The Benefits of Buying Commercial Property.

 

commercial property images
With all the talk of a downturn in the residential housing market, investors are turning their focus to commercial property. There are a number of key benefits associated with buying and holding commercial property. These include : –

 
1. RENTAL YIELDS – Residential yields are as low as 2% – whereas commercial yields are range anywhere from 6%-13%.

2. SECURE LEASES – You can secure properties with much longer leases. This means you can truly get ‘set and forget’ cashflow when you know how to find them.

3. SOME MARKETS ARE BOOMING –  It’s a ‘hidden property boom’! In some cities such as Sydney, commercial property is enjoying faster capital growth than residential property. This means, you can get capital growth and cashflow from commercial property.

4. AFFORDABILITY – It’s surprisingly affordable to get started! You can buy a commercial property for as low as $150,000 – even in a capital city.

5. BORROWING OPTIONS – The borrowing options have never been better. Right now, commercial property investors are getting loans of up to 80% of the purchase price – with interest rates at around 5%. Not only that – low-doc loan options such as ‘lease only’ are available in some circumstances.

6. CHARGE OUTGOINGS TO THE TENANT – You have less “out of pocket” expenses. Unlike residential property, where you get slugged for rates, maintenance, etc. in commercial you hand the bill of that to the tenant, in many cases.

If you are thinking of buying (or selling) a commercial property,. contact your local First State Conveyancing.

What happens when one of the Vendors passes away?

The death of a party to a Contract for Sale is an uncommon yet inherent risk when buying or selling a property.

Most contracts contain clauses whereby a sale can be cancelled if a party to the Contract passes away between exchange of Contracts and settlement.

The death of a Vendor can certainly delay the settlement process. The length of the delay will depend on whether there are more than one Vendors to the Contract and whether a Grant of Probate or Letters of Administration will needy to be obtained.

A common scenario would involve two Vendors holding a title as Joint Tenants. In the event that one of the Vendors passes away, the title to the property will pass to the surviving Joint Tenant upon the registration of a Notice of Death. Upon registration of the Notice of Death, the title can then be conveyed to the purchaser.

In the event that there is only one Vendor, or multiple Vendors holding the title as Tenants in Common, things get a little more complicated. The deceased estate will need to be dealt with by the deceased’s personal Legal Representative. This will generally involve a Grant of Probate or obtaining Letters of Administration where the Vendor died intestate or without a valid will.

Obtaining a Grant of Probate does not necessarily mean lengthy delays but there are certainly some delays involved.

If you require a Licensed Conveyancer, please don’t hesitate to contact First State Conveyancing.

What happens if I inspect a property through more than one agent? Will the seller pay two commissions?

We recently received the following query through our website:-

“We looked at a house listed at a very high price with an agent. About a year or more later, it was listed with a different agent for a fair bit less than the original price.

We signed a contract and next thing I get a call from the original agent who showed us the house saying if the vendors didn’t pay her some commission, she would be chasing us for it. Is this possible?”

Commission is payable by the seller in accordance with the agency agreement between the seller (principal) and the agent. The agency agreement will generally contain a clause along the lines of the following:-

‘the agent shall also be entitled to a fee at the agreed amount if at any time following the exclusive agency period the principal enters into a contract for sale of the property to a purchaser effectively introduced to the principal of the property during the exclusive agency period by the agent, by any other agent or by the principal’

The payment of Commission is not normally the purchasers concern. In NSW however, it is a common practice in most contracts for a ‘special condition’ to be inserted into contracts which provide for an indemnity from a purchaser if they were introduced to the property by an agent (Agent A) other than the selling agent (Agent B) on the contract where Agent A makes a successful claim for commission. These clauses will often be accepted without much thought. The purpose of these clauses is to prompt the purchaser to disclose any previous connections to other agents who may attempt to claim commission from the vendor. Such connections can then be addressed prior to entry into the Contract for Sale of Land.

The correct legal position is that in order for Agent A to make a successful claim for commission, they must show that they were the ‘effective cause of sale’. Where the agent has shown a prospective buyer the property or even managed to have the purchaser make an an unsatisfactory offer to the vendor, the agent’s actions may not be the effective cause of the sale. In order for Agent A to be entitled to a commission in these circumstances there must be a ‘causal connection’ between the actions of the agent and the eventual sale.

If you need further advice or require any assistance when buying or selling, anywhere in NSW, contact First State Conveyancing.

Off The Plan Contracts and Sunset Clauses.

IMG_0571

 

An ‘off the plan’ contract is one in which the legal title to a property has not been created at the time that the Contract for Sale of the property is entered into. Often, an ‘off the plan’ contract will also  involve a property where construction of the property has yet to be finished, and, in some instances, yet to have even commenced.

Most ‘off the plan’ contracts contain a clause which is commonly referred to as a ‘sunset clause’ A sunset clause will generally provide a date by which the development, construction and registration of the title of the property is to be completed. This date is, by no coincidence, called the “sunset date”.

The clause invariably then provide that where the registration of the title has not been completed by the sunset date, then one party to the Contract, or in some instances both parties may be entitled to rescind or cancel the Contract.

In most instances, the cancellation of the Contract will release the parties from their contractual obligation, endeavouring to place them in the position they were in prior to entry into the Contract. Typically this will involve the purchaser having their deposit refunded back to them.

What happens though in a rising market where the value of a property has dramatically increased between the exchange of Contracts and the sunset date. Many problems have arisen over the years where developers, seeing the value of their properties increase in the intervening period, have delayed completion of the development, sometimes intentionally, and endeavoured to rely on these sunset clauses to cancel the existing contract to then enter into new contracts with new buyers at substantially higher prices.

The situation will generally flow like this:-

  • Developers secure purchasers at the commencement of their development. Contracts containing sunset clauses are exchanged. These sales allow the developers to obtain finance to complete the development and secure their profits.
  • During the period between exchange of Contracts and the sunset date, the value of the property increases dramatically. It is not unheard of to see the value of a property increase by many hundreds of thousands of dollars between exchange of Contracts and the sunset date.
  • The developer, seeing this massive increase in the price of their development, realises that the development could be immensely more profitable if the units were sold at the value as at the sunset date, as opposed to their value as at the date of exchange of Contracts.
  • Developers then set about looking for ways in which they can get out of the Contract so as to avoid the current contract at the lower price, with a view to then reselling at the higher price.
  • Delaying construction  or approval processes or deferring registration of the titles are but one of many ways that developers have attempted to explain why the titles have not been registered by the sunset date.
  • Where the Vendor rescinds, unfortunately, in many instances, the purchaser had no choice but to accept the rescission. Whilst the purchaser obtains a refund of their deposit, they are often then faced with the scary prospect of being priced out of the new market, with the new and higher prices.

Sensing that some developers may have been taking advantage of this situation, the NSW State Government in 2015 passed the Conveyancing Amendment (Sunset Clauses) Act  (NSW). This Act introduced a new Section 66ZL into the Conveyancing Act 1919 (NSW) which applies to all off-the-plan contracts for sale of residential lots, regardless of whether they were entered into on or before the commencement date of the amendment.

The new section restricts a vendor from automatically rescinding an off-the-plan contract under a sunset date clause.

Why the change?

The government expressed concern that developers were intentionally delaying the registration of plans past the sunset dates provided for in contracts, with the result that they were free to rescind and resell at a higher price. This left a purchaser without a home and facing a new market in which prices had likely increased, in most instances, dramatically.

The new section 66ZL has the effect of inserting terms into off-the-plan contracts in an attempt to protect purchasers.

Developer has right to rescind within certain confines but must explain delay

Under the Act, the activation of a sunset clause does not automatically allow the developer (as vendor) to rescind an off-the-plan contract (see section 66ZL(5)). If a developer wants to rescind, he or she must do so within the confines of section 66ZL(4), which requires the developer to give the purchaser(s) 28 days’ written notice of the proposed rescission, and set out:

•why the developer wants to rescind, and

•the reason for the delay in creating the subject lot

Section 66ZL(3) provides that rescission may only take place if:

•each purchaser under the contract consents in writing to the proposed rescission;

•the developer obtains a court order permitting the proposed rescission; or

•the proposed rescission is otherwise permitted by the regulations made under the Act.

In considering a court order, the Supreme Court of NSW will only allow the contract to be rescinded if it can be shown that the rescission of the contract is just and equitable. To determine this, the Court will take the following factors into consideration:

1. The terms of the off-the-plan contract;

2. Whether the vendor has acted unreasonably or in bad faith;

3. The reason for the delay in creating the lot;

4. The likely date on which the lot will be created;

5. Whether the lot has increased in value;

6. The effect of the rescission on each purchaser; and

7. Any other matter it considers relevant.

The vendor will be responsible to pay the costs of the application to the Supreme Court unless the vendor can show that the purchaser’s refusal to consent to the rescission was unreasonable.

In  essence, these amendments make it seemingly difficult for a developer to cancel a contract where they have been unable to register the plan of subdivision within the time allowed for by the Contract.

The concern amongst developers however is that the amendments  focus on the protection of the purchaser without having due regard to the difficulties that developers may face in obtaining approvals, finance and finalising construction.

As always, if you have any queries regarding ‘off the plan’ properties, or any other conveyancing queries, please don’t hesitate to contact your local First State Conveyancing office.

What is Vacant Possession?

1413704696600_wps_110_IMG_1219_resize_jpg_Sunda

 

One of the most common problems that can arise at the time of settlement of a sale or purchase is the question of vacant possession.

More often than not, a final inspection will be conducted on the morning of settlement. For obvious reasons, this can be an extremely stressful time for all concerned. The buyer is anxious and excited about moving into the property they have purchased whilst the Vendor is madly running around finalising their arrangements for moving out.

Your experienced Real Estate Agent should be no stranger to the pitfalls and disputes that can arise when the vendor has not moved everything out of the property by the due time for settlement.

Purchasers can often be advised  to delay settlement until physical vacant possession is available. A major problem with this is that the law does not necessarily define what “vacant possession” really means.

Clause 17.1 of the Standard printed condition of the Contract for Sale of Land (used by most practitioners in NSW) provides that:

Normally, the Vendor must give the purchaser vacant possession of the property on completion.”

There are some exceptions to this rule, if say for example the property is sold subject to an existing tenancy.

If however the Contract provides for vacant possession, the Courts have determined that vacant possession not only means that the purchaser is entitled to receive the property free from occupation by other persons (i.e. Tenants or the Vendor) but also that there must be no impediment which substantially prevents or interferes with the enjoyment of the right of possession of a substantial part of the property.

Typically, most pre-settlement problems arise because of rubbish or other items that are both not included in the sale and not are not wanted by the purchaser but which the Vendor may intend to leave at the property.

After a usual settlement timeframe of between 28-42 days however,  both parties just want to settle and move on. At First State Conveyancing we never lose sight of the fact that Vendors want their money and purchasers want to the property that they have contracted to buy.

A Real Estate Agent taking a purchaser through the property for a final inspection should anticipate that the property may not be 100% empty. An experienced Agent may even do an inspection themselves before the actual final inspection so that they are prepared for potential problems that can arise. A good agent will reassure purchasers that the property does not need to be disinfected, sanitised or completely spotless. Unsurprisingly, a buyers idea of cleanliness can often be at odds with a highly stressed Vendor who is sick and tired of cleaning and dreading their impending move.

So what should you do if you are the purchaser and you complete your final inspection and you are not impressed whatsoever? The Vendor has not removed all of the timber from under the house that they contracted to move or there are car bodies in the backyard?

You could possibly delay settlement however that could be costly and extremely inconvenient. Your removals has your furniture ion the truck and with every minute that passes, your costs are increasing. You may need to find alternate storage and accommodation. You need to weigh up your options.

Another more practical option is for the parties to the Contract to agree for the Agent to withhold a sum of money from the deposit, to cover the cost of removal of the rubbish after settlement has occurred.  Such an agreement requires careful consideration as to the implications if the rubbish is not removed within a certain timeframe. It also requires quick thinking and prompt action by your Conveyancer to draft such an agreement in time for settlement to take place.

At First State Conveyancing we have years and years of experience in facilitating settlements even where problems like this arise.

As always, if you have any further questions about buying or selling your property, anywhere in NSW, contact First State Conveyancing.

The benefits of Downsizing

If you’re looking to buy your next home, downsizing might be the way to go. After all, sometimes less is more and it could work wonders for your finances!

In this article, we explore some of the benefits of downsizing – from cutting back on maintenance and energy costs, to having more money in your pocket to invest.  Here are some of the key reasons to consider downsizing.

More funds to invest

Downsizing allows you to unlock the equity in your current home to use for investment purposes. If you are lucky, you may be at a point where you’ll be able to pay off your new home with cash, then use any leftover funds to expand your property portfolio and start generating income from an investment property. You could also use the money on a new car or other lifestyle pursuits.

Fewer expenses

Downsizing can drastically reduce your expenses, from cutting your mortgage repayments, to slashing your living costs. Energy is one area you are likely to notice real savings when you move to a smaller property. What’s more, downsizing may encourage you to stop blowing money on furniture, appliances, electronics and “stuff” you don’t actually need. It will also encourage you to get rid of unnecessary clutter – there’s only so much you can squeeze into a smaller home, after all.

Lifestyle benefits

Looking for a sea change or a tree change? Downsizing could provide a great opportunity for you to live in a more desirable location, in housing that is more suitable for your needs. There are many great locations to consider – from the coast to the hills, you can find great value properties in communities where you can indulge your personal interests. Sailing, hiking, exciting adventures in your caravan – you name it! If you’re ready to retire, an empty-nester, or are recently single, downsizing could be the fantastic new chapter you’ve been looking for!

Let’s face it – bigger properties can be hard work. Not everyone wants to spend their life maintaining a larger property or garden. Just think of what you could do with the time it takes to clean and maintain that great big house. Golf-course here you come!

New tax breaks

In the 2017-18 Federal Budget, the Government announced plans to encourage older property owners to downsize. This is intended to help free up larger homes for younger, growing families. From July 2018, retirees may be able to inject up to $300,000 into superannuation if they sell their home after they reach the age of 65. The existing voluntary contribution rules for people aged 65 and older (work test for 65-74 year olds, no contributions for those aged 75 and over) and restrictions on non-concessional contributions for people with balances above $1.6 million do not apply to contributions made under the new downsizing cap.

To qualify, you must have owned your property for 10 years. What’s great about this new initiative is that both members of a couple can take advantage of the measure for the same home – that means as much as $600,000 per couple can be put into super! However, keep in mind that the proceeds contributed to superannuation will be included in the assets test for the age pension.

While it’s tempting to hold onto the family home because of the sentimental value, the reality is that it may be holding you back from a better lifestyle and a more comfortable financial situation. Downsizing could allow you to find a home that’s more appropriate to your lifestyle, while also freeing up time and money to use elsewhere. If you’re looking to purchase your next home contact First State Conveyancing today.

Changes to GST for new home buyers

IMG_1356

From 1 July 2018, purchasers of newly-constructed residential properties or lots in new residential subdivisions will be required to remit GST directly to the Australian Taxation Office (ATO) at settlement.

The change comes in response to the ATO view that property developers are failing to “pass on” GST received from selling new residential properties through their BAS process.

While the Federal Government has indicated that purchasers using conveyancing services to complete their purchase should experience minimal impact from these changes, there is likely to be a significant imposition on the business processes of residential builders and developers.

As a draft of the enacting legislation has not been issued, it is not known exactly how it will be implemented.