Latest / Contributing to Your Life / Common Legal Mistakes Property Buyers Make | Ep. 06

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Common Legal Mistakes Property Buyers Make | Ep. 06 · Contributing to Your Life

• 0:00
  SPEAKER_04: So rush into the transaction.
• 0:01
  SPEAKER_04: Always make sure that the contract is thoroughly reviewed and you understand the special conditions because if for whatever reason there's a delay in settlement, the other party that was ready, willing, and able to settle, they can actually issue a notice to complete.
• 0:14
  SPEAKER_04: And in that case, settlement must take place generally within 14 days.
• 0:19
  SPEAKER_02: Most people sign a contract or sale without knowing what they're green to.
• 0:23
  SPEAKER_02: And the ones who find out the hard way wish they took a closer look and can often end up losing tens of thousands of dollars that nobody warned them about.
• 0:31
  SPEAKER_04: Very, very important.
• 0:32
  SPEAKER_04: Get legal advice early.
• 0:33
  SPEAKER_04: You need to ensure that you've got the correct naming sequence on the contract and you obtain accounting advice or financial advice in terms of the entity that is purchasing property and your structure is set up correctly.
• 0:44
  SPEAKER_04: Because if it's not, that would of course be a very costly mistake to rectify.
• 0:48
  SPEAKER_01: Today we've got Sandy Call, property and commercial lawyer at KHI Partners.
• 0:53
  SPEAKER_01: And she's going to walk us through what actually goes wrong in property transactions.
• 0:57
  SPEAKER_01: What's hiding in contracts, most buyers never read, and how to protect yourself, whether you're buying your first home or adding to your investment portfolio.
• 1:05
  SPEAKER_02: If you've ever felt like the contract side of buying property is the part you're hoping just goes smoothly, this episode's for you.
• 1:12
  SPEAKER_04: It's definitely for the client to make an informed decision so they understand the risks.
• 1:16
  SPEAKER_04: It's all about understanding what the client is signing.
• 1:20
  SPEAKER_00: Before we get into the episode, please be aware that the discussions in this podcast are for informational purposes only and should not be considered financial or legal advice.
• 1:29
  SPEAKER_00: It does not take into consideration your personal circumstances.
• 1:32
  SPEAKER_00: Consult a qualified professional first before making any investment decisions.
• 1:36
  SPEAKER_02: Okay, everyone.
• 1:38
  SPEAKER_02: Look, working at KHI Partners, it's very fortunate that we get to work with all the different service lines, right?
• 1:44
  SPEAKER_02: So today we've decided to bring our resident lawyer, Sandy Call.
• 1:48
  SPEAKER_02: Welcome to the show.
• 1:50
  SPEAKER_04: Thank you, Frank.
• 1:51
  SPEAKER_02: Yeah, so Sandy, obviously, law can be a very, very broad profession.
• 1:57
  SPEAKER_02: But do you want to talk to us a little bit about what you do?
• 1:59
  SPEAKER_04: Yes, definitely.
• 2:00
  SPEAKER_04: So my role at KHI Partners as a lawyer in the property and commercial space is to assist clients with a number of um transactions.
• 2:08
  SPEAKER_04: So mainly residential and commercial property purchases and sales.
• 2:11
  SPEAKER_04: I also assist on uh other broad areas, including leasing, commercial leasing, retail leasing, business purchases and business sales as well.
• 2:20
  SPEAKER_04: So that's a part of um the wide area, but I believe in today's conversation we'll probably stick around property law.
• 2:26
  SPEAKER_02: Awesome, awesome.
• 2:28
  SPEAKER_02: So in terms of property law, like how do you actually help clients, right?
• 2:31
  SPEAKER_02: So it's generally when someone's looking to buy property, or where do you get involved?
• 2:35
  SPEAKER_04: Yes, definitely.
• 2:36
  SPEAKER_04: So um, in terms of property law, residential properties, um, buying and selling.
• 2:41
  SPEAKER_04: So we do assist clients on both ends.
• 2:44
  SPEAKER_04: And I think in terms of um purchasing properties, there's always a little bit more risk than selling.
• 2:50
  SPEAKER_04: And it all comes down to the contract of sale.
• 2:52
  SPEAKER_01: Yeah, and and we now with you know, Crank and I currently being mortgage brokers, we we see our clients buying property and we see the good, we see the bad, we see things happen in between.
• 3:03
  SPEAKER_01: And we know that a lawyer is so fundamental in all of that, uh, whether that's reading the contract or picking up special conditions.
• 3:11
  SPEAKER_01: So when a client comes to you and says they're purchasing a property, what are the things that you are looking out for?
• 3:17
  SPEAKER_01: What are things you're notifying of the client that they should be aware of when going into a property contract and all purchase?
• 3:24
  SPEAKER_04: So when a client's entering into a property transaction, um there is sometimes a lot of emotion I see with clients, certain clients.
• 3:31
  SPEAKER_04: Um we do assist a broad range of clients, so first-time buyers, moms and dads, upsing, downsizing, um, all the way through to property investors as well and um high net worth individuals when there's multi-million um dollar property transactions happening.
• 3:46
  SPEAKER_04: But um the common theme is for us to assist clients throughout the process, help them understand what the contract says, read them through the special conditions, make sure that they're understanding the requirements for due diligence, um, and really allow them with our um legal expertise to make an informed decision on the contract before they sign anything.
• 4:07
  SPEAKER_04: Obviously, with any legal contract, a contract of sale is also a legally binding document, and therefore there's significant legal and financial risk involved if the client does not understand what they're signing.
• 4:17
  SPEAKER_02: Right.
• 4:18
  SPEAKER_02: So, look, obviously as brokers, and I think Aaron, you could attest to this, right?
• 4:21
  SPEAKER_02: We we try to uh I guess guide the client through this process, try to manage it so that's not very stressful, right?
• 4:27
  SPEAKER_02: We've seen it done very, very well and we've seen it done very, very poorly, where it actually causes a lot of stress and a lot of risk to the actual client.
• 4:33
  SPEAKER_02: For those listening, I mean if someone's looking to buy a property, can we just walk through that process and and talk about what would be best practice?
• 4:40
  SPEAKER_02: When should you actually get involved?
• 4:41
  SPEAKER_02: Right.
• 4:41
  SPEAKER_02: So they've found a property they want to look at, they've got the contract from the sales agent.
• 4:45
  SPEAKER_02: What should they be doing from there?
• 4:47
  SPEAKER_04: Yeah.
• 4:47
  SPEAKER_04: So in terms of, you know, when they've already got a contract in front of them, um, sometimes, like I said, there is that urgency or the rush for clients to say, all right, we need to quickly sign the contract exchange because they fee that they may be gazumped.
• 5:00
  SPEAKER_04: Um, because of course, unless there's a signed and exchange contract, um, contracts are not legally exchanged.
• 5:07
  SPEAKER_04: So therefore, the agent or the seller, they're they're open and they can go ahead and sell to someone else if they offer a higher price.
• 5:14
  SPEAKER_04: Um so for the clients, the steps that I would take is firstly they need to take a step back and look at the wider picture.
• 5:20
  SPEAKER_04: They need to look at the contract and the property as well.
• 5:23
  SPEAKER_04: So it's important to firstly do your due diligence.
• 5:26
  SPEAKER_04: So due diligence includes ensuring that you've got um the adequate funding for the purchase.
• 5:32
  SPEAKER_04: So ensure that you're speaking to a mortgage broker or you're speaking to your banker directly, making sure that you've given them a copy of the draft contract of sale so they can start working on in the background on the finance side of things.
• 5:44
  SPEAKER_04: Then coming to the property itself, um, perhaps looking at a pest and building report if it's a freestanding home.
• 5:50
  SPEAKER_04: So getting an inspector involved, um, doing the due diligence, making sure that you understand what the report says and if there's any major defects in the property that need to be addressed or looked into.
• 6:01
  SPEAKER_04: Because we have seen instances where sometimes, you know, there may be major roof conditions or major um issues within the property itself that would cost the client tens of thousands of dollars to rectify, and that obviously has not been factored into the purchase price.
• 6:17
  SPEAKER_04: So that's another aspect.
• 6:18
  SPEAKER_04: Um, and now if the client is purchasing a property in a strata complex, then perhaps also a strata report to see how the owner's corporation is managing uh, you know, the admin fund, the capital works fund, if there's any repair works that need to be done within the building, because of course that would come back to the client as the owner to you know put in more money for the um extra strata levies and special levies if they are raised.
• 6:45
  SPEAKER_04: So that's the other crucial thing the client needs to look into as well.
• 6:49
  SPEAKER_04: Um now the next thing they would and should probably do is make sure that they sit down with a lawyer and go through the terms and conditions of the contract, including all the attachments that are there.
• 7:02
  SPEAKER_04: So in New South Wales, we have a very specific list of what needs to be included, all the mandatory documents in a contract of sale.
• 7:10
  SPEAKER_04: So when I sit down with a client to review the contract, we take them through everything, including, you know, any land tax adjustments if there are any GST obligations, if whether it be a commercial property, and also the special conditions that are there, which are very critical.
• 7:25
  SPEAKER_04: And then we also take them through, you know, the easements that are there, any other registrations on title that they need to be aware of, um, and also if there are certain um, you know, in in terms of the Sydney water diagram and the sewer diagram, if there's any implications there that they need to look out for.
• 7:42
  SPEAKER_02: Right.
• 7:42
  SPEAKER_02: So would you say the purpose of that review really is to help the client understand what the risks are and and uh just going into that transaction with open eyes and and understanding what they're getting into?
• 7:53
  SPEAKER_04: Yes, it's definitely for the client to make an informed decision so they under understand the risks.
• 7:58
  SPEAKER_04: Like I said earlier, it's all about um understanding what the client is signing.
• 8:04
  SPEAKER_04: Well, there is a lot of emotion, especially with first-home buyers, because we see that they've been in the market looking for a property um, you know, perhaps even for weeks or months.
• 8:12
  SPEAKER_04: And when they feel they've fine finally found a property which is within their budget and something that they really like, they're very, very keen to get things moving forward, sign the contract, so it's all locked away.
• 8:24
  SPEAKER_04: But my advice to clients is don't rush into the transaction.
• 8:28
  SPEAKER_04: Um, always make sure that the contract is thoroughly reviewed and you understand the um special conditions because if for whatever reason there's a delay in settlement or there is um a certain condition that's been put into the contract by the seller in their favor that may not be as favorable to the buyer, come time for settlement or if there's ever an issue that arises later on.
• 8:50
  SPEAKER_04: So with special conditions, um, another thing that we really need to be careful is the termination rights of each party.
• 8:57
  SPEAKER_04: So with um, you know, buyers and sellers, there is something what we call a notice to complete.
• 9:04
  SPEAKER_04: Um, a notice to complete, essentially, put it in simple terms, is a final warning.
• 9:09
  SPEAKER_04: So when you have a contract, let's say you know, settlements due on the 1st of July under the contract, all the parties have um prepared the file for settlement, settlements all are booked in on PEXA on the online platform.
• 9:22
  SPEAKER_04: And come time for settlement, the buyer for whatever reason, they're unable to settle on the day, then um, or even the seller for that instance, they're unable to settle.
• 9:31
  SPEAKER_04: The other party that was ready, willing, and able to settle, they can actually issue a notice to complete on the other side.
• 9:38
  SPEAKER_04: And that essentially means that time is now off the essence.
• 9:41
  SPEAKER_04: And in that case, settlement must take place generally within 14 days from that notice.
• 9:46
  SPEAKER_04: Now, each day that um, let's say the buyer, the notice was served on the buyer, the buyer is late for settlement, then um the seller has the right to charge default interest for each day that they're late on essentially the balance of the purchase price.
• 10:01
  SPEAKER_04: Now, come the 14th day, if the buyer is still not ready to settle, and um for whatever reason that may be, then the seller essentially has a right to um terminate the contract, walk away with the deposits that um is there in the contract, and then of course, if they've suffered any losses, they can um come back and try to claim damages.
• 10:23
  SPEAKER_01: Yeah, I think that's fundamental what you said there.
• 10:26
  SPEAKER_01: And you know, we love a good horror story in terms of you know, maybe some examples that you've seen because especially in this market at the moment, and there's a lot of pressure in the property market, you know, with uh I guess the lack of supply happening.
• 10:40
  SPEAKER_01: So there's a lot more competition.
• 10:42
  SPEAKER_01: And so in that people want to give better terms, right?
• 10:45
  SPEAKER_01: So they might want to do uh, you know, no finance clause, you know, no uh shorter settlement terms, uh C6W, you know, conditions where you know they can't essentially pull out and they'll lose their deposit.
• 10:58
  SPEAKER_01: But sometimes people unaware they're going into uh these agreements without actually knowing.
• 11:03
  SPEAKER_01: And then I guess worst case, what you talked about there is notice to complete where the buyer's actually not made the settlement, you know, date and now they're in that stage.
• 11:13
  SPEAKER_01: What are some things that clients can put in place that allows them to potentially pull out if something goes wrong rather than going into an agreement of, so for example, auction conditions where it's unconditional and there's nothing protecting them?
• 11:28
  SPEAKER_04: Definitely.
• 11:29
  SPEAKER_04: So with auctions, um, there's it's more so restricted.
• 11:32
  SPEAKER_04: Like you said, it's a 66W um certificate that solicitors essentially need to sign, um, whereby the purchaser waives off their calling off period rights.
• 11:41
  SPEAKER_04: Now, in New South Wales, um, there are a lot of properties that go to auction under those conditions.
• 11:46
  SPEAKER_04: So it's very crucial for the client to make sure that they've done their due diligence, they're happy and they're satisfied with the condition of the property and their finance as well, because if anything goes wrong, um it's very difficult for the client to actually exit the contract without penalty in that case under auction conditions.
• 12:03
  SPEAKER_04: However, um that's why I suggest perhaps private treaty is probably more suitable for clients, especially when they're unsure about finance and they need to have a valuation done once the contract has exchanged.
• 12:15
  SPEAKER_04: There is, of course, the 0.25% holding deposit that the client or the purchaser needs to put down when they sign the contract, when they are exchanged.
• 12:24
  SPEAKER_04: That money usually sits within the agent's trust account.
• 12:27
  SPEAKER_04: And um, you know, whatever the cooling off period may be, whether it's five days under statutory law in New South Wales, it is a five business day cooling off period.
• 12:35
  SPEAKER_04: But generally we do see that um in practice that does get extended to 10 days um if the parties are agreeable.
• 12:41
  SPEAKER_04: Just gives the buyer a little bit more time to obtain funding, do their due diligence and searches on the property.
• 12:47
  SPEAKER_04: And of course, you know, if everything's all ticks-the-boxes, they they're happy to proceed, then um they can pay the balance of the deposit and move forward with the contract to unconditional exchange.
• 12:57
  SPEAKER_04: However, if there is a problem, whether it be in their finance or they're just not happy with the property, they've um the buyer has a right to exit the contract, um, rescind the contract, and walk away from the deal prior to the cooling off period expiry.
• 13:11
  SPEAKER_02: However, in communication is really important at that time, right?
• 13:14
  SPEAKER_02: Like how many times would a a broker or a client drop you in it where they they tell you on the day that they don't have their finance sorted?
• 13:21
  SPEAKER_04: Definitely.
• 13:21
  SPEAKER_04: We we see that very often, Frank.
• 13:24
  SPEAKER_04: And um, I always sort of stay on top of my clients.
• 13:27
  SPEAKER_04: I ask them how they're progressing with finance.
• 13:29
  SPEAKER_04: So at least we've got a couple of days before the cooling off period expires.
• 13:32
  SPEAKER_04: If we do need to, we can request an extension from the seller or the solicitors.
• 13:37
  SPEAKER_04: Now, generally we see that they may agree to a couple of days here and there, but it is at the discretion of the seller they do not need to agree.
• 13:45
  SPEAKER_04: So come time for the expiry of the cooling off period.
• 13:48
  SPEAKER_04: If the buyer is still not ready and doesn't have um essentially, you know, all their boxes ticked and they need to exit the contract, then they will lose that 0.25% holding deposit.
• 13:59
  SPEAKER_01: And the the cooling off period there for New South Wales uh is is say typical is 10 days.
• 14:05
  SPEAKER_01: Can you just explain to people how that works?
• 14:07
  SPEAKER_01: Is it business days?
• 14:08
  SPEAKER_01: How do they know when you know that ends?
• 14:10
  SPEAKER_01: Uh, just so they're clear because I get a lot with clients.
• 14:12
  SPEAKER_01: I've got 10, 10 days, you know, and some think it's 10 business days, some things it includes weekends, and I know it's different state by state.
• 14:19
  SPEAKER_01: Uh, but I think little things like that are important so that a client is aware uh, oh, my cooling off is ending in this date, and they're clear about that.
• 14:26
  SPEAKER_04: Definitely.
• 14:26
  SPEAKER_04: They're conveyancing involves a lot of key milestones and dates.
• 14:30
  SPEAKER_04: So there's a lot of dates that need to be worked with.
• 14:33
  SPEAKER_04: Um now, with the calling off period, yes, generally we do see 10 business days nowadays.
• 14:37
  SPEAKER_04: So it is business days.
• 14:39
  SPEAKER_04: Um, so if there's a public holiday that pops up, um, we don't count that.
• 14:42
  SPEAKER_04: We there's another extension and whatnot.
• 14:45
  SPEAKER_04: But um, even in those, it varies state by state.
• 14:49
  SPEAKER_04: So New South Wales, like I said, statutory is five business days, but we we see ten days nowadays.
• 14:54
  SPEAKER_04: Um and that's actually not always written into the contract of sale.
• 14:58
  SPEAKER_04: That's on the sales advice that the agent provides once they've um finalized the key commercial um details of the transaction.
• 15:06
  SPEAKER_04: So it's very important for us as well to have a copy of that sales advice from the agent while we're sitting it down with our client to explain them um the contract, and then we can take them through the sales advice at the same time.
• 15:18
  SPEAKER_02: Yeah, I think this is where clients have got to really be careful, right?
• 15:20
  SPEAKER_02: Because the sales agent can say something, but that needs to translate into writing, otherwise it doesn't exist.
• 15:26
  SPEAKER_04: That's very true, Frank.
• 15:27
  SPEAKER_04: The number of times and the number of clients I've had um say that it's okay, Sandy, we're happy to go ahead because you know, the agent said or the sellers said to us.
• 15:38
  SPEAKER_01: The agent said, yeah.
• 15:40
  SPEAKER_04: So um in those circumstances, I always say, look, you know, that's fine, they've said it and you you're happy for them to do A, B, C, and D, but still we need to have that in writing, just for your own protection as well.
• 15:51
  SPEAKER_04: And um more so when we have a settlement period of standard, let's say six weeks.
• 15:56
  SPEAKER_04: Um, what was said in week one or week two come the six-week time for settlement, um, it's very difficult for parties to you know recall what they have said or what was agreed to to be fixed.
• 16:06
  SPEAKER_04: So if it's in writing, it makes it a whole lot smoother.
• 16:09
  SPEAKER_01: And so there's multiple ways that a client can protect themselves.
• 16:12
  SPEAKER_01: We just mentioned one there, finance clause cooling off.
• 16:14
  SPEAKER_01: Uh peston building.
• 16:16
  SPEAKER_01: Yeah.
• 16:16
  SPEAKER_01: So uh typically if it's if it's an auction, I know they may have done it before and done a pest and building, but say it's a private treaty, they've done a peston building, they've exchanged under contract.
• 16:25
  SPEAKER_01: How can a client then pull out from a pest and building?
• 16:28
  SPEAKER_01: What are the measures that a client needs to be aware of uh in terms of being able to use that clause to pull out?
• 16:34
  SPEAKER_04: That's a really good question, Aaron.
• 16:35
  SPEAKER_04: Um, and I think we're sort of overlapping here with Queensland as well.
• 16:39
  SPEAKER_04: In New South Wales, we have a cooling off period.
• 16:42
  SPEAKER_04: We don't essentially have a peston building or a finance condition.
• 16:45
  SPEAKER_04: Those terms are more so um and more commonly referred to in Queensland contracts.
• 16:50
  SPEAKER_02: Can you break that down?
• 16:51
  SPEAKER_02: Because I think uh one of the um things I want to try to explain for the listeners is that cooling off is not the same as a finance clause, right?
• 16:58
  SPEAKER_02: So there's a slight difference.
• 17:00
  SPEAKER_02: You want to just talk to what the differences are.
• 17:02
  SPEAKER_04: There is a difference.
• 17:03
  SPEAKER_04: So New South Wales contracts of sales are different from every other state in Australia.
• 17:09
  SPEAKER_04: Now, Queensland, we often hear the terms um a finance clause or a pest and building clause.
• 17:14
  SPEAKER_04: Um even Queensland also has a cooling off period as well.
• 17:18
  SPEAKER_04: So what the difference is there is you have a particular finance clause, so it's only can be used for finance purposes.
• 17:24
  SPEAKER_04: So if the buyer, say, let's say, has a 14-day um finance clause in the contract and they're unable to obtain their finance, they can pull out of the contract and walk away from the deal relying on that clause.
• 17:37
  SPEAKER_02: What do they normally need to prove that?
• 17:39
  SPEAKER_04: Yeah, so generally they would have made um inquiries with their broker or their banker to make sure that they can get adequate funding level.
• 17:46
  SPEAKER_04: And um if there's documents required from their end, they need to make sure that they provide that to their broker so they can assess their application for finance.
• 17:54
  SPEAKER_04: Um that's actually very important.
• 17:56
  SPEAKER_04: There needs to be a chain of communication that um the buyer actually has genuinely tried to obtain finance and they have been unable to.
• 18:03
  SPEAKER_04: Because if we do rely on that clause, um there may be a possibility that the seller asks for further information just to make sure that um you're validly using that clause and not just as a sort of exit card.
• 18:15
  SPEAKER_02: Yeah, the reason I ask as a broker, I have been asked um sometimes that the vendor wants an actual decline letter from the bank.
• 18:21
  SPEAKER_02: Yeah.
• 18:21
  SPEAKER_02: Otherwise, they they're happy some vendors are just happy with an email or letter from me.
• 18:25
  SPEAKER_02: Definitely.
• 18:25
  SPEAKER_04: Yeah, that happens very commonly in um Queensland.
• 18:29
  SPEAKER_04: But coming back to New South Wales, like I said, it's a cooling off period and generally we don't have those finance and pestment building clauses inserted directly.
• 18:37
  SPEAKER_04: So um you you know you you don't necessarily need to give the seller a reason to exit New South Wales contracts prior to calling.
• 18:44
  SPEAKER_04: Correct, yes.
• 18:45
  SPEAKER_04: Yeah.
• 18:45
  SPEAKER_04: However, that does bring me to commercial um transactions.
• 18:50
  SPEAKER_04: So commercial properties actually are quite different from residential properties.
• 18:54
  SPEAKER_04: So in New South Wales, there's actually no cooling off period for a commercial property.
• 18:58
  SPEAKER_04: So it's very important that when you're negotiating the terms and conditions with the agent and the seller that you enter in um a right have a special condition there that yes, you can um have a finance clause or you've got a due diligence clause inserted into the contract, which gives you the right to potentially exit um should those not be satisfied.
• 19:21
  SPEAKER_01: And then for a pest and building on a residential, does it need to be, you do the pest and building, does it need to be a major defect in order for you to be able to pull out?
• 19:29
  SPEAKER_01: If you've got some minor defects, how does that clause and how can you utilize it?
• 19:33
  SPEAKER_04: So in New South Wales, um, you don't necessarily need to have, like I said, a reason to exit.
• 19:39
  SPEAKER_04: So if it's a major defect, um you as long as you communicate that to the seller solicitor that look, you know, our client's not satisfied with the due diligence or the pest and building report, therefore they wish to exit.
• 19:51
  SPEAKER_04: However, it's not um necessary that just because there's a major defect or even minor defects for that instance that the client needs to exit, um, you know, they may really like the property, and of course, with properties, depending on its age, it's very common sometimes to see defects come up in the report.
• 20:06
  SPEAKER_04: So in those instances, what clients could potentially also do, and um we assist them with this, is that they can go back to the seller to try to negotiate perhaps a reduced purchase price, or even have um conditions inserted in the contract that um, you know, the seller would attend to these rectification works on or prior to settlement at their own cost.
• 20:26
  SPEAKER_02: All right, so look, um I think quite often when people think of lawyers, right?
• 20:31
  SPEAKER_02: Like, I mean, there's a very popular show, I'm sure we all watch at Suits, right?
• 20:34
  SPEAKER_02: They think I thought it was Judge Duty.
• 20:36
  SPEAKER_02: Judge Duty.
• 20:36
  SPEAKER_02: Okay.
• 20:38
  SPEAKER_02: Yeah, depending on which generation that is, but uh, you're younger than me, so that's surprising.
• 20:42
  SPEAKER_02: Um yeah, so they they they think of all this courtroom drama and things, but like in the property world, like can you tell us any kind of horror stories or or when something went took like took a very dramatic turn?
• 20:52
  SPEAKER_04: Definitely.
• 20:53
  SPEAKER_04: Look, um, in reality, we we are very far from suits here in Australia.
• 20:57
  SPEAKER_04: So in terms of a case study, um, I have recently actually had a client.
• 21:01
  SPEAKER_04: Um, we were acting for a seller.
• 21:04
  SPEAKER_04: So the client approached me in about August or September and they wanted to um sell off a property, a block of vacant land that they had.
• 21:12
  SPEAKER_04: Now, this client of mine, he was a property investor, so he had a number of properties, and naturally he would be liable for land tax here in New South Wales, so he was paying land tax each year.
• 21:23
  SPEAKER_04: Now, as a part of his strategy, um, he wanted to offload a particular property by the end of the year so he could um obviously then um not have to pay land tax the following year because it would have fallen under the threshold.
• 21:37
  SPEAKER_04: So we had um you know a detailed meeting with him in terms of what he wanted to all the special conditions inside it in the contract.
• 21:43
  SPEAKER_04: We prepared the contract, drafted all the special conditions very carefully in terms of our client's needs.
• 21:49
  SPEAKER_04: The property went to auction, and then um there was a particular buyer, he was interested, high spidder, obviously, and then he was successful at auction, bought the property.
• 21:58
  SPEAKER_04: Um, all good.
• 22:00
  SPEAKER_04: So it was a uh couple of week settlement.
• 22:02
  SPEAKER_04: It was more, it was, I believe, um about a twelve-week settlement.
• 22:07
  SPEAKER_04: So we did have um coming down to the YRO.
• 22:11
  SPEAKER_02: So for those listening, like land tax, when's that uh counted from the first of January?
• 22:15
  SPEAKER_04: Yeah, so land tax is actually um payable on the property holdings you had on the 31st of December.
• 22:20
  SPEAKER_04: Yep.
• 22:21
  SPEAKER_03: Okay.
• 22:21
  SPEAKER_04: Um and there's no concessions.
• 22:23
  SPEAKER_04: You know, you may have only held property for say a month, or you still need to pay the land tax if you you holds held it on the 31st of December.
• 22:31
  SPEAKER_04: So um come time for settlement um, you know, seemed like a very smooth, straightforward file.
• 22:36
  SPEAKER_04: We prepared all the settlement documents on our end, served what we had to on the buyer solicitors, and everything was booked in on PEXA for early December settlement.
• 22:45
  SPEAKER_04: Um come the day for settlement, um, the buyer solicitor notified us that their client was not ready to settle due to some financing issues that they were trying to um, of course, work with their lender to sort out.
• 22:56
  SPEAKER_04: And we said, okay.
• 22:58
  SPEAKER_04: Now they requested a two-week extension, which we went back to our clients to discuss, and we spoke to our clients in terms of what their rights were and what they can do with this.
• 23:09
  SPEAKER_04: So our clients said, Okay, look, that's fine.
• 23:12
  SPEAKER_04: We can um continue and give them that two-week extension without penalty um or without any default interest.
• 23:20
  SPEAKER_04: So essentially what happened is we pushed back the settlement date to mid-December and come time, December, um, I think it was 15th or so.
• 23:29
  SPEAKER_04: What happened was we got another email from the buyer's solicitor saying that the client is still not ready.
• 23:35
  SPEAKER_04: So we went back to our client and um had a good chat with him, and I said, look, you know, this is what's happened.
• 23:41
  SPEAKER_04: These are your rights under the contract.
• 23:43
  SPEAKER_04: You can issue a notice to complete, which means time is off the essence, puts the buyer on notice that they must settle within 14 days.
• 23:50
  SPEAKER_04: And um, of course, you can charge uh default interest for each day that they're laid um during that time.
• 23:56
  SPEAKER_04: Now, I'm sure you're aware of this as well.
• 23:59
  SPEAKER_04: December, New Year, um, not the best time to be doing anything yet.
• 24:04
  SPEAKER_02: Definitely, not at all.
• 24:06
  SPEAKER_04: We see that um, you know, a lot of lenders are a skeleton staff, even you know, solicitors' um offices are closed for two to three weeks, so it's very difficult to get a transaction through.
• 24:16
  SPEAKER_04: Um, so our client obviously wanted to sell this property and move on because they had other projects they needed to invest the money in.
• 24:23
  SPEAKER_04: Um, so our client said, okay, look, um we'll issue that notice to complete.
• 24:27
  SPEAKER_04: We'll now start charging interest for each day that they're late, and hopefully it settles before the end of the year.
• 24:34
  SPEAKER_04: So we pushed settlement out for another week or so, and then come the time for that um new extended settlement date, they were still not ready.
• 24:44
  SPEAKER_04: And now things got a little bit um concerning because we were facing a lot of issues.
• 24:50
  SPEAKER_04: Firstly, it was going to tick over to the new year, and we had to, of course, um factor in that land tax would be payable.
• 24:58
  SPEAKER_04: Now our client would be assessed for land tax on this on this property, and then there would also be um other implications because the client needed those funds in another transaction.
• 25:08
  SPEAKER_04: So um another week passed, the notice to complete period ended, and then the sellers, uh the buyer solicitor obviously wanted to negotiate on behalf of their client, and um they offered a little bit more on some of money on top of the purchase price in terms of compensation for the delayed settlement.
• 25:26
  SPEAKER_04: Now, at this time, my client's rights were to pull out of the contract, keep the deposit, and walk away from the transaction.
• 25:34
  SPEAKER_04: And had they suffered losses, of course, they could have claimed further damages from the buyer.
• 25:39
  SPEAKER_04: But, you know, in these sort of instances, you need to weigh the um commercial decision and sort of have a balance with the legal rights and commercial decisions as well.
• 25:48
  SPEAKER_02: It's practical to proceed with.
• 25:49
  SPEAKER_02: Definitely.
• 25:49
  SPEAKER_04: So my client had been waiting, you know, months and months for this settlement to complete.
• 25:53
  SPEAKER_04: They didn't want to take the property to auction again and re-market it and wait another couple of months for another settlement or another buyer to come around.
• 26:00
  SPEAKER_04: So they said, okay, well, they accepted the offer of um the additional compensation.
• 26:05
  SPEAKER_04: And come time for settlement when we issued the new round of settlement figures to the buyer solicitor.
• 26:12
  SPEAKER_04: Um, they were a bit concerned in terms of the higher amount now.
• 26:16
  SPEAKER_04: Obviously, the compensation amount was there, but there was also a land tax adjustment now.
• 26:21
  SPEAKER_04: Um initially in the contract, we had in our special conditions that land tax would not be adjustable had settlement taken place before 31st of December.
• 26:30
  SPEAKER_04: But now that the clock had ticked over to the new, we obviously had our client have the right to charge that land tax.
• 26:36
  SPEAKER_02: I feel like that's such a small detail, that would have been so easy to miss given that time of year as well.
• 26:41
  SPEAKER_04: Yes.
• 26:42
  SPEAKER_04: So it's very important to have special conditions drafted very carefully by lawyers so you understand what the implications would be should uh something like that happen.
• 26:54
  SPEAKER_04: Now, it doesn't happen often, some most settlements do are very straightforward, but it just takes that one little thing for something to go wrong, and then it all comes down to the contract, what the fine print of the contract and the special conditions say.
• 27:06
  SPEAKER_04: So, again, that's a classic example of something that can go wrong.
• 27:11
  SPEAKER_04: Um, and the client, the buyer obviously had to fork out a lot of money uh to complete this transaction.
• 27:17
  SPEAKER_04: Um again, brings- Did it settle?
• 27:21
  SPEAKER_04: It did eventually settle, yes.
• 27:23
  SPEAKER_04: Um, of course, with with a lot of compensation on top of the purchase price from the buyer's end.
• 27:27
  SPEAKER_04: Um, which brings me actually to a point that you raised earlier, Aaron, in terms of um, you know, trying to pull out of a deal.
• 27:35
  SPEAKER_04: So our client was able to pull out, but like I said, you really need to balance sort of the commercial and also the legal rights um on both ends.
• 27:44
  SPEAKER_01: I think that's important what you said there, and that's a kind of a horror story.
• 27:48
  SPEAKER_01: Good not that great for your client, but you know, uh I think in the scheme of things he got the outcome that he was potentially after.
• 27:56
  SPEAKER_01: There's another you did a talk once at KHI, scared me a little bit, uh, which was in terms of buying property and doing the last final inspection.
• 28:06
  SPEAKER_01: Uh I think you've got some stories there of uh, you know, before a uh a loan settles, sorry, and a property settles, uh the I think it's maybe a couple of days or maybe on the day of settlement that you can go and do a final inspection of the property.
• 28:22
  SPEAKER_01: Why do you suggest that's so important?
• 28:24
  SPEAKER_01: And maybe can you give us an example of where it didn't go well?
• 28:27
  SPEAKER_04: So final inspection is very important.
• 28:29
  SPEAKER_04: So generally that's put into um the contract as the buyer's right on um, you know, come time for settlement to walk through the property with the agent, inspect the property, make sure it is as um in the same condition or subject to obviously fair wear and tear as they initially signed the contract.
• 28:47
  SPEAKER_04: So um I always suggest my clients to do that on the morning of settlement, and if that's not possible, potentially perhaps um, you know, just the afternoon before settlement.
• 28:57
  SPEAKER_04: So we have actually had a lot of um, you know, clients where they've gone out for that inspection and the property is just still not ready because it either needs to be vacant possession or subject to existing tenancies, depending on what the contract says.
• 29:12
  SPEAKER_04: So if a property says vacant possession, um that means vacant possession on settlement.
• 29:17
  SPEAKER_04: The property needs to be completely empty, free of any debris, rubbish, or anything as such, and all items need to go.
• 29:25
  SPEAKER_04: So we have had instances where our clients have um, you know, come for a final inspection only to find the property that there's still a lot of rubbish in the garage or um there's still equipment and furniture lying around that hasn't been removed.
• 29:38
  SPEAKER_04: So we've had to ask you know the seller to remove those items before settlement can proceed because that's what the contract says.
• 29:45
  SPEAKER_04: Um in other instances, you know, when we're when the contract is marked subject to existing tenancies, um, there are obviously tenants in the property.
• 29:54
  SPEAKER_04: So that in that case, items can remain because tenants are still living there, the contract is subject to a lease.
• 30:00
  SPEAKER_04: Also, we have had instances where um instance where a client actually was buying a property, um, there were tenants in the property, but the contract said subject to vacant possession.
• 30:10
  SPEAKER_04: Our client was a first-home buyer, they were planning to move into this property on settlement.
• 30:17
  SPEAKER_04: And um, come time for the final inspection, they opened the doors to have a look around the property, but the tenant was still living there as per normal.
• 30:27
  SPEAKER_04: Um, now what happened in that case was the tenant um was sent a notice, but it had not been received, and they had not acknowledged that.
• 30:38
  SPEAKER_04: So for the tenant, realistically, for them, they did not know they had to vacate the property by a certain date.
• 30:44
  SPEAKER_04: Um and the tenant was still there.
• 30:47
  SPEAKER_04: So I do recall in that one we issued as the buyers a notice to complete to the vendor, um, to the seller to make sure that they obviously have make sure the time is off the essence, 14 days for them to um vacate the property.
• 31:02
  SPEAKER_04: And um, of course, our client then can settle only once it's vacant.
• 31:07
  SPEAKER_04: But of course, that goes um hand in hand now with residential leasing, um which is quite strict.
• 31:15
  SPEAKER_04: So in that case, you know, there were again certain time frames and whatnot that had to um or note for notices to be given to the tenant.
• 31:24
  SPEAKER_04: And um what happened come the 14th day, the tenant was still not um the property still wasn't vacant, the tenant was still there.
• 31:32
  SPEAKER_04: Now, what in it in that particular instance, our client actually found another property which was better suited to them.
• 31:39
  SPEAKER_04: So they used that notice to complete um as a way to exit.
• 31:44
  SPEAKER_04: A way to exit the contract.
• 31:45
  SPEAKER_03: And they kept the deposit.
• 31:46
  SPEAKER_04: They kept the deposit, they got their deposit refunded from the agent's trust account.
• 31:50
  SPEAKER_04: They walked away from the deposit legally, everything was done.
• 31:53
  SPEAKER_04: And um essentially for them it was a great outcome.
• 31:57
  SPEAKER_04: You know, they had signed a contract eight weeks ago, um, only to find that this was a great way for them to exit the contract.
• 32:03
  SPEAKER_04: Now, had the buyer, of course, uh had the seller of course done given their notices in time, and then our client was compelled to settle.
• 32:11
  SPEAKER_04: But it just so happened in that instance they were able to use this as an exit.
• 32:15
  SPEAKER_02: Because if those tenants were like going month to month, that literally could be like three months' notice or something, right?
• 32:21
  SPEAKER_04: Definitely.
• 32:21
  SPEAKER_04: Yeah, look, um residential uh tenancy agreements are have strict timelines in terms of what you can and can't do.
• 32:29
  SPEAKER_04: So that's always to the managing agent or the vendor to ensure that they're um legally giving the notice that's required.
• 32:35
  SPEAKER_01: And yeah, so thanks for sharing that.
• 32:37
  SPEAKER_01: You told me there's a story around this where potentially a client went to go a final inspection and the house was burnt down.
• 32:43
  SPEAKER_01: Oh well.
• 32:44
  SPEAKER_01: And and in that case, now this is a very extreme example, but I know it's happened.
• 32:49
  SPEAKER_01: What actually happens there?
• 32:51
  SPEAKER_04: Yes, um, look, in the Clearly not in the original condition.
• 32:55
  SPEAKER_04: That's right.
• 32:56
  SPEAKER_04: So um, you know, that's a great question.
• 32:59
  SPEAKER_04: And it has happened in the past.
• 33:01
  SPEAKER_04: So go back to the contract, the fine print of the contract, read what the special conditions say.
• 33:06
  SPEAKER_04: The property has to be um in the state it was of repair, obviously, when contracts were originally exchanged, of subject to fair, wear and tear.
• 33:15
  SPEAKER_04: So you can't, you know, hold off on settlement, so you know, a few scratches on the wall here and there.
• 33:19
  SPEAKER_04: But if it's something major, a house burnt down is major, the property's no longer there, it doesn't have the value the client had um obviously intended for it to have on the day of exchange.
• 33:29
  SPEAKER_04: So in that case, go back to the contract and um the client would need to consider their exit rights.
• 33:35
  SPEAKER_01: But if you didn't go to that final inspection and you came back and your house is gone, it's yours.
• 33:40
  SPEAKER_04: Correct.
• 33:41
  SPEAKER_04: That um is the would be generally the buyer's liability then because they failed to carry out the inspection and again do their due diligence prior to settling.
• 33:51
  SPEAKER_04: No one prevented them from doing it.
• 33:52
  SPEAKER_04: Exactly.
• 33:52
  SPEAKER_04: And then perhaps it's probably a bit too late because um settlement's taken place and um the title has obviously exchanged.
• 33:59
  SPEAKER_02: So the bank's gonna be happy.
• 34:02
  SPEAKER_04: No, definitely not.
• 34:03
  SPEAKER_04: And um in in those instances, that's why I say, you know, I would never recommend my clients to go ahead um without a final inspection, or at least if they're not unable to make it, they can um perhaps call a family, a friend, or maybe even their buyer's agents to conduct that final inspection on their behalf.
• 34:20
  SPEAKER_02: Uh are there any other options for that final inspection?
• 34:23
  SPEAKER_02: Because look, a lot of our clients uh do purchase interstate, and look, not all of them are using buyer's agents, right?
• 34:28
  SPEAKER_02: So they've got no family or friends in that particular city.
• 34:31
  SPEAKER_02: Are there people that offer that service to do that final inspection?
• 34:34
  SPEAKER_02: Or how how can someone go about that?
• 34:36
  SPEAKER_04: Yeah, look, um there's actually been um either friends or family sometimes interstate that um go on behalf of clients, or sometimes they even have the managing agent that uh would be leasing out the property to just walk in, inspect the property um and take the client through with a video call as well.
• 34:52
  SPEAKER_02: Okay, you recommend that to be someone different from the sales agent, right?
• 34:55
  SPEAKER_04: Definitely, yes.
• 34:56
  SPEAKER_04: But what I have also realized is at KHI Partners, it's actually great to work with the wider team as well.
• 35:02
  SPEAKER_04: So through a property transaction, of course, we need to be involved very often with accountants, mortgage brokers, um, and even to some extent financial planners when it comes to self-managed superfund purchasing.
• 35:14
  SPEAKER_04: So, in those instances, you know, working with the team, working with yourselves, um, Janine, Mike, and Stephen James, James Parame, it's always, I find, a much smoother process when we have a client that also utilizes your services for finance, mortgage broking, just gets the um transaction through much more smoothly when we're able to communicate with one another and um you know have j have those joint meetings with the clients to sort of sit down, understand the risks, and um take them through the contracts.
• 35:45
  SPEAKER_04: Yeah.
• 35:45
  SPEAKER_02: Look, we all operate in independently, right?
• 35:47
  SPEAKER_02: But we we are somewhat on the same page about you know how to take a client through that process.
• 35:52
  SPEAKER_04: Yeah, definitely.
• 35:53
  SPEAKER_04: And that always helps because of course, if there's a particular issue that I see arising um in a contract of sale, which I need um, you know, you as a mortgage broker, Frank, to look through and um look back at the finance, and perhaps we need to adjust that slightly, I can um, you know, raise that or flag that to you and you and your team can obviously start working on that.
• 36:12
  SPEAKER_04: So it is um, I think a great sort of um team to be around when uh for a client to have those services or maybe one last thing is commercial property.
• 36:22
  SPEAKER_01: Uh I think you know, especially now we're seeing a lot more clients going into commercial property.
• 36:27
  SPEAKER_01: What are some things that you're seeing or clients should be aware of going before going into a contract uh for buying a commercial asset?
• 36:34
  SPEAKER_04: The most um common thing I actually repeat to a lot of my clients when they go for commercial properties is don't just buy the property, buy the lease.
• 36:43
  SPEAKER_04: It's very crucial that the client understands um the lease that or the tenant that's coming along with the property as well.
• 36:51
  SPEAKER_04: With commercial properties, generally you have quite lengthy leases.
• 36:54
  SPEAKER_04: They could be anywhere from you know two years, three years, five years, or even we've seen 10 plus 10 years as well, so 20 or 30 years essentially.
• 37:02
  SPEAKER_04: So you need to have a look at the lease, what the lease says, understand um the requirements for property maintenance, who's going to be looking after what parts of the property, what happens in terms of, you know, a natural disaster potentially, who's looking after the outgoings in terms of insurances and those sort of things.
• 37:20
  SPEAKER_04: So it's very important.
• 37:21
  SPEAKER_04: Um, and I always like to sit down with the client for commercial properties, take them through the contract, of course, and then also the lease that's attached to the property.
• 37:30
  SPEAKER_04: Now, we also go one step further and conduct further due diligence.
• 37:34
  SPEAKER_04: So we generally request from the managing agent or the vendor to provide us further particulars on the tenant themselves in terms of their history, ensuring that they've been paying rent on time, the ledges are good and there's been no breach notices.
• 37:47
  SPEAKER_04: Because the last thing I'd want for my client is to make um a substantial investment in a commercial property only to find out afterwards that um the tenant has not been paying rent on time, and therefore that's going to be impacting my client in terms of um their mortgage repayments, and also perhaps the tenant may potentially have a breach notice that's been issued to them that they haven't rectified, and those I uh those sort of things do happen.
• 38:13
  SPEAKER_04: So very important, always look into the lease with commercial properties.
• 38:16
  SPEAKER_02: It's a little bit different to residential, right?
• 38:18
  SPEAKER_02: Because I mean, look, um for argument's sake, if if someone moves out of your residential property in most pockets of Australia, you can pr fill that pretty quickly.
• 38:26
  SPEAKER_02: But if a business moves out of your property, um it you can't always get a new business, they're not always ready to move in.
• 38:32
  SPEAKER_02: So I think it's also important to look into things like what kind of bank guarantees in place, what are the make-wood causes, what can you actually recover if your tenant was to default?
• 38:41
  SPEAKER_04: Definitely, yes.
• 38:42
  SPEAKER_04: Um so again with commercial properties, CG uh CGT implications, those need to be considered as well.
• 38:48
  SPEAKER_04: Um so you need to go hand in hand with your accountant for advice um for the longer time frame for this property that you're uh planning to acquire.
• 38:57
  SPEAKER_04: And also looking at um any land tax that could potentially arise as well in in the structure that you're purchasing this through.
• 39:04
  SPEAKER_04: And also look at um the GST implications.
• 39:08
  SPEAKER_04: So if there's a lease attached to it, there's a business being carried on, then there would perhaps be um it'd be a going concern, so no GST applicable.
• 39:17
  SPEAKER_04: However, if there's no lease attached, um then you'd have to consider the GST side of things as well.
• 39:23
  SPEAKER_04: But like I always say, you need to ensure that you get proper taxation and legal advice for any commercial property.
• 39:29
  SPEAKER_04: The other thing I also see with commercial properties is that um, you know, especially when it's sold under auction conditions, you need to ensure that you have the finance or the funding level available and you know that you'd get that because there is no cooling off period and you're locked into this transaction um and the contract straight away upon the um, you know, if you're the successful bidder.
• 39:52
  SPEAKER_02: I know, I know we only just scratched the surface on commercial property, but um we're kind of out of time for today, so we're gonna have to bring you back to to talk about that.
• 40:00
  SPEAKER_02: And um, I mean, look, we could talk about law today, it's such a broad area, right?
• 40:04
  SPEAKER_02: But um, look, thank you very much for joining us today, Sandy, and look forward to getting you back in.
• 40:08
  SPEAKER_02: Thank you, Sandy.
• 40:09
  SPEAKER_04: Thank you, Frank.
• 40:10
  SPEAKER_04: Thank you, Aaron.