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Hard to get Foreign Buyers to buy? It just got 3% harder.

Starting 1 October 2016, foreign buyers will have to pay an additional 3% transfer duty (stamp duty) when buying residential land in Queensland. This surcharge is called Additional Foreign Acquirer Duty (AFAD). In order to keep this update brief we will not detail the definitions here. Suffice to say the legislation throws a fairly wide and heavy blanket over definitions of foreign buyers, foreign individuals, foreign corporations, AFAD Residential Land and Foreign Trusts to make sure that all categories of buyer will fall within the new laws.

Long Arm of the Law

It goes further to ensure that if an Australian entity (with Australian shareholders or trust interests ) is used to buy the land and that entity later becomes a foreign entity within 3 years (for example as a result of transfers of shares or trust interests), then the transaction will need to be re-assessed and more duty presumably paid. For example an internal share transfer from Australian Citizen  / entity to foreign entity / individual after settlement won’t avoid the additional duty payable.

Similarly, land which ultimately will be used as AFAD Residential Land will be subject to a five-year reassessment period.

Transitional Provisions

Contracts signed before 1 October 2016 will not be subject to AFAD, even where settlement occurs after that date. However, the same cannot be said about options. That is, if an option is entered into before 1 October, but exercised on or after 1 October, AFAD will apply.

“Nice Shouse!”

When Jed Clampettt buys next door….

Picture this

• 12 months ago – Seller lists his vacant block with you. Once he signs up he hands you the forest of pages of stuff he thinks is pertinent. You know most of it’s not, but you’re polite.
• 10 months ago – You finally get that block away. Settlement is smooth and the buyers invite you for a quick glass of bubbles, and show you their plans for the ‘dream home’. Blood drains from your face as you recall the early discussion with your seller when he handed you the ream of paper muttering something about stupid building guidelines.
• 3 months ago – the liveable shed (aka “shouse”) is finished (amazing it took that long really).
• One week after that – your seller receives a notice from the developer’s lawyer of its intention to claim $25,000 in liquidated damages as was agreed in the original contract. He emails it to you and his lawyer chasing ‘input please’.
• One day ago  –  your seller’s lawyer is on the phone, that really nice but tenacious one from PD Law. Says her client told you about the building covenants. She wants to have a quick word if that’s ok.
• Right now –  mouth dry, you’re dialling the seller’s mobile.

What are building covenants?

Design guidelines, architectural codes, building covenants. There are loads of names but they generally mean the same thing: the developer of a residential estate drew up some prescriptive rules about minimum building standards with the intent that all dwellings built in that estate meet a certain minimum standard. We’ll call them building covenants here.

When are they binding?

In the original contract between developer and a first buyer, the first buyer must comply with the building covenants because it’s a binding contract (as long as those conditions are themselves lawful!). However if the first buyer sells the block without having built on it to a second buyer (Jed), and doesn’t ensure in the contract that Jed’s bound by those building covenants, Jed’s good to go on the shouse, and so on down the line as the block is sold over and over. Once the contractual ‘chain’ is broken, subsequent owners are free to build what they like as long as they comply with relevant statutory building codes.

To provide themselves with a bit more coverage, developers make sure they’re indemnified by the first buyer for any loss suffered down the line because of the Jed effect. Sometimes developers add another stinger which states that an agreed cash payment represents the loss the developer faces for any breach down the line. Although these penalty amounts can themselves be a bit tricky to enforce, it’s better to avoid the issue in the first place.

Only consider this in the context of freehold vacant land. Things are a little different in a community title context, where other guidelines and covenants can in some circumstances be embedded within a community management statement.

Don’t let the Pool Safety Inspection Date sink your deal

We’re seeing loads of contracts with either the wrong date or no date at all. Here’s a quick refresher on when it’s necessary, and what can happen if dates are missing, or wrong

When do you need to complete it?

When:

• there’s a pool;  and
• there’s no current pool safety certificate.

When you don’t need to worry about  it?

When the vendor’s already got a current pool safety certificate, or … when  there’s no pool …

What date do you insert in the Reference Schedule?

In the Pool Safety Inspection Date, insert the date by which the buyer’s inspector should have checked the pool before settlement.

The Pool Safety Inspection Date, is the date you insert in the contract, if you forget to insert it, it’s the earlier of:

• the date of any pest / building report; or
• if there is no building and pest condition,  2 working days before settlement.

What date don’t you insert?

The one we see most (and it’s wrong) is the date on the vendor’s pool safety certificate.

What’s the buyer allowed to do if the date applies?

Get the inspection done before the Pool Safety Inspection Date to see what has to be done to have a pool safety Certificate issue.

What happens after the inspection?

If no pool safety certificate issues by the Pool Safety Inspection Date the buyer can either:

• terminate and get his deposit back, or
• waive his rights and move on to settlement.

(we encourage parties to negotiate a fix on a without prejudice basis before settlement).

Common Error 1

The wrong date is inserted (eg the date of the existing Pool Safety Certificate is inserted as the inspection date)

The  fall out

• If the certificate hasn’t expired, then beyond it being plain wrong (you can’t have an inspection date before the contract was signed), you’ve probably dodged a bullet.
• If the certificate has expired – potential problem because the buyer can now engage a pool safety inspector to inspect prior to the Pool Safety Inspection Date, which is now no later than 2 working days before settlement.

Picture this:

Your seller and you sweat through:

• the cooling off – check
• the finance date, and a couple of other curly special conditions – check

The seller’s happier (finally), and starts packing up, goes ahead and signs up on the deal of a lifetime in Sydney. Buyer gets cold feet, and her exceedingly clever lawyers (PD Law) suggest she does a pool safety inspection in the week leading up to settlement. The fence doesn’t comply, she walks, takes her deposit back and buys a house down the road, using another agent!

The Seller is holding on line 3 for you. Wants to talk…

Common Error 2

No date is inserted at all

The  fall out

• If the Pool is compliant, probably benign again. Maybe a sleepless night or two, but short of a tyrannical safety inspector the pool will comply.
• If the pool isn’t compliant, same scenario as above, and the buyer has another potential out.

So, to avoid a case of the sweats, when this clause applies just think of the date like finance, pest and building inspection dates, not a past date.

Cheers, until next time, from the team at PD Law

But it’s in the letting pool. I can’t give vacant possession

Avoiding the 11th hour panic call from your seller

The problem
It’s pretty common in unit sale contracts to see holiday letting appointments inserted in the tenancy details information in a sale contract, and a copy of the letting appointment attached (and no special conditions referring to it).

This won’t help buyer or seller for a stack of reasons, the primary one being that a holiday letting appointment with a letting manager is not a tenancy agreement, so vacant possession still applies. In these situations, the buyer typically insist on vacant possession, and to avoid a terminated contract the seller may have to bring their letting appointment to an abrupt end, leaving them liable to the letting manager for damages for loss of income.

As the agent you’ll be peppered with calls from both sides at the 11th hour looking for a solution or someone to blame.

The Solutions (Because we’re over achievers, we’ve got 3!)

1.  Longer settlement date
Instead of the usual 30 day settlement period, opt for a term longer than the minimum termination notice under the letting appointment (usually no less than 90 days). This gives the seller time to lawfully exit the letting appointment without penalty.

*2. Special condition  – subject to amicable early termination of letting agreement
Use this condition if the parties want to settle earlier than what we’re suggesting above. It provides that the contract is subject to the Seller reaching an agreement with the letting agent and provide vacant possession, failing which the Seller can terminate.
*3. Special condition – buyer agrees to enter into replacement letting agreement  
Use this condition when the buyer would like to continue to keep the property in the letting pool. There can be many other variations to these.  As always, give us a call if you would like any help before the parties are locked in.

 

$50? $100 maybe?  A light meal at a casual restaurant?  A few rounds with friends? A tank of fuel?

Now consider that number in the context of say a $500,000 house purchase. On anyone’s scale, it’s a tiny proportion. And yet that’s all it takes to cloud consumer judgment when it comes to choosing legal services.

In the conveyancing industry, consumers need to stress test their quotes, and what looks like a slightly cheaper alternative is unlikely to be the case. Some of the ‘fleas’ that come with a cheap quote can be add ons, hidden extras and limited service just to name a few.

So, even though at first glance we may not be as cut price as some of the larger Queensland wide, bulk turnover conveyancing shops, we offer a guarantee we know we can back up 100%: our service is always better – way better:

• You get what you pay for – our fees are fixed and transparent – no hidden extras
• Our people have been doing this stuff for a gazillion years, and we’re very good at what we do
• Our product is excellent, well developed and professional
• Our two-fold aim is to:
  •    win each client’s business for life, and
  •    ensure the agent referring us doesn’t ever suffer ‘blowback’ from a disgruntled consumer of our services.

 

We’re the alternative. Thanks in advance.

When are your vendor clients, (and you) locked in by email?

Some sellers and buyers don’t want to be locked in until the proverbial ink dries on the contract. You’ve probably seen or even typed emails during negotiations with phrases like  subject to the parties signing a formal contract..., which have traditionally made it clear to other side that there’s no deal until the contract is signed.

A recent Supreme Court decision has shone a light on this practice, with some adverse consequences for a seller and its agent.

Bear with us, we’ll be brief:

• The seller engaged the agent to sell its commercial property and business. The agent found a buyer and started negotiating with the buyer’s representatives. The price was circa AUD$1.75m
• The parties each adopted words similar to those above (subject to the parties signing a formal contract) in email exchanges
• However they also used other phrases which ended up giving some mixed messages. Here’s a great example:

I look forward to receiving your clients confirmation that our offer is accepted as clearly both parties are now going to start incurring significant expenses.”

• The response to this was equally confusing:

“We accept the below offer which we understand will be subject to execution of the contract provided…”

• The seller found another buyer willing to pay more.

“We suspect that, at about this time, all hell broke loose and people became concerned about their employment!”

• The Court confirmed that a contract can exist even though:
  • the “subject to execution of the contract” correspondence was used;
  • negotiations were between buyers’ employees and seller’s agents;
  • some conditions were still yet to be agreed on; and
  • no contract was ever signed.

Lessons to be learned

The lessons to be learned are:

• be crystal clear in your choice of words when negotiating deals
• signatures and contracts are not always necessary to evidence an agreement.

As always, if in doubt about your turn of phrase, or that of the other side, just call us. Fallout can be minimised by some early, simple, clarifying correspondence.

Cheers, from the team at PD Law