Buying a first home has always been a financial challenge, but housing affordability in Australia has declined so much in recent decades that younger generations are struggling to gain entry to the property market at all. As a result, more parents wish to take practical steps to help their children step onto the property ladder.

This article explores three common ways that parents can assist their kids buy a home: through a gift of cash, a loan, or by acting as a guarantor. In addition, we will look at two less common approaches: co-ownership purchases and using trusts to assist children to make their first home purchase. We’ll delve into the pros and cons of each approach, highlighting key considerations and the main risks of each option. The information is general only and we strongly recommend that you seek professional advice before taking any course of action.

Gifts

Many parents choose to simply provide their children with a monetary gift to assist with their first property purchase. This gift can be used for a deposit or to reduce the mortgage amount.

This is a generous gesture that provides children with the maximum freedom to immediately use the funds to assist them with a property purchase. In addition, receiving this gift should have no tax implications for the recipient.

However, such a gift will have an irrevocable impact on the parents’ finances, without the promise of future repayment. Parents should only make such a gift if it will have no impact on their financial security in the future.

Loans

Alternatively, parents can opt to provide a loan to their children to be repaid over time, with or without interest. These loans may be recorded in a formal written loan document, although it is not uncommon for these loans to be verbally agreed between the family members.

Loaning money provides a structured approach to assist children with the purchase of a home. With a carefully drafted loan agreement, including a structured repayment schedule, this can be a way for parents to help with less risk to their own financial security.

However, loans between families can be a source of relationship conflict, especially if the loan is not repaid in a timely fashion. Moreover, family loans are often not well documented, and this can result in the parties having a very different understanding of their obligations. In the worst case, these arrangements can result in legal challenges and a breakdown of family relations.

Seeking legal advice when loaning money is a wise step. A legal professional can draft clear agreements and ensure that all parties fully understand the terms and consequences.

Guarantor

Going guarantor usually means that parents use their own property or assets as collateral to secure a home loan for their children. This approach can help their kids avoid paying Lender’s Mortgage Insurance and may allow a purchase to go ahead with a substantially smaller deposit.

This approach enables parents with assets, such as a family home, but limited free cash, to help their children without having to put up any money of their own. Most significantly, by reducing the need for a large deposit, going guarantor can assist children to enter the property market many years earlier than they may be able to manage without assistance.

However, it is very important that parents realise that this is not a low-risk option. Too often, parents will go guarantor without fully understanding that they can lose their own assets (including their home) and are personally liable for repayment of the loan if their children fail to meet their mortgage repayments.

Property Co-ownership

A less common option is for parents to purchase a property with their children, sharing both the financial and legal responsibility. This provides a sense of security for the younger buyer and allows for sharing property expenses. It also has the benefit that both parties will gain from any increased equity. This can be an especially good option for parents of young adult children, who can share a house purchase with a child that would otherwise have to wait many years to afford their own property.

However, like the other options discussed, this approach can be fraught with challenges. First, it is vital that the correct ownership structure is chosen, so that there is no doubt as to what happens to the property if one party passes away or wishes to sell. It is also important that there is an agreement about how issues will be dealt with during the life of the co-ownership, such as unexpected property expenses. You should plan for various future scenarios, such as what happens if your child decides to sell the property or if you want to reclaim your investment. Having an exit strategy in place can help prevent potential disputes.

Finally, consideration should be given to any benefits that the children will miss out on due to the joint enterprise, such as benefits only available when all purchasers are first home buyers.

Family Trusts

Often families with significant or complex assets will use a family trust to assist their children, or even grandchildren, to purchase property. A trust can offer various options for transferring property or assets to children while allowing parents to maintain control and direction over the assets.

This approach can have tax benefits, although this is an area where it is necessary to obtain expert advice tailored to the circumstances. The need for ongoing legal and financial advice and administration can make this a complex and expensive option. It is usually only advisable for families with significant or complicated assets, or where control and protection of the asset is an important consideration.

Conclusion

Money can strain even the most amicable relationships. Consider the potential impact on family dynamics when providing financial assistance to your children and discuss expectations and obligations openly.

Each method, whether gifting, loaning, going guarantor, co-ownership, or establishing family trusts, comes with its own set of advantages and drawbacks. Consider the potential impact on family relationships, document financial transactions to mitigate risks, and seek legal and financial advice to make informed decisions.

If you or someone you know wants more information or needs help or advice, please contact us on 07 3281 6644 or email mail@powerlegal.com.au.

Buying a property with someone else is a great way to share the fun, stress, and cost of the venture. Often people buy a house with their significant other, to make a home or invest together. Others buy property with friends, relatives or business partners. Joining forces with someone else can increase your borrowing power, and pooling savings can bring a deposit within reach.

However, there are pitfalls to buying a property with someone else. It is better to think about these issues up front and take steps to ensure that everyone is protected.

Joint Tenants or Tenants in Common?

One of the fundamental questions is how the property will be held. During a purchase, buyers are asked if they want the title to be held as “joint tenants” or “tenants in common”. It is important not to rush this choice. It has a significant effect, and everyone involved needs to be comfortable with the decision.

The most common form of ownership is joint tenancy. This means that both people own the property, and neither can sell their “share” to a third party. If either person dies, the property will automatically belong solely to the surviving owner. In that case, it is not possible for one of the owners to make testamentary arrangements to leave their share to someone else. Joint tenancy is common for couples who own a family home together, but it is not the right choice for every partnership. Some couples, for instance, may wish for their share of a home to benefit their children rather than their spouse, particularly if they have children from a previous relationship.

In contrast, if a property is held as tenants in common, the owners each possess a distinct share in the property. A share can be bequeathed through a will to someone other than the co-owner. This share can also be mortgaged or sold (with or without the consent of the other owner/s).

One of the advantages of tenancy in common is that the shares can be held unequally. Imagine that three siblings decide to buy a property, they can hold the property equally (each having 33%) or, if one person contributed more than the others this additional contribution can be reflected in an unequal holding. If one sibling puts up the whole deposit, it may be fair for them to own 50% of the property, while the siblings who contributed nothing up-front (but who will contribute to the mortgage and ongoing costs) each hold 25%.

It is also possible to have a mix of joint tenants and tenants in common. For instance, if a couple decide to pool their resources with a friend to buy a property, the couple can be joint tenants while the friend is listed as a tenant in common. This means that if one of the couple dies, their partner will receive their share of the property, while the ownership of the friend remains unchanged.

Potential Issues of Buying with Someone Else

Unfortunately, the best laid plans do not always work out. Relationships break down, people die, are sued, and go through bankruptcies. Any of these circumstances can complicate the co-ownership of a property.

Broadly speaking, joint tenancy is the best arrangement for couples who want their partner to own the whole property if either of them die. The change of ownership is automatic and only requires notification to the relevant Titles Office. However, a joint tenancy can be a burden if a relationship breaks down. Neither person can make decisions about the property without the other, so it forces the separated parties to work together to take actions such as selling or renting the home. After separation, it is necessary to deal with the property, whether this involves selling or refinancing it into one person’s name, or even just applying to sever the joint tenancy.

People at risk of bankruptcy or being sued sometimes think that holding property in joint tenancy will protect the asset. This is not correct. A court can order a joint tenancy to be severed, the ownership apportioned equally between the owners, and the share of the property owned by the debtor sold. In fact, a tenancy in common may offer greater protection in such scenarios, because the debtor may own less than 50% of the property.

Benefits of a Co-Ownership Agreement

Whether a property is owned as joint tenants or tenants in common, it can be very useful to have the additional insurance of a co-ownership agreement. This agreement is essentially just a contract used by people who buy property together.

A co-ownership agreement sets out each owner’s rights and obligations and should also include provision for what will happen if an owner wishes to sell or mortgage the property. A well-drafted co-ownership agreement can help avoid disputes in the first place or help guide the parties to resolve any dispute that does occur.

If you or someone you know wants more information or needs help or advice, please contact us on 07 3281 6644 or email mail@powerlegal.com.au.

Conveyancing is the legal process of transferring the ownership (title) of property (real estate) from a seller to a buyer.

For most people, buying or selling property is one of the largest financial transactions they will ever make, and the conveyancing process is usually undertaken with the assistance of a conveyancer or lawyer.

Sometimes people choose to do their own conveyancing, instead of hiring a professional. There are a few factors you should consider before you decide to undertake your own conveyancing and it is also vital to understand the conveyancing process, as it may become complex.

What you should consider before choosing DIY conveyancing

Conveyancing is often considered one of the more ‘routine’ legal services offered by a law firm. However, the complexity of a property transaction and the formalities required are often under-estimated. The process moves quickly and once a binding contract is entered, the legal ramifications for breaching the contract, whether you are buying or selling, can be significant.

DIY conveyancing kits may seem tempting as they claim that these kits make the conveyancing process easy because they can save you time and money. They may  cost anywhere from $150 to $200 and provide step by step instructions on how to carry out your conveyance. The DIY kits are available for purchase for buyers and sellers.

If you are considering using a DIY kit, you should ensure:

• You can confidently use legal documents and understand legal terminology, including researching the property, ensuring both parties follow the law, and that all money goes where it is supposed to.
• You have enough time to be able to complete the conveyance process on your own, especially if this is the first time you are doing this.
• You weigh up the cost of carrying out your own conveyancing as opposed to paying a professional to do so and whether it’s worth saving that bit extra when compared to the large financial transaction you are about to make.

Why should I hire the services of a conveyancer or lawyer?

If you are not confident with legal terminology, are short on time, or have a complex property transaction, you could end up spending more money and time by attempting to undertake your own conveyancing work.

Using a professional to undertake the conveyance ensures the transaction is completed accurately and without delay. A conveyancer or lawyer can ensure that a compliant contract is prepared to begin with, that all title details are correct, and that special conditions tailored to each parties’ particular needs are included. They will also ensure the correct stamp duty and other transfer associated fees are paid, and encumbrances on the title removed prior to settlement so that the property can be properly transferred.

Whether you choose a conveyancer or property lawyer, both professions require significant study and training, and most have conducted numerous conveyancing transactions. Accordingly, you benefit from years of knowledge and expertise, which is vital when it comes to avoiding common pitfalls, carrying out due diligence on a property you are purchasing, ensuring pertinent disclosure issues are covered if you are selling, and advising on ownership interests.

Another advantage of hiring a conveyancer or lawyer is that they will have full indemnity and fidelity cover, whereas if you do your own conveyancing, you will be liable for any mistakes that are detrimental to the other party of the conveyance.

Conclusion

There is a lot more to conveyancing than filling out a few forms. If you’d rather not deal with government departments, banks, and complex legal documents, it is probably in your best interests to hire the services of a lawyer or conveyancer to process your property sale or purchase. Is it worth risking the successful conveyance of your property just for the sake of saving a few dollars?

If you or someone you know wants more information or needs help or advice, please contact us on 07 3281 6644 or email mail@powerlegal.com.au.

Identifying and understanding easements in a property transaction is an important part of the conveyancing process.

Vendors are required to disclose all easements affecting the land they propose to sell in a property contract, and buyers should ensure they are aware of the impact an easement will have on the land they are about the purchase.

Your property lawyer will identify any easements affecting your proposed purchase and explain their effect on the use of the land.

What is an easement?

An easement is an interest attached to a parcel of land that gives another landowner or a statutory authority a right to use a part of that land for a specified purpose.

The easement is registered on the title of the property and affects a defined area of the land. The easement is generally shown on the plan of the land with a brief description noted or more fully described in a further document (instrument).

Examples of easements include:

• a right of carriageway (right of way) allowing the owner of landlocked property to access their land by travelling over a portion of neighbouring land – example; a shared driveway used for a battle-axe block;
• a cross-easement which provides neighbouring properties reciprocal rights to use each other’s property in the same manner – example; for mutual support of a structure such as a party wall between terrace houses;
• an easement for services such as electricity, water or sewerage – the easement may be over or under the property, and may run parallel at the rear or side of a property – example; sewer pipes laid underneath the land by the local water authority or an overhead electricity transmission line.

Easements are recorded on the title deed to a property, noted on the registered plan and incidental instruments, and / or shown on sewerage diagrams.

Legal terminology

When discussing easements, you may hear the terms ‘private and public – dominant and servient – positive and negative’. These terms generally refer to how the easement is created and who benefits from the easement.

A private easement is an easement created between landowners. When such an easement is created one parcel of land will benefit from the easement (the dominant tenement) and the other parcel of land will be burdened by the easement (the servient tenement).

A positive easement provides a landowner with a benefit, such as the right of way described above that allows the landowner to cross over another’s property to access his or her own. That same easement is considered a negative easement by the neighbouring landowner, as allowing the access impacts upon that landowner’s unrestricted use of the land.

A public easement is one created by a statutory authority over one or more parcels of land such as the easement for water services described above. This is also an example of a negative easement as the easement will restrict building over that part of the land (see below).

The effect of an easement

An easement provides certain rights and restrictions and owners of land with registered easements should understand their legal implications.

A party who is lawfully authorised to benefit from an easement, such as the neighbour with a right to use your driveway to access his or her property, and who uses the easement in the prescribed manner, will not be liable for trespass. As the owner of the servient tenement you must not interfere with or restrict these rights.

If an authority has an easement registered over your land, such as an easement for electricity or sewerage services, then the authority will have the right to access your property and to carry out repairs and maintenance on the easement.

An easement will also impact on your building and development plans. Owners are generally prohibited from building over or too close to an easement or must obtain approval from the authority who owns the easement to do so. If a structure is built over an easement without permission or where permission is denied, then the owner will be legally required to remove the structure.

Extinguishing or terminating an easement

In some circumstances, an easement may become redundant or may no longer be required. In such cases, it may be practical and advantageous for an owner to have a registered easement removed from the property’s title. Removal of a negative easement may increase the value and / or appeal of your property.

There are several ways that an easement may be extinguished or terminated.

• Express release – the parties affected by the easement may agree to terminate the easement and register their agreement with the relevant land titling authority.
• The owner of the servient tenement may apply to have the easement extinguished on the grounds of ‘abandonment’. This is established by the non-use of the easement and an intention on the part of the owner of the dominant tenement to abandon the easement.
• In some circumstances, where the dominant and servient tenements are consolidated into a single parcel of land.
• In circumstances where there is an alteration of use of the dominant land to the effect that use of the easement by the servient land comes to an end or is rendered obsolete.

Conclusion

Understanding easements and their effect on property is a fundamental part of the conveyancing process and buyers, in particular, should ensure they are aware of the impact an easement will have on the land they are about the purchase.

This information is for general purposes only. You should obtain professional advice before undertaking any course of action.

If you or someone you know wants more information or needs help or advice, please contact us on 07 3281 6644 or email mail@powerlegal.com.au.

You’ve walked the streets, negotiated with agents and vendors, signed contracts and loan documents and finally await the settlement date with great anticipation.

With just a week to go before the big day your lawyer calls to advise you that last night’s big stormfront hit your dream home. The roof of your house is no more and there is extensive water damage to most of the internal fixtures.

Can you get out of the contract? Is the vendor obliged to fix the damage before settlement? What if you still want to proceed with the purchase but the vendor does not?

This article explores the legal position of a purchaser and vendor when the subject of the sale is damaged after exchange of contracts but before settlement – the information is relevant to both parties involved in a residential conveyancing transaction.

The passing of risk

In Queensland, standard contract terms generally provide that the risk of loss or damage to a property passes from the vendor to the purchaser at 5.00 pm on the first business day after the date of the contract. It is therefore essential that a purchaser takes out insurance to protect the property and for public risk, from this time.

Although the risk passes to the purchaser, the vendor has an obligation to take reasonable care of the property until settlement and not do anything that would significantly alter the property to the detriment of the purchaser. In other words, if a vendor is reckless or negligent in caring for the property, the purchaser would likely have rights to claim damages.

Can the purchaser terminate the contract if the property is damaged?

The right for a purchaser to terminate a contract due to damage depends on the significance of the damage.

The Property Law Act 1974 (Qld) entitles a purchaser to rescind the contract if, prior to possession or completion (whichever is the earlier), a dwelling house (including a unit in a strata complex) is ‘so destroyed or damaged as to be unfit for occupation as a dwelling house’. This is a statutory right of termination and cannot be omitted or altered by a contrary provision in the contract.

If the purchaser wishes to rescind, he or she must give written notice to the vendor or vendor’s solicitor before possession or completion. The purchaser is entitled to recover the full deposit.

Whether or not a house or unit is unfit for occupation will be a matter of fact and degree in each case. Generally, if the property is unsafe or where it would be impossible to live in the dwelling without a reasonable level of comfort, then the purchaser will have the right to terminate.

Minor damage / fair wear and tear

A purchaser has no statutory right to terminate a contract or be compensated for damage that does not make the dwelling unfit for occupation. The purchaser must therefore settle on the completion date relying on his / her own insurance to recover any loss.

In some circumstances, purchasers who fail to take out insurance at the contract date, may be able to claim under an insurance policy held by the vendor but it is unwise to rely on the vendor’s insurance and always prudent for purchasers to obtain their own.

Summary

The extent of damage sustained to a property will affect the termination rights of the parties to a contract after exchange and prior to completion.

Vendors and purchasers should be aware of their respective rights and ensure adequate insurance is maintained to cover the risk of loss.

This article is intended to provide general information only. You should obtain professional advice before you undertake any course of action.

If you or someone you know wants more information or needs help or advice, please contact us on 07 3281 6644 or email mail@powerlegal.com.au.

A retirement village is a community-style residential development offering accommodation, facilities and services to people from retirement age onwards.

There are many types of arrangements which should be carefully explored before making your move to retirement-village living.

You will need to ensure that the village you choose meets your specific needs and that you understand your legal rights and responsibilities under the retirement village contract.

Following is a brief overview of the different legal arrangements for retirement village living and our top five tips when considering your move.

Retirement village arrangements

Buying into a retirement village does not necessarily result in outright ownership of the property. Whilst many strata or community developments facilitate this, most retirement village arrangements are either loan-licence or leasing arrangements.

In a loan-licence arrangement the resident pays an up-front contribution (interest-free loan) to the retirement village operator. Ongoing contributions follow and the resident occupies but does not own the premises. When leaving, the resident may need to pay an exit fee and may or may not share in any capital growth from the property.

A leasehold arrangement requires the resident to pay regular fees set at a market rate. The payment of other contributions and outgoings will vary between villages depending on the level of accommodation and services provided. Again, the resident may be required to pay a departure fee when leaving.

Following are our top five tips when considering your retirement village move.

What do you want to achieve?

When planning your move, consider your goals and objectives in light of your personal circumstances such as your age, health, family arrangements (who and how close they are) and your personality (whether you are social or prefer solitude).

If you are recently retired, independent and in good health, you might be looking towards accommodation that is spacious, includes a garden, and is set in a village offering various facilities and activities. If you are more sedate, you won’t want to be paying for the upkeep of golf courses, tennis courts and a swimming pool if these activities do not interest you.

Consider also whether the care services offered will be sufficient to support you for the years to come. Although you cannot predict the future, it is sensible to assume that you will require more care and assistance as we age. The availability of health and nursing services, meal preparation and assistance with cleaning and other domestic duties are important factors.

Remember, entry into a retirement village does not result in an automatic subsequent entitlement to aged care services. This assessment is made at the Commonwealth level.

Once you have a clear idea of what you are trying to achieve, consider the retirement village’s location, the proximity of entertainment, shopping and health services, the quality of buildings, care services and available facilities. Obviously, the more lavish the village and extensive facilities offered, the more you will pay.

What will ‘village life’ be like?

Your day-to-day retirement living will be influenced by the managing body and rules setting out the rights and obligations of residents.

The rules include matters concerning the keeping of pets, whether friends and family can stay over, car parking arrangements, maintenance of buildings, common areas and gardens, whether social activities are arranged and use of recreational facilities such as libraries, communal dining areas, etc.

Some retirement villages are operated by private enterprises whilst some are run by the community, churches or charitable organisations. This may impact upon the daily ‘vibe’ of the village and the types of activities arranged.

Accommodation and services and the associated village rules can vary significantly between villages – it is important to get the right fit for your lifestyle.

Understand your legal rights and obligations

It is important to understand the type of arrangement you are entering, whether it be an outright purchase, loan-licence or leasehold arrangement. The legal relationship between the resident and village operator and contractual provisions from village to village can vary significantly.

Always have your documents reviewed and explained by an experienced lawyer. It may be helpful to take a family member or friend with you when meeting your lawyer to discuss issues raised during the meeting, and help to recall matters afterwards for follow up.

Village operators and agents should be transparent when giving information and provide detailed disclosure regarding the fees, amenities and services. Contracts should set out the terms and conditions pertaining to the resident’s right to occupy the premises, the permitted use of common facilities and types of services available which may include assisted living or aged care.

Consider the financial implications

Fees and charges comprise waiting list fees, holding deposits, ingoing contribution fees (purchase fee) and ongoing payments and service fees. Potential residents should ask whether maintenance costs are covered in regular payments or if these are additional and check under what circumstances deposits are refundable.

Often under-estimated when entering the contract, is when and how exit or departure fees are calculated when leaving the village – in some instances residents may be shocked to learn that they receive significantly less than anticipated. Exit provisions should be set out clearly – if in doubt ask for an explanation and example.

Meeting with your financial advisor is recommended if you need to plan or restructure your financial affairs. You will need to ensure your obligations can be met and determine the most effective financial strategy for your circumstances.

Regulation and reputation

Retirement villages are regulated by legislation in each state and territory. The governing laws require retirement villages to be registered or accredited with a specific government department charged with administering these rules. Village registration and accreditation can be verified with these organisations.

Village operators must give adequate disclosure and information regarding the retirement village before a person signs a contract. Proposed residents can request information about the services offered and details regarding financial arrangements and fees, budgets, sample contracts, site layout and plans.

Potential residents should enquire about the retirement village’s reputation and ask questions about how it is managed. Speaking to other residents is a good starting point.

Retirement village legislation provides important protection for people considering retirement village living – being aware of your rights and seeking good advice will help you to make a careful and well-informed choice.

Summary

Retirement villages provide an opportunity for older residents to live in maintenance-free accommodation in a secure community with access to services and facilities. Villages vary in style, quality, availability of services, legal arrangements and cost.

Potential residents should shop around, gather as much information as possible and not be pressured into signing a contract.

If you or someone you know wants more information or needs help or advice, please contact us on 07 3281 6644 or email mail@powerlegal.com.au.

The responsibility for remitting Goods and Services Tax (GST) to the Australian Taxation Office (ATO) generally falls on the party making the ‘supply’. In a property transaction, this has traditionally meant the vendor or developer (supplier), unless the contract provides otherwise.

From 1 July 2018 purchasers of ‘new’ residential property must deduct the GST from the purchase price of the property and remit this directly to the ATO on or prior to completion.

These reforms are designed to strengthen compliance with GST obligations and specifically address concerns involving some property developers making taxable supplies and failing to remit the GST collected on those sales to the ATO.

The changes are implemented through the Taxation Administration Act 1953 (Cth) which operates Australia-wide and therefore potentially affects all purchasers, vendors / developers of residential property.

What types of transactions are affected?

The reforms apply to ‘new residential premises’ or ‘potential residential land’. Property that is ‘new residential premises’ means property that:

• has not previously been sold as residential premises; or
• has been created through substantial renovation of a building; or
• has been built to replace demolished premises.

‘Potential residential land’ is land that is permissible to be used for residential premises but does not contain any buildings that are residential premises (i.e. houses or strata units). Inclusion of the term ‘permissible’ means that if the local government zoning allows a mixture of residential and commercial use, then that land is still considered ‘potential residential land’.

For the most part, the reforms essentially apply to all off-the-plan residential property purchases and vacant land in a new subdivision.

The changes commenced on 1 July 2018 and affect all relevant contracts, however contracts entered before 1 July 2018 are excluded if the purchase price is paid before 1 July 2020.

What do purchasers of new residential property need to do?

If you have entered or enter a contract for new residential property which is caught by the provisions you will need to withhold and pay the relevant GST from the contract price to the ATO on or before ‘supply’ (which in most cases will be the settlement date). Generally, the GST amount will be:

• 1/11^th of the contract price; or
• 7% of the contract price if the margin scheme applies.

Vendors / developers will need to provide written notice of their GST obligations and, if GST is payable, this component must be withheld from the contract price and remitted to the ATO. The contract price does not include settlement adjustments such as council and water rates.

Submitting GST withholding payments

Two ATO on-line forms are used to facilitate the remittance process:

• Form 1 – GST property settlement withholding notification
• Form 2 – GST property settlement date confirmation

Each form provides details of the contact person, the property, the GST withholding amount and the parties to the transaction (purchaser and vendor / developer).

Purchasers are responsible for submitting these forms which can be completed by their conveyancer or lawyer who will make the necessary adjustments in the settlement statement and remit the amount to the ATO on behalf of the purchaser at settlement.

Forms are submitted after the contract has been entered into and a supplier gives written notification to the purchaser that a GST amount must be withheld from the contract price. The first form advises the ATO of the transaction and pending GST requirement and generates a unique payment reference number. The second form confirms the settlement date and is submitted at the time of settlement when payment has been made to the ATO.

What do vendors / developers need to do?

Vendors / developers must not sell residential premises or potential residential land without written notification to a purchaser about the requirement to withhold and remit GST from the contract price. If there is no requirement to withhold GST this must be clearly stated on the notice.

If a GST amount is required to be held, the notice must include the supplier’s ABN details, the correct entity for payment of the GST, the settlement date and the amount payable.

The notification may form part of the contract for sale or be provided separately.

The GST is paid direct to the ATO by the purchaser on settlement and applied as a credit towards the supplier’s GST account.

The supplier then reports the GST withheld on its next Business Activity Statement (BAS) and will be entitled to a refund if the amount paid exceeds the actual GST liability for the relevant period.

Consequences for vendors / developers

The regime has significant implications on vendors / developers who should ensure processes are in place to deal with the changes.

• Existing contracts should be reviewed to determine if they will fall within the provisions and therefore require the appropriate notification (for example, contracts that are already on foot but will not settle until after 1 July 2020).
• New and pro-forma contracts should be reviewed and amended in line with the provisions and, where relevant, include positive obligations for purchasers to remit the GST to the ATO, noting that credits will not be able to be claimed unless / until the GST component has been remitted.
• Failure to notify a purchaser in accordance with the regime is a strict liability offence and developers face penalties of up to (currently) $21,000 for individuals and $105,000 for corporations. Consequently, systems should be updated to ensure the inclusion of the appropriate notices for the supply of residential land.
• The provisions effectively prevent developers from interim access to the GST component of a settled contract, which was previously available until the BAS was lodged and assessed for the relevant period. This could impact available working capital and developers may need to review their cashflow requirements to manage the provisions.

Conclusion

The reforms are aimed at improving the integrity of the property development industry and ensuring suppliers comply with their tax obligations. They add additional steps to the conveyancing process for residential property transactions, however can be managed through appropriate processes and systems.

If you or someone you know wants more information or needs help or advice, please contact us on 07 3281 6644 or email mail@powerlegal.com.au.

Life throws us obstacles now and then and it’s not uncommon for some of these to challenge our financial security.

Mortgage stress – when we struggle to meet our home loan repayments, probably affects more people than you think.

A mortgage is essentially a ‘statutory charge’ in favour of a lender over property held in the borrower’s name. The mortgage secures the repayment of the money loaned and the associated loan contract gives the lender the right to repossess and sell the property if repayments are not made.

Missing a mortgage payment however does not necessarily mean you will lose your home. A mortgage is a long-term commitment and your lender will generally work with you to remedy the situation.

This article provides guidance on what to do when you can’t meet your loan repayments and an overview of your rights and your lender’s responsibilities if a solution cannot be found and repayments remain unpaid.

I’ve missed a loan payment, what do I do?

Let your lender know. This is the most important first step. Contact your lender and let them know you are aware of the situation and plan to fix it. Better still, if you know in advance that you will not be able to make a payment when it is due, be proactive.

Banks and building societies have specific areas that deal with loan defaults. As it is in both parties’ interests to get things back on track, they are generally happy to assist. The quicker you act, the more likely you will be offered a solution and the more options you will have.

Most lenders have hardship programs in place to assist borrowers facing financial difficulties.

If your financial problems are short-term and you are genuine in your attempts to repay the loan, you may be able to arrange to temporarily defer payments, take a repayment holiday, extend the term of the loan, or refinance. Each case is assessed on its own merits and your lender will usually assist you provided the usual checks are in place to ensure you (and they) are not likely to be financially worse off.

Your lender may require a statement of financial position to assess whether you will be able to come to a suitable arrangement for repaying your loan.

Don’t panic and talk to your lender before you consider short-term, high risk alternatives such as using credit cards, taking out personal loans or borrowing from friends.

What rights does the lender have when I can’t pay my mortgage?

By holding a registered mortgage over your property, a lender (mortgagee) has a statutory right to take certain action if you default in your loan repayments. A power of sale is generally written into the loan contract and allows the mortgagee to sell the property to recover the mortgage debt and associated costs.

The loan contract sets out additional matters such as the right to charge a higher rate of interest when the account is in arrears (default interest), the right to charge additional fees and to be reimbursed for the costs of chasing you for loan payments.

If you can no longer comply with the terms and conditions of the loan the lender can:

• exercise power of sale, take possession of the property and / or foreclose on the property, selling it to recover the debt together with interest and associated costs such as agent’s fees, legal fees and any costs of insuring and maintaining the property;
• if the proceeds of sale do not cover the debt due, sue each of the borrowers personally for the balance.

What are my rights?

A mortgagee will usually exercise its power of sale rights after a default continues for a period of one month (unless some other time is stated in the mortgage). The mortgagee must ensure due process is taken before exercising these rights.

All borrowers (mortgagors) must be given formal written notice and allowed 30 days to remedy a default before action is taken. Notices must be correctly served on each defaulting mortgagor to the addresses specified in the mortgage documents.

The mortgagee must act in good faith towards the mortgagor. This means that the mortgagee must take reasonable steps to sell the property at market value or for the best price reasonably possible in the circumstances.

The value of the property should not be sacrificed and a mortgagee may be liable for loss suffered due to the mortgagee acting recklessly or carelessly during the selling process.

When the property is sold the proceeds of sale are distributed in a specific order of priority.

Conclusion

If you are experiencing financial difficulty, particularly with paying your mortgage, it is important to be proactive and up-front. Contact your lender, be frank, and try to make a workable plan to get things back on track.

If you have received a default notice from your lender you should seek legal advice immediately. Your lawyer can explain the process and ensure your rights have been properly protected and may also be able to liaise with the lender on your behalf to assist in formulating a resolution.

If you believe you have been unfairly treated by your lender or have not been given due process, you can lodge a dispute with the Financial Ombudsman Service.

If you or someone you know wants more information or needs help or advice, please contact us on 07 3281 6644 or email mail@powerlegal.com.au.

The term “buying off the plan” usually refers to purchasing a property that is not yet registered as a separate lot with the government department responsible for land title registrations, or not yet built.

Buying off the plan can refer to the purchase of a block of vacant land that is part of a subdivision, or a house or unit being built for sale where the land on which it stands is not yet registered as a separate title.

Selling property “off the plan” allows a land owner to develop the land in a less-expensive way, as the developer can negotiate lending rates with its bank at a lower rate if some of the land, houses or units are already sold to buyers. This is advantageous to a developer and can be attractive to a prospective purchaser who buys into an “off the plan” property in the early stages of the development.

There are however risks for the buyer of property “off the plan” and a diligent purchaser should take care when entering into this type of purchase contract.

The contract

A contract for the purchase of property “off the plan” does not have a precise completion or settlement date due to the incomplete nature of the building project and the subsequent separate registration process for the title to the land or new building.

“Off the plan” contracts generally include several clauses that are different to those in a standard contract for a registered lot. The major difference is the timeframe for the owner to complete the subdivision or the building on the land.

A standard contract will have a precise date for settlement to occur (either an exact date in the future or a completion period say “60 days after the contract is dated”). An “off the plan” purchase contract will still have a timeframe but it is usually stipulated that settlement will occur within a number of days following completion of the building project and registration of a separate title for the property being purchased.

Off the plan contracts also often include a provision called a “sunset clause” which establishes a period within which the contract must be completed – say within 24 months of the date of the contract. This means that completion or settlement can be anytime in that 24 month period after the signing of contracts, subject to the land becoming registered as a separate title or the building works being finished. If the date passes the parties can terminate the contract.

If you are buying a block of land “off the plan” in a subdivision the contract will usually include a clause allowing a variation in the area of that land that you will purchase on completion of the purchase, often because the local council and the land title registering authority have the final say on the area of the lots in the subdivision and may require the land owner/developer to change the areas. This reduction is usually capped at “not more than 5% of the area” in the contract and does not normally occur, but if it does your land area may be reduced but the purchase price is not reduced if the areas are changed.

When houses or units are sold “off the plan” the dwelling is not fully built or construction may not have even started until after you enter into the contract. The usual concerns with this type of purchase are that the progress of the building and the standard of the building work may be different to what you as the buyer contemplated. Remember you cannot see the finished product when you buy “off the plan” as the work will be done after you have signed the contract.

Often the developer will have a demonstration or “display home” to inspect showing you a model of how the buildings should look once completed, or they may have design guidelines and artist’s impressions of the building. These may not resemble exactly the finished building as some changes may be made during construction and you need to ensure that the contract provides some protection here. It is essential that you check the details of features, fixtures and fittings such as the stove, range hood, dishwasher, etc. and ensure that the quality of all finishes is clearly specified in a schedule that should be attached to the contract.

Market fluctuations

You should keep in mind that like the economy, property market conditions fluctuate and with long-term building projects such as luxury high-rise units, the value of the units may change prior to completion of the building and your contract. The price you agreed to pay stays the same regardless.

Paying a deposit

Your deposit could be tied up for some time between signing the contract and settlement.

Paying a deposit by way of a Deposit Bond (not always available in all states) or bank guarantee may be a better choice than a cash deposit when buying “off the plan”. If you terminate the contract your bond or guarantee can be cancelled and you do not need to take steps to recover your cash deposit.

You should always seek legal advice if a request is made to release the deposit to the owner before the sale is settled. If you do pay a cash deposit you should stipulate in the contract who is holding the money and where it is being held, if possible it should be deposited in an interest bearing account by the stakeholder (often the real estate agent).

The developer’s financial position

Construction companies and land developers who become insolvent or go bankrupt during construction can leave a trail of destruction behind them. Rising building and material and labour costs may force a site closure and you may be locked into a contract for a home that is not finished within the timeframe you expected.

In some states the builder will be required to have insurance which may provide some compensation for defective work or loss due to a bankrupt builder. You should seek legal advice to see what protection is offered before signing a contract.

While an early buyer “off the plan” has the best choice of the land or homes available in a project and has a longer time to on-sell the property for potential profit, the strategy is not without risk. There are many factors to consider before entering into a contract and our property experts can help guide you through this process.

If you or someone you know wants more information or needs help or advice, please contact us on 07 3281 6644 or email mail@powerlegal.com.au.