hesitation about lending for investment.

Ask us for guidance

Whether a discretionary trust is suitable for your situation based on the factors we’ve outlined above is a decision you should consider after expert legal advice.

At Felicio Law Firm, we have years of experience advising people on both the benefits and potential drawbacks of establishing a discretionary trust for protection of family and/or business assets.

Call us Erina lawyers today on (02) 4365 4249 for an initial consultation in which we can fully discuss with you the implications of setting up a discretionary trust.

Trusts are a complex area of the law, particularly when it comes to taxation.

In NSW, when a foreign person – defined as an individual not ordinarily resident in Australia, a foreign corporation or a foreign government holding a substantial interest – acquires residential land in the state, ‘surcharge purchaser duty’ is payable by that foreign person. NSW residential land owned by foreign persons is also subject to ‘surcharge land tax’. Both these ‘foreign surcharges’ are payable in addition to any other duty or land tax payable.

Where a discretionary trust exists, the trustee may be liable for these foreign surcharges if any one of the potential beneficiaries of the trust is a foreign person. This applies to all potential beneficiaries under the various categories of beneficiaries provided for under the relevant trust deed, not just the named beneficiaries.

It’s a wise course of action to seek the advice of legal professionals experienced in the administration of trusts in order to avoid these foreign surcharges, which we’ll provide some more detail on in this article.

What a discretionary trust must do to avoid foreign surcharges

The NSW Commissioner of Revenue released a practice note in June 2020 on how surcharge purchaser duty and surcharge land tax is applied in situations where land is held by a discretionary trust, clarifying the application of section 104JA of the Duties Act 1997 and section 5D of the Land Tax Act 1956 to this situation.

The advice noted that potential beneficiaries of a discretionary trust are not limited to those named in the trust instrument and can include members of any class of persons to whom, or for whose benefit, trust property can be distributed or applied when the trustee exercises its discretion. This can include beneficiaries who are not included when the trust deed is executed, including foreign persons for the purposes of the foreign surcharges.

In this circumstance, the trustee of a discretionary trust will be designated a foreign person.

The note advised that to avoid being a foreign trustee, the discretionary trust must ensure:

1. no potential beneficiary of the trust is a foreign person; and
2. the terms of the trust must not be capable of amendment in a manner that would result in a foreign person being a potential beneficiary. This is known as the ‘no foreign beneficiary requirement’ and is usually satisfied when the terms of the trust prevent any property of the trust being distributed to or applied for the benefit of the person.

Some examples

The Commissioner’s note provided a number of examples applying the provisos around discretionary trusts and foreign persons.

A simple example is where a couple maintain a family trust and have children who are the primary beneficiaries. Potential beneficiaries of the trust include future spouses and children of those children who are primary beneficiaries. To remain exempt from foreign surcharges, therefore, the trust must be amended to exclude any foreign beneficiaries and this amendment must be irrevocable.

In a similar example, potential beneficiaries may include children but also their spouses, grandchildren, aunts and uncles, and an Australian charity operating in Australia for the benefit of residents in Australia.

Even though there may be no existing foreign beneficiaries, the trust must still be amended irrevocably to exclude any future foreign potential beneficiaries.

In another example where the trust owns no land in New South Wales, the trust does not need to contain a prohibition on foreign persons being beneficiaries. But if the trust purchases residential property in NSW it will be liable for surcharge purchaser duty in 2020 and surcharge land tax for the 2021 tax year. To escape liability for foreign surcharges, again it will need to amend the trust deed to explicitly exclude potential foreign beneficiaries.

In some cases, the trust instrument will already exclude a class of beneficiaries, including foreign persons, and is not capable of amendment. In this case the trustee will not be liable for foreign surcharges.

In the circumstance where an Australian corporation enters into a contract for the purchase of residential property in NSW and the corporation’s shares are held in a discretionary trust, the company will be liable to surcharge purchaser duty if the trust does not contain a provision to exclude foreign beneficiaries.

It should be noted that corporations are considered foreign persons if a shareholder who is a foreign person has a substantial interest in it, including where a discretionary trust is the shareholder of the company.

Further examples are available for us to discuss with you in cases where general beneficiaries of a discretionary trust will only benefit after the death of the principal beneficiary, or if the trustee is liable for surcharge purchaser duty on a transfer of dutiable property that occurred before 24 June 2020, or after that date but before midnight on 31 December 2020. In the second case, the trustee will still not be liable if the terms of the trust have been amended before midnight on 31 December 2020.

Seek our advice today

If any of the issues in this article relating to liability for foreign surcharges by a discretionary trust need further explanation, please contact us today on (02) 4365 4249 for an initial consultation. We are specialists in family trusts and can advise you in a prompt and relevant fashion on what you need to do to avoid foreign surcharges.

Developing land for either residential or commercial use in NSW can be a complicated and time-consuming process. From the purchase of the land through to all the issues posed by construction and the ultimate sale of the property, it can be a challenging path to a final profit.

One of the trickiest issues for any developer is dealing with local councils and other relevant authorities to not only gain consent for the project, but also remain compliant with the multitude of legislation, by-laws and other rules which govern property development in NSW.

This article provides a general overview of what’s required through that particular part of the process, but recommends any developer avail themselves of the guidance of expert legal professionals before interacting with government authorities during development, be it local, state or Federal.

What are the key things to know for a property developer

Once you’ve navigated finance and purchase issues to secure a property, the steps to get a development project off the ground have just begun.

It’s important to do your due diligence before securing the land you wish to develop. Different councils interpret NSW development laws in different ways in order to ensure a development is appropriate in its area. A good understanding of the local authority’s approach to town planning will help prevent costly delays in approval of your development project.

There are nine different planning approval pathways in NSW, determined by the size and scale of the development. While smaller development projects such as home renovations and even modest commercial or industrial constructions may be dealt with by the ‘exempt’ or ‘complying’ development pathways (where on application, the project already meets specific standards and land requirements) – and are therefore faster to approve and commence – most residential and commercial property development will fall under the ‘local development’ pathway.

A development is considered local development if a local environmental plan (LEP) or State environmental planning policy (SEPP) states that development consent is required before the development can take place; and it is not considered to be either regionally or ‘State significant’ development.

A developer can enter the address of the proposed development at NSW Planning Portal to see what planning constraints and zoning rules affect the property.

If your development needs consent, an application must be lodged with the local council and will need to include:

• A description of the development;
• the estimated cost of the development;
• a plan of the land;
• a sketch of development;
• environmental assessment in the form of an environmental impact statement or statement of environment effects.

The ultimate aim, of course, is a development consent issued by the ‘consent authority’. This will usually be the local council unless the SEPP specifies the NSW Planning Minister as the consent authority.

The stages of gaining development consent are detailed at the NSW Department of Planning, Industry and Environment website here.

Under the Environment Planning and Assessment Act the council will assess the development application (DA) on the basis of:

• All plans and policies that apply, such as SEPPs and LEPs.
• Impacts of the proposal on the natural and built environment and the social and economic impacts in the locality.
• The suitability of the site for the proposed development.
• Any submissions from neighbours or other groups.
• Any comments or agreements/approvals from any NSW Government agency.
• The broader public interest.

Avoiding pitfalls and likely costs

Time is money and delays during the DA process can significantly impact the economic viability of a development, particularly if the obstacles are serious. Commonly delays arise because the developer has failed to prepare properly in terms of complying with some of the factors we’ve discussed above.

The best way to make sure your DA can proceed relatively smoothly through the process is to rely on the expertise of others in the preparation stage. An experienced architect or designer, builder, town planning specialist and legal expert are some of the key people who can help you avoid costly delays.

Detailed site analysis, research on other recent developments in the surrounding area and speaking with consultants who’ve advised on similar developments are all recommended before you get to the DA stage.

At this stage a thorough budget should also be put together. There are many potential costs facing any developer. Some of those in relation to approvals from government authorities include:

• The DA fee, including the cost of referral to State Government agencies.
• The construction certificate fee as well as fees incurred in the building process for official inspections, engineer’s certificates and more.
• Development contributions payable for State and local services.
• Conditions that may be imposed by council such as bonds to cover potential damage to surrounding infrastructure; environmental clean-up or rehabilitation; dilapidation surveys of attached properties, etc.
• Water and other service connections.

It’s advisable to itemise the known outlays in terms of paying for government approvals and services at the outset of the development.

Discuss your development proposal with us

This article serves only as a brief overview of what’s involved in a progressing a residential or commercial development through the processes demanded by local councils and higher government authorities.

For more detailed advice and guidance, contact Felicio Law Firm. We have the background in all matters related to property development to offer clear, targeted advice that will save you time and money when dealing with the regulatory regime. Call us Central Coast Property Lawyers for an initial consultation today on (02) 4365 4249.

If you’re a landholder in NSW, particularly in regional areas, there’s always a chance your land could be sitting atop a valuable mineral resource.

So what happens when mining companies with the finances, expertise and equipment to access and utilise such a resource want to explore your land to further investigate the natural asset? Is there compensation? What are your rights as the landholder?

Whether they are located on privately owned land or not, most mineral resources are owned by the state in which they’re found. Royalties from the mining of natural resources are a significant part of state revenue, used to fund services for residents of that state.

But both landholders and explorers have statutory rights and obligations when it comes to accessing land for mineral exploration, with the Mining Act 1992 providing specific landholder protections in respect of dwellings, gardens and significant improvements. It also sets out a statutory right to compensation for any ‘compensable loss’ suffered due to exploration carried out under an exploration licence or assessment lease.

Read on for a brief overview of the position of landholders when a potentially valuable natural resource is discovered on their land.

Access arrangements

Land access arrangements are negotiated between a landholder and a mineral explorer to ensure an orderly process by which a mineral resource can be explored and assessed on privately owned land. These agreements are based on mutual recognition of each parties’ rights and obligations, and set out the terms and conditions under which the resources company can access the land. No work can begin without such an arrangement in place.

It should be noted that access arrangements differ between mineral and petroleum titles, with agreements for mineral explorers applying only to exploration and for petroleum, both exploration and production.

Land access arrangements are usually written agreements between the landholder and the holder of an exploration title, though they are also sometimes determined through either mediation or an arbitration process. Such arrangements might include details on:

• Times and dates the exploration titleholder is allowed access to the land;
• which parts of the land the titleholder may work on;
• the sorts of exploration activities permitted on the land;
• the compensation payable by the titleholder (either monetary or in-kind);
• the procedures for varying or changing the arrangement, as well as dispute resolution processes;
• notification requirements;
• any other conditions and requirements agreed to by the landholder and the titleholder.

If an explorer contravenes any of the conditions within the agreed access arrangement, access to the land can be denied.

What happens when circumstances under the arrangement change?

Access arrangements may be varied where the landholder’s title changes, or the existing access arrangement may continue in force. If the original exploration licence on the land is renewed for a further period, again the arrangement may be varied or continue in force.

Arrangements are generally in place for the duration of the planned exploration work but can be varied or terminated by agreement between all parties, through an arbitrator, or – on application by any of the parties – by an order of the Land and Environment Court if the arrangement was determined by a court or an arbitrator.

In situations where a landholder and exploration titleholder can’t negotiate an arrangement between them, NSW legislation sends the parties to a mediation process. If mediations are unsuccessful, parties proceed to arbitration where an arbitrator will make a determination, which can be appealed in the Land and Environment Court if unsatisfactory to either party. Landholders and titleholders are required to act in good faith throughout this process.

A landholder’s rights

In addition to the rights contained in the details of access arrangements listed above, landholders also have:

• • Avenues of recourse where an explorer fails to observe the terms of the access arrangement;
  • general immunity against actions arising as a consequence of titleholder actions on their land;
  • full rehabilitation of their land by the explorer.

Where compensation is payable, landholders can get an indication of amounts payable by checking the Independent Pricing and Regulatory Tribunal (IPART) website for its 2015 report and guide to benchmark compensation rates for gas exploration and production. Expert, independent legal advice should be sought before proceeding to make a compensation claim against an exploration titleholder.

Speak with us today

At Felicio Law Firm we have the necessary understanding and experience of the rights of landholders and how they are protected by NSW legislation. We will provide relevant and timely advice if a mining company wishes to further explore a resource located on your land.

While very few exploration licences proceed to a production facility, the issues around access arrangements, arbitration, changing agreements, rehabilitation and compensation can be complex and time-consuming. We can make the process relatively trouble-free so call us for an initial consultation today on (02) 4365 4249.