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Thursday, 25 August 2016

Danger Ahead: Instalment Contracts- Common issues with these types of contracts





Danger Ahead: Instalment Contracts
Common issues with these types of contracts

What’s an instalment contract?
An instalment contract is where the purchaser pays via increments and does not usually obtain title until the final payment is made. The Property Law Act 1974 (Qld) makes special provision for instalments contracts and in many respects treats them differently to standard residential conveyances.

Identifying an instalment contract
If the purchaser is obligated to pay greater than 10% (or 20% for a proposed lot off the plan)[1] of the purchase price without receiving transfer of title then the contract is an instalment contract.

Important features include;
ü  The vendor cannot mortgage or sell the land,[2]
ü  The purchaser can lodge a caveat to protect their interest in the land,[3]
ü  The vendor cannot rescind the contract for the purchaser’s default in a payment unless a 30-day notice has been issued to the purchaser,[4]
ü  After one-third of the purchase price has been paid, either party can demand a conveyance of title from the other (subject to the purchaser granting a mortgage in favour of the vendor).[5][6] The party seeking the conveyance can’t be in default.

Common issues
Default
As stated above, where the purchaser fails to meet a payment the vendor can issue a notice giving the purchaser 30 days to rectify the breach. Two common mistakes arise following this. First, vendors often give the purchaser notice requiring payment within 7 or 14 days rather than the statutory requirement of 30 days. Second, vendors often misunderstand their rights and will purport to terminate immediately after the purchaser fails to make the payment. This actually results in a breach by the vendor.

Vendor’s reluctance to hand over title
Vendors are often reluctant to hand over title to the purchaser. Indeed they may not be able to do so if there is a mortgage that hasn’t or can’t be paid out.  A purchaser faced with a particularly difficult vendor can make an application to the Court to force the vendor to transfer title to the purchaser. This is very costly and the vendor can be fined upwards of $900.00. We always recommend purchasers lodge a caveat to stop the vendor dealing with the property at all until the Court application has settled.
Lodge a caveat
Although a vendor cannot grant a mortgage to a third party, they can grant other kinds of charges (we stress the importance of proper contract drafting here). Purchasers would lodge a caveat communicate to the outside world that they have a legal interest in the property. This defeats most claims from third parties that the vendor granted them some other form of interest.
Stamp duty
Although final payment of the purchase moneys may be years away, stamp duty is due 30 days from the contract date.  Significant penalty interest will accrue from this date until payment.
Existing mortgage over the lot
The purchaser should specify in the contract that instalment payments be made to the mortgagee (bank). The consequence of not doing so is that upon final payment being made the vendor’s mortgage may not be paid out and the funds dissipated preventing settlement.
Interest charges
A term in a contract providing that interest is payable where the purchaser fails to meet an instalment payment can be held invalid if not properly drafted. If the right to charge interest arises because the purchaser has granted a mortgage to the vendor, consumer credit legislation can step in to negate that right. Proper contractual drafting is absolutely paramount to ensure these rights are maintained.
Bankruptcy
If the vendor becomes bankrupt or enters external administration (for companies) the purchaser can enforce the contract against the vendor’s trustee, administrator or liquidator. However, the trustee can void the transaction where the purchase price was well below market value.
Taking possession and due diligence
Purchasers typically lose their right to conduct searches and seek compensation or terminate upon taking possession. The contract should take this into account by delaying possession for a few weeks so the purchaser can do their due diligence.





[1]Property Law Act 1973 (Qld), S71.
[2]Ibid, at s73.
[3]Ibid, at S74.
[4]Ibid, at S72.
[5]Ibid, at S75.
[6]Ibid.

Thursday, 18 August 2016

New stamp duty surcharge-Applicable to foreign acquirers for property in QLD, NSW and VIC


From 1 October 2016, Queensland will apply a stamp duty surcharge of 3 per cent on direct and indirect acquisitions of residential land by foreign purchasers.

Similar surcharges are in place already in New South Wales and Victoria, having taken affect from 21 June 2016 and 1 July 2016 respectively.

Note however that the surcharge only applies to residential land.

Residential land is land upon which a building is (or will be) situated and approved by the local government for human habitation by a single family unit. It is extended to include land which is (or will be) subdivided into lots for the same purpose. The definition extends to vacant land where a person undertakes or will undertake development of a building or buildings which will fit the description above.

The Commissioner is serious about reaping the surcharge. The foreign purchaser, the vendor and any co-purchaser will all be jointly and severally liable for any unpaid Additional Foreign Acquirer Duty (“AFAD”), even if the vendor is not foreign. If any AFAD is unpaid the Commissioner of State Revenue will have a first-ranking statutory charge over the land and can even obtain a court order to sell the land. However there is some comfort in that subsequent purchasers of lots will not be jointly or severally liable for unpaid AFAD where the Commissioner has yet to register a charge.

Importantly, if the purchaser becomes foreign within 3 years of acquiring the land they will need to notify the Commissioner within 28 days. It is an offence to fail to notify the Commissioner within 28 days. This imposes quite an onerous obligation on trustees and corporate directors to monitor share and unit holdings.

New stamp duty surcharge-Applicable to foreign acquirers for property in QLD, NSW and VIC


From 1 October 2016, Queensland will apply a stamp duty surcharge of 3 per cent on direct and indirect acquisitions of residential land by foreign purchasers.

Similar surcharges are in place already in New South Wales and Victoria, having taken affect from 21 June 2016 and 1 July 2016 respectively.

Note however that the surcharge only applies to residential land.

Residential land is land upon which a building is (or will be) situated and approved by the local government for human habitation by a single family unit. It is extended to include land which is (or will be) subdivided into lots for the same purpose. The definition extends to vacant land where a person undertakes or will undertake development of a building or buildings which will fit the description above.

The Commissioner is serious about reaping the surcharge. The foreign purchaser, the vendor and any co-purchaser will all be jointly and severally liable for any unpaid Additional Foreign Acquirer Duty (“AFAD”), even if the vendor is not foreign. If any AFAD is unpaid the Commissioner of State Revenue will have a first-ranking statutory charge over the land and can even obtain a court order to sell the land. However there is some comfort in that subsequent purchasers of lots will not be jointly or severally liable for unpaid AFAD where the Commissioner has yet to register a charge.

Importantly, if the purchaser becomes foreign within 3 years of acquiring the land they will need to notify the Commissioner within 28 days. It is an offence to fail to notify the Commissioner within 28 days. This imposes quite an onerous obligation on trustees and corporate directors to monitor share and unit holdings.

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