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The Four Stages of a Conveyancing Transaction – Part 2 Sellers

The Four Stages of a Conveyancing Transaction – Part 2 Sellers

CONDITIONAL STAGE – SELLER

INTRODUCTION

There are four stages that cover the breadth of the conveyancing process:

  1. Pre-Contractual Stage;
  2. Conditional Stage;
  3. Unconditional Stage; and
  4. Settlement/Post Settlement Stage.
CONDITIONAL STAGE

The importance of the conditional stage (which occurs after the signing of the contract but before the contract becomes unconditional) cannot be overlooked as it is during this stage that the buyer under a contract can elect not to proceed with a purchase, usually without penalty, so long as they can demonstrate that a condition of the contract has not been met.

As a matter of law, this is an example of a “condition precedent” as the condition must be met, unless its failure to be met is excused, before performance under a contract becomes due and before any contractual duty exists.

Types of Conditions

The most common examples of such conditions are set out below.

Cooling Off

Under the Property Occupations Act, a buyer may, within a five business day period commencing on the day that they receive a copy of the contract signed by the seller, terminate the contract but will be subject to a 0.25% termination penalty.

Finance

The Finance Condition sets out whether the contract is subject to finance, whether the buyer is free to seek finance from any financial institution, what finance amount is required to meet the condition and when the Finance Date is due. Where the contract has a Finance condition the contract is conditional on the buyer obtaining the financial assistance required to settle and the buyer may elect not to proceed if they cannot do so.

However, you should note that the standard REIQ contract specifies that unless Finance Amount, Financier and Finance Date are all completed then the contract is NOT “subject to finance” and failure to be able to pay for the purchase is not a ground for termination.

There is no termination penalty payable here.

Building and Pest

The Building and Pest Condition provides that the contract is conditional on the buyer receiving a satisfactory report from a Building and Pest inspector on the state of the property being purchased but again it is important to note that if the Inspection Date is NOT “subject to Building and Pest” and issues that would not be covered by such an inspection are not grounds for termination.

There is no termination penalty payable here.

However, these conditions are not a “general” power to get out of a contract because the buyer has changed their mind.

Other conditions can be included in a contract and it is for this reason that it is important that you consider the need for such conditions before signing the contract.

One such condition, whose power is frequently overlooked, is a Due Diligence condition that a buyer may seek and is the right to terminate the contract if their investigations reveal a matter that causes them sufficient concerns to want to do so.

Application

The buyer must, by 5:00 pm on the due date determined pursuant to the contract, advise you or your solicitor that:

  1. they have received a satisfactory finance offer/inspection report or waive the condition and that they wish to proceed with the contract; or
  2. they have not been able to obtain a satisfactory offer of finance/inspection report and are electing to terminate the contract; or
  3. they are requesting an extension of the due date for the relevant condition, although the seller is under no obligation to grant such requests.

Failure to do so does not mean that the buyer loses their right to terminate but it does give you the right, until the buyer provides one of the above advices, to terminate the contract.

However, the buyer’s deposit would be refundable.

Important Lessons for Sellers

You should ensure that you adequately protect yourself by undertaking the following important activities:

  1. ensure that the periods set out for conditions in the contract, whilst sufficient to allow buyers to conduct all necessary investigations, including making their finance application and organising a building inspection, are not so long as to expose you to undue delays that prevent you from moving on confident that the sale will eventuate; and
  2. ensure that you act quickly upon the specified period if the buyer has not advised their decision on a condition, including whether to want to proceed or terminate the contract.

On many occasions, we are approached by sellers who are now unsure as to what they are able to do and as a result are exposed to the risk that the buyer may delay advising their decision in respect of a contract condition.

Conclusion

Selling a House will for most people be the most important financial decision that they make – we cannot recommend highly enough the importance of understanding all contract conditions and ensuring that you liaise with your solicitor around all due dates and promptly advise them if the buyer fails to provide the required advices by the expiry date.

Read our previous article on the Pre-Contractual stage of the conveyancing process for sellers.

pre-contractual selling - the four stages of conveyancing

 

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The Four Stages of a Conveyancing Transaction – Part 1 Sellers

PRE-CONTRACTUAL  STAGE – SELLER

INTRODUCTION

The Four Stages of a Conveyancing Transaction – Part 1 Sellers:

  1. Pre-Contractual;
  2. Conditional;
  3. Unconditional; and
  4. Settlement/Post Settlement.

Each of these stages offers its own risks.

PRE-CONTRACTUAL STAGE

The importance of this stage, which occurs before the signing of a contract, is often overlooked with clients signing the “standard” Real Estate Institute of Queensland (REIQ) contract without really reading the document fully. Brisbane Property Conveyancing requires expert care to get right.

A standard REIQ contract can be divided into the following parts –

1. Reference Schedule

This part covers important details such as:

  • Real Estate Agent;
  • Buyer (and their Solicitor);
  • Seller (and their Solicitor);
  • Property Address; and
  • Price (including deposit amounts and when these are payable).

Yet you would be surprised how many errors we find when we receive contracts signed by clients – this is an important legal document but common errors include:

  • Spelling errors;
  • Wrong property;
  • Incorrect contact numbers; and
  • Confusion as to what fixtures are excluded and what chattels are included.

Next are three key matters – the Finance and the Building and Pest Inspection dates and terms and the Matters Affecting the Property.

The Finance Condition sets out whether the contract is subject to finance, whether the buyer is free to seek finance from any financial institution, what finance amount is required to meet the condition and when the Finance Date is due.

Please note that the standard REIQ contract specifies that unless Finance Amount, Financier and Finance Date are all completed then the contract is NOT “subject to finance” and failure to be able to pay for the purchase is not a ground for termination.

The Building and Pest Condition sets out when the inspection is to be performed and again it is important to note that if the Inspection Date is NOT “subject to Building and Pest” and issues that would be covered by such an inspection are not grounds for termination.

The Matters Affecting Property provides the place where the seller of the property is able to disclose:

  1. encumbrances on the property that will remain after settlement; and
  2. details of tenancies on the property – please note that leases less than three years will not show up on a title search on the property.

The Reference Schedule then shows details of compliance with Pool Safety, Electrical Safety Switch and Smoke Alarm requirements.

Finally, the Reference Schedule shows any Special Conditions that apply to the contract.

2.Terms of Contract

This is the ‘fine print’ of the contract and in an article of this size, we cannot provide a detailed commentary on each term. However here are some key terms of which you should be aware:

  • Term 1 – Definitions – “business days” – this is a key term given that many conditions are expressed as due within x business days.
  • Term 2 – Purchase Price – whether the price includes GST and what adjustments can be made to the Purchase Price.
  • Terms 3 and 4 – Finance and Building and Pest Inspection Reports and Pool Safety – notice requirements and termination rights.
  • Term 5 – Settlement – times within which settlement must occur and arrangements for handover of keys at settlement.
  • Term 6 – Time – this reinforces that where something is to be done by a certain time it is vital that this timeframe is strictly followed.
  • Term 7 – Matters Affecting the Property – Seller warranties and how issues with encroachment and survey matters do not necessarily give a right to termination.
  • Term 8 – Right and Obligations Until Settlement – that the property is at the risk of the buyer from 5 pm on the first business day following the signing of the contract and how any requests for early (before settlement) possession will be handled.
  • Term 9 – Parties Default – this covers each party’s rights if the other party is in default of the contract.
  • Term 11 – Electronic Settlement – this is a relatively new initiative that will be covered in a later article.
CONCLUSION

Selling a House will for most people be the most important financial decision that they make so we cannot recommend highly enough the importance of reading the contract fully and ensuring that you satisfy yourself on all matters before you sign the contract.

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Urgent Reminder: Queensland’s First Home Owners’ Grant – Don’t Miss It!

The First Home Owner’s Grant, an initiative from the Queensland Government, could help you to buy your first home sooner, however, you need to act now if you want to take advantage of it.

The First Home Owner’s Grant is available for eligible transactions dated on or after 1 July 2016 but is only on offer until 30 June 2017.

If you are thinking of buying or building a new home, this one-off payment of $20,000 will help you get started. You can even buy off the plan, or choose to build yourself. Depending on the contract date, you may be eligible to receive $15,000 to $20,000 towards buying or building your first home.

Of course, there are certain criteria that apply for you to be eligible for this grant, and also conditions which may apply depending on your eligibility.

For more information, see our recent blog post called Understanding QLD First Home Owners Grand 2017

https://www.aylwardgame.com.au/understanding-queenslands-first-home-owners-grant-2017/

Need advice? How can we help you?

Time is running out on this fantastic initiative from the Queensland Government, act now so you don’t miss out!

You can also visit our friends at Nectar for a finance quote.

Engaging a solicitor to assist is the best option. For more information on the First Home Owners’ Grant or to seek legal advice on purchasing your first home, please contact us.

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For more information on current news, property law and other topics of legal interest please visit our Brisbane law news section.
To speak with an expert in the area, contact 1800 217 217 to arrange a quality legal consultation.

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Understanding Queensland’s First Home Owners’ Grant in 2017

Are you dreaming of your first home? With the Queensland Government’s increased First Home Owners’ Grant, your dream could soon become your reality. The First Home Owner’s Grant, an initiative from the Queensland Government, could help you to buy your first home sooner. Depending on the contract date, you may be eligible to receive $15,000 to $20,000 towards buying or building your first home.

The First Home Owner’s Grant is available for eligible transactions dated on or after 1 July 2016, but is only on offer until 30 June 2017. If you are thinking of buying or building a new home, this one-off payment of $20,000 will help you get started. You can even buy off the plan, or choose to build yourself.

However, the First Home Owners’ Grant is not available to everyone and certain criteria must be met in order to benefit from this initiative.

Am I eligible?

To be eligible to receive the First Home Owners’ Grant:

  • You, or the person you are applying with, must be an Australian citizen or permanent resident
  • You, or your spouse must not have previously owned property in Australia
  • You must be at least 18 years of age
  • You must be buying or building a brand-new home which is valued under $750,000

Firstly, let’s look at the types of dwellings that would be classed as a new home.

A dwelling can include houses, units, duplexes, townhouses and granny flats built on a relative’s land.

A ‘brand-new’ home is a dwelling that has not previously been occupied as a place of residence or sold as a place of residence. A brand-new home can include substantially renovated homes, in certain limited circumstances, and homes that have been moved from one site and fixed as a home to a different site. The exception of this is relocated homes that have been occupied or sold as a place of residence since being fixed to the new site.

A ‘substantially renovated’ home is a home where all, or most of the structural and/or non-structural components of a building are removed or replaced. The renovations must have affected the building as a whole for it to be considered a substantial renovation.

Factors affecting eligibility

You would not be eligible for the First Home Owners’ Grant if:

You have purchased an established home.

Although you would not be eligible for the $20,000 grant if a contract replaces another contract that was made prior to 1 July 2016, you may still be eligible for the $15,000 grant.

However, there may still be options…

If you have held or currently hold an interest in a residential property since 1 July 2000, and the property was or is solely used for investment purposes, you may be eligible for the grant on a subsequent property.

You would need to give evidence showing you have not lived in the investment property. Such information would be:

  • Tenancy / lease agreements
  • Current electricity / phone accounts
  • Tax return details

Once you have submitted your application and supporting documents, your application will be reviewed and a decision will be made on your eligibility.

However, if you held an interest in residential property before 1 July 2000, regardless of how the property was used, you will not be eligible for the grant.

Other conditions which apply…

Ok, so you have ticked all the boxes, you are eligible, what happens next?

You must move in within 1 year of the completed eligible transaction and you must live there for 6 months continuously in order to keep the grant. If you do not adhere to these conditions you may have to pay back the grant as you would no longer be eligible.

Eligible transactions…

An eligible transaction, for the $20,000 grant is one of the following:

  • A contract made on or after 1 July 2016 for the purchase of a new home in Queensland
  • A building contract made on or after 1 July 2016 by the owner of the land in Queensland or a person who will, on completion of the contract, be the owner of land in Queensland on which the new home is being built
  • The building of a new home in Queensland by the owner-builder where the foundations are laid on or after 1 July 2016

If you are applying for the First Home Owners’ Grant with a spouse, they must be included on the application either as an applicant or non-applicant spouse. With joint applications, all applicants must live in the house. If your spouse or joint-applicant has previously owned a home they have lived in, you will not be eligible for the grant.

As mentioned above, the grant is dependent on the contract date.

Payment timeframes for the grant are different depending on the type of transaction. Types of transactions are:

  •  Off the plan
  • Instalment purchase contracts
  • Vendor finance contracts
  • Building contract
  • Owner-builder
  • Other types of transactions
    For more information on types of transactions and payment timeframes, see the Queensland Government website www.firsthomeowners.initiatives.qld.gov.au .
    If you are eligible for the grant, you may also be eligible for the first home buyer’s concession on the transfer duty (formerly called Stamp Duty).

How can we help you?

Determining your eligibility for the grant can be confusing and complex if you don’t have the correct information and knowledge at hand. Errors made in determining your eligibility can mean you will not only have to pay back the grant in full, but you may also be liable to pay penalties as well.

Engaging a solicitor to assist is the best option. For more information on the First Home Owners’ Grant or to seek legal advice on purchasing your first home, please contact us.

 

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At Last the Secrets of Installment Contracts Fully Revealed

INSTALMENT CONTRACTS GENERALLY

First, what is an instalment contract?

An instalment contract is a contract for the sale of land, and where applicable, including improvements (that is, the house etc) which provides that:

  • the purchase price is to be paid by a series of instalments (which may or may not include the payment of a deposit);
  • the Buyer is bound to make the payments;
  • the Buyer is not entitled to receive a conveyance of the land until the final installment has been paid.
Installment Contracts for the purchase of houses in Queensland require diligent technical skill that can only be obtained from experience.
Are the rights and obligations of Buyers and Seller regulated?

The rights and obligations of Buyers and Sellers for instalment contracts in Queensland are regulated by the Property Law Act 1974 (“PLA”) and those provisions cannot be contracted out of.

What are the restrictions on the Seller?

The PLA restricts Sellers under instalment contracts from:

  • terminating the contract for a failure by the Buyer to pay an instalment until a notice has been served on the Buyer giving the Buyer thirty days to pay the outstanding instalment; and
  • mortgaging or selling the land after entry into a instalment contract without the consent of the Buyer.
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Buyer’s right to lodge caveat

The Buyer under an instalment contract may by the provisions of the PLA lodge a caveat preventing the Seller dealing with the land in any way until completion of the contract.  The provisions of the PLA further deem the caveat to be non-lapsing.

Buyer’s right to require conveyance

Where a Buyer under a instalment contract:

  • is not in default under the contract;
  • has paid an amount equal to one third of purchase price;
  • has served upon the Seller a notice in writing of the Buyers requirement,

the Buyer has the right to require a transfer of the property to the Buyer, with a mortgage to be granted back to the Seller.

Does the instalment contract have to comply with the Consumer Credit Code?

Depending on the circumstances of the Seller, the instalment contract may also be required to comply with the provisions of the consumer credit code as well as the PLA.

When is transfer duty payable?

An instalment contract is liable to transfer duty at the standard rates of duty payable by parties in usual conveyance transactions.  This includes the principal place of residence and first principal place of residence rebates.  The instalment contract will need to be lodged for assessment of transfer duty within one month from the date the instalment contract becomes unconditional.  Transfer duty will then have to be paid within thirty days from the date the assessment notice issues.

OUR FORM OF INSTALMENT CONTRACT

Features
  • Possession – The Buyer may occupy the house and live in it within up to sixty days after both the Seller and the Buyer sign the instalment contract while the Buyer is paying it off.
  • Interest – Interest is charged on the outstanding amount of the purchase price and is calculated on a daily basis.
  • Instalments and time to pay – The instalments are calculated on the basis of a principal interest loan amortised over 25-30 years. The instalments however are to be paid by a series of equal instalments over a term with a final lump sum payment being the balance of the purchase price payable when you have paid thirty percent of the purchase price (not including interest).  At that time, you may need to organise a loan with a traditional finance institution.
  • No bank or finance approval necessary – The Seller effectively provides the finance for you to purchase the house.
  • The purchase price will not change – The purchase price is fixed when the instalment contract is signed and cannot change, regardless of any increase in the value of the property over the term that you are required to pay instalments.
  • Due diligence – The Buyer has fourteen days in which to conduct a physical inspection of the property, and to conduct searches and make other enquiries after the contract is signed.  If the Buyer is not satisfied with the property during that period the Buyer may terminate the contract.  Once the instalment contract is unconditional the Buyer is deemed to have accepted the property in its then “as is” condition.
  • Outgoings – The Buyer is required to pay in addition to the instalments council rates, water rates, fire service levies, land tax (if applicable) and insurance premiums relating to the property.
  • Early payout – The Buyer may by not less than thirty days notice payout early the purchase price. If the Buyer does so, any outstanding interest together with an early payout fee will also be payable.
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Important obligations of the Buyer
  • Paying instalments and outgoings – The instalments and outgoings payable either weekly, fortnightly or monthly (depending on your arrangement with the Seller). The first instalment is due one week, fortnight or month (as the case may be) after the possession date.  If you are late in making your payments, late payment charges apply including higher interest charges.
  • Keep property in good condition – You must amongst other things at all times:

– keep the property in good repair and condition, carry out regular maintenance;

– insure the property is clean and fit for occupation;

– replace any part of the property that becomes worn out, non-operational, destroyed, lost or removed.

  • Insurance – The Seller is to take out and maintain:

– adequate insurance over the property against destruction or damage for the replacement value of the improvements;

– public risk insurance for at least $20,000,000.00.

  • Remaining in possession – The Buyer must remain in possession of the property (that is, cannot lease and or rent it to anyone or leave it unoccupied for a continuous period in excess of thirty days).
  • No demolition etc – The Buyer must not demolish, remove or significantly modify the whole or any part of the house and any other improvements to the property.
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Default by Buyer
  • Instalment not paid in time – If an instalment is not paid on the due date for payment the Seller may give the Buyer a notice to remedy the default. If the Buyer does not then remedy the default the Seller may make the outstanding amount of the purchase price and any interest and outgoings owing immediately payable in full.
  • What other defaults are there? –  the Buyer will be in default under the instalment contract where the Buyer is in breach of any of the Buyer’s obligations as Buyer.  Those defaults can also result in termination of the contract.
  • What happens on termination of the instalment contract? –  If a default has occurred and the Seller terminates the contract, the Buyer must vacate the property within seven (7) days from the date the Seller gives the Buyer notice to do so.
  • What happens to the instalments paid? – The deposit and all instalments paid under the instalment contract are retained by the Seller if the contract is terminated as a result of the Buyer’s default.
  • Who pays the default costs? –  Any costs and expenses arising from the default which the Seller must pay are also payable by the Buyer.

WARNING

This information is intended to provide assistance to understand the procedures for the purchase of houses using instalment contracts in Queensland.  It includes a summary of some of the features of instalment contracts generally and some of the provisions of the instalment contract document used by us.  This information does not and should not be regarded as giving legal advice.  The Seller and Buyer should at all times obtain and rely upon their own, independent legal advice on the terms and conditions of an instalment contract before they sign.  It is the instalment contract ultimately signed between the Seller and Buyer that governs their sale and purchase relationship.

 

For more information on selling, buying and vendor finance please visit our Brisbane law news section.
To speak with an expert in the area, contact 1800 217 217 to arrange a consultation.
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Entering Into A Financial Agreement? Don’t Get Sold Short!

KEY POINTS FOR ENTERING INTO FINANCIAL AGREEMENTS

Some helpful advice if you are considering entering into a Financial Agreement.

Financial Agreements under the Family Law legislation are not simple agreements. There are certain requirements which must be complied with if the agreements are to be binding. If these requirements are not properly dealt with the Court will have no hesitation in overturning a Financial Agreement should either you or your partner in the future not wish to be bound by its terms.

Solicitors are required to advise the parties entering into a Financial Agreement on the advantages and disadvantages of entering into those agreements. The parties sign a certificate attached to the agreement that they have received this independent legal advice. The solicitors also sign certificates stating that they did provide the advice required prior to the parties signing the agreement.

The advice not only deals with the terms of the agreement itself but also provides a full advice on the legislation under the Family Law Act and the positions the parties would be in if they had not entered into the agreement.

DRAFT AGREEMENTS

Agreements are drafted to suit the particular circumstances of each case. The agreements come under different sections of the Family Law Act depending on whether the parties are in a de facto relationship and wish to remain in that relationship, if the parties are in a de facto relationship and intend to marry, an agreement during a marriage and also an agreement after a divorce setting out the terms of a property settlement dealing with the financial issues arising from the breakdown and the divorce in the marriage.

When drafting the agreement and to enable a solicitor to provide the required advice it is necessary to obtain detailed instructions of the relationship, contributions made by the parties at the commencement of the relationship and contributions made by the parties during the relationship. Without these instructions a full and proper advice cannot be provided.

Once a client’s instructions have been obtained in regard to the relationship and contributions it is then necessary to obtain the details instructions in regard to the wishes of the parties in regard to assets they wish to maintain full and legal control over and those assets which are to be joint assets. Instructions are also required in regard to superannuation, estate rights and spousal maintenance should the relationship breakdown or if there is a death of one of the parties.

Once the agreement has been drafted setting out the parties’ joint instructions to their respective solicitors it is then necessary to provide a detailed advice on the terms of the agreement reached and on the advantages and disadvantages of entering into that agreement.

Unless all these steps are carried out and proper advice given there is a strong possibility that the agreement would be overturned by the Family Court if a party upon separation wishes to set aside the agreement and seek a greater property settlement than that set out in the agreement itself.

It is necessary for both parties to provide schedules setting out their present assets, liabilities and resources including superannuation. The updated schedules are required to be attached to the Financial Agreement itself.

It is to be hoped that the parties agree on the values of the items set out in the schedules without requiring formal valuations to be carried out. The solicitor acting for the other party is required to give the advice that have been mentioned.

It is necessary that the other party obtains an advice from a competent family lawyer and receives a detailed advice in writing. There are many cases where the agreements have been set aside when the partner has not obtained that detailed advice.


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Home Stamp Duty Concessions Explained

HOME STAMP DUTY CONCESSIONS

Home Stamp Duty Concessions Explained

It was Benjamin Franklin who, in 1789 at the time of the writing of the US Constitution, wrote that “…in this world nothing can be said to be certain, except death and taxes”.

Purchasing a new home is one of the most complex opportunities an individual will make in their lifetime and anyone who has recently purchased a house in Queensland would be well aware of the sum of money, quite distinct from the purchase price, loan application fees and a myriad of other costs, that they were required to pay to the Queensland Office of State Revenue (“OSR”) for stamp or transfer duty.

Transfer Duty is essentially an amount paid on the transfer of property, including real estate with the amount of stamp duty payable depending on the value of the property transferred and the purpose of your purchase.

Value of Property

Transfer duty is calculated by applying a sliding scale of taxation and is calculated on the greater of purchase price and market value using a rate of duty that increases with price/value.

CONCESSIONS ELIGIBILITY

Depending on your circumstances, there are a number of stamp duty concessions that are available. To claim a concession you need to complete a Claim for home or first home transfer duty concession (Form D2.1) and include it with your documents when lodging them for stamping. However if at any time you cease to meet the relevant requirements, you must advise the OSR within 28 days so that the transfer duty payable can be reassessed.

Home Concession

Eligibility

  • you buy a home;
  • you move into the house and occupy it as your principal place of residence within 1 year of the transfer date;
  • you do not dispose of (including entering into a lease) any part of the property before moving in or within 1 year of moving into the property.

If you meet the above requirements then the first $350,000 will be assessed at a home concessional rate.

First Home Concession

Eligibility

  • you have never held an interest in residential land anywhere in the world
  • you have never claimed the first home vacant land concession
  • you move into the house and occupy it as your principal place of residence within 1 year of the transfer date;
  • you are at least 18 years of age (though this may be waived in special circumstances);
  • you do not dispose of (including entering into a lease) any part of the property before moving in or within 1 year of moving into the property.

If you meet the above requirements and are buying a home valued less than $550,000 then your home concession will be calculated at the home concession rate minus the first home concession amount. If you buy a home valued more than $550,000 you can still claim the first home concession but the benefit of it is reduced to zero so the home concession rate will be applied to the whole purchase price/value.

First Home Vacant Land Concession

Eligibility

  • you buy vacant land valued less than $400,000
  • you are at least 18 years of age
  • you have never held an interest in residential land anywhere in the world
  • you will build only one home (which must be your first home) on the vacant land and occupy the constructed home as your first principal place of residence within 2 years after the land is transferred to you
  • you do not dispose of all or part of the land before or within 1 year after you start living in the constructed home.
  • no building, or part of a building, is on the land when you buy it
  • you haven’t received a first home vacant land concession before.

CONCLUSION

Few people look forward to paying money out to the Government and this is particularly true when you are making a significant financial investment. It is therefore vital that you ensure that you take advantage of any available concessions that will reduce the amount payable.

Here at Aylward Game we are highly experienced in guiding you through the process and ensuring that you only pay the correct amount of stamp duty.

 

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What You Need To Ask Yourself Before Signing A Guarantee

Are You Signing A Guarantee? Ask Yourself these 4 Questions

So you’ve been approached by someone waving a wad of papers and asking you to sign them, just as a formality. Naturally you ask what they are and are told “it’s just a guarantee that Bill Smith/Bill Smith Pty Ltd wants so that they will lend me some money/provide me with goods or some similar reason”.

WHAT DO YOU DO?

First of all, and we write this based on our significant experience in the insolvency and credit industries, STOP and do not sign anything before you understand the following terms.

Debtor – Person who is seeking some form of credit/goods or services

Creditor – person who is providing some form of credit/goods or services

Guarantee – a promise to be liable for another’s liability

Guarantor – A Guarantor is the party that promises to repay a debt if the debtor fails to meet their obligations to the creditor. The Guarantor may be asked to additional security for their guarantee.

There is no question that becoming a Guarantor is risky business.  If for any reason the debtor fails to meet their obligations then the creditor has the right to pursue the Guarantor. As a Guarantor, your personal credit history could be affected, if you’re unable to maintain the contract.

Now that you understand the parties in a guarantee you need to  ask yourself the following 4 questions.

1 – Do You Understand Your Rights and Obligations Under the Guarantee
  • Documents from the Creditor

The creditor, particularly on loan contracts, must provide written documentation which outlines key information in regards to credit arrangements under the contract and copies of relevant documents. We cannot provide a list of these documents in this article but are able to guide you the documents that you should receive before signing the guarantee.

  • Understanding of the Documents

You must read and understand every document that the creditor is required to provide to you – yes we know that there can be a lot of documents and that they can be in small print. If you are confused in any way then seek our advice immediately – do not take the debtor’s or creditor’s word about any terms.

In particular:
  • What is the amount of the guarantee, can it be increased
  • Under what circumstances do you become liable under the guarantee
  • What documents will you receive during the guarantee
  • When does the guarantee end
2 – Would You Provide Credit To the Debtor

In my past life as a banker I used to ask a potential guarantor whether they would be happy to incur the liability directly with the creditor and then provide credit directly to the debtor.

You should ask yourself whether you know enough about the debtor and their financial position with signing a guarantee.

If the answer to the above questions is a resounding NO!!! then providing the guarantee is unlikely to be in your best interests.

3- Effect of You Being Required to Meet Your Obligations Under Your Guarantee

Ask yourself – can I afford to repay the amount that you are guaranteeing if called upon to do so?

If doing so would mean selling or having repossessed any significant assets, having to borrow funds or any significant financial hardship then providing the guarantee is unlikely to be in your best interests.

4 – Are you Prepared to Monitor and Act if the Debtor Starts To Miss Payments?

Guarantees for loan facilities generally require the creditor to send copies of recovery documents sent to the debtor when they fail to make payments.

You should therefore ensure that you are prepared to review such documentation and take appropriate action.

Final Comment

I was once warned by a family member – “marry in haste and repent at leisure” – thankfully I have no cause to repent but maybe this saying can be amended slightly to cover guarantees to

Sign a guarantee in haste – suffer the consequences at leisure

Don’t forget that the legal team at Aylward Game is always there to ensure that you understand the commitment into which you are entering when faced with a request to be a guarantor.

Learn more about our notary public services with James Noble Family Law.

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In Financial Difficulties? Beware Of Quicksand With Fast Financial Fixes

Financial Hard Times Happen to Everyone

At Aylward Game we pride ourselves on offering high quality legal services to our clients taking into account their unique circumstances.

It’s great when we see clients come to us in good financial health looking to build their wealth and we enjoy seeing them prosper. However, with the current economic climate and the increasing pressures on us to buy a house, car and the other trappings in life, feed ourselves and our families, build our careers, pay our taxes and hopefully have some fun along the way there will be occasions where we experience financial difficulties.

In my prior life as a Chartered Accountant and Credit Risk Manager for a number of financial institutions I have hopefully assisted many people when they have been at their lowest financially but I cannot express how sad it is when a client comes to you having already tried a “financial quick fix” – the damage is often done and may be hard to fix.

This article will look at 4 such quick fixes that have the potential to significantly assist people in financial difficulties but you need to understand precisely the nature of the arrangement into which you are entering and the potential pitfalls that exist. It will also look at what you can (and should) always do when facing financial difficulties.

The Definition of Madness

It is said that the definition of madness is probably supporting English cricket but a more accepted definition is doing the same thing over and over again and expecting a different result!!

If you are in financial difficulties then you need to look at what caused these difficulties – to fail to do so is to run the risk that you end up back where you are even if you can overcome your current financial problems.

We cannot stress enough how important it is to look at the need for behaviour or lifestyle changes before entering into any financial quick fix.

OK so on to the financial quick fixes

4 FAST FIXES

Pay Day Lending/Pawning Goods

This involves what is essentially a short term loan – generally to the next pay day at which time the loan is repaid and you can get on with your life. A related concept is pawning goods where you leave goods as security for a short term loan and get them back when you repay the loan.

A good idea where you have a short term need and are confident that you can repay the loan when it falls due – for example an unexpected medical/dental or vet bill.

Here’s the problem – the fees (sometimes equal to a significant percentage of the loan) and interest rate can be very high – try over 35% per annum !! Unfortunately the underlying long term financial issue is not being addressed so many pay day loans need to be repaid by another pay day loan and before long you can be in a vicious circle of debt.

Debt Consolidation Loans

This is where you roll all your loans into 1 loan and then just have to make one easy monthly payment – sounds easy doesn’t it.

Again if you have had a short term spending spree/an unexpected financial expense that is unlikely to recur and are confident that you will be OK if you can overcome this immediate problem then yes this is a good idea.

However there are 2 large problems here

  1. research has shown that over 80% of consolidation loans end up being rolled into another debt consolidation loan because the underlying financial issue is not being addressed; and
  2. often the debt consolidation process involves refinancing personal loans (often for cars, consumables) into a home loan or a 5/7 year personal loan and here you will be paying a loan off long after the asset acquired is no longer of any value.

This is a common pitfall for those wondering what to do if they are broke!

Debt Agreement (Arrangements Under Part IX of the Bankruptcy Act 1966)

We can only briefly touch on these arrangements in an article of this size. However essentially they involve you offering your creditors, through a formal arrangement, a certain number of cents in the dollar over a period of time. There are a number of criteria that you must meet.

Agreements are administered through a Debt Administrator who will write to your creditors and make your proposal to them and if the prescribed percentage agree then you enter into that arrangement and if you keep to its terms then you creditors cannot take action against you re the remaining amount. Special rules apply for secured creditors.

You beauty Greg – so I just pay my creditors say 40 cents in the dollar and am home free – where do I sign up?

guarantee signature
guarantee signature

There are a few issues

  1. Fees charged by the debt administrator can be significant;
  2. By offering your creditors the arrangement you commit an “act of bankruptcy’ that can be used by a creditor to make you bankrupt; and
  • The arrangement will be recorded on the National Personal Insolvency Index (NPII) and this may be seen by potential lenders, landlords etc in the future.

However the main issue is that without a necessary change in behaviour the arrangement is likely to fall over (and a significant proportion do) and even if you meet the arrangement you may fall back into financial difficulties.

Financial Hardship

This is where you seek assistance from your creditors, predominantly financial institutions for home loans, and advise that you are in financial hardship – this is called giving them a “hardship notice” (exact words are not required) and ask them to consider providing you with financial hardship assistance.

Here are some key timeframes:

  • Creditor has 21 days from receiving your hardship notice to advise if they want more financial information to assess your notice
  • You have 21 days from receiving a request for financial information to supply it to them
  • Creditor has 21 days from receiving your financial information, or 28 days from requesting the information if you do not supply it, to assess your application for financial hardship

The range of assistance that you can receive is very wide and should be based on the creditor assessing your financial position.

This again is a really good idea where you have had a short term issue that you can overcome with time – a breathing space.

However it will not fix a long term issue so if you are offered say a 3 month capitalisation of payments (you are not required to make the payments but interest continues to accrue to the loan) and are not confident that your position will be significantly different in 3 months then exercise great care here.

The main problem with these arrangements is that they often fall over or if you meet the terms of the arrangement you are back where you started but quickly in financial difficulties again. Even if you have been left out of a will there are things you can do.

So What Can You Do ?

There are 5 things that you can always do NOW
  1. Adopt a long term approach – financial difficulties do not arrive overnight and will not be fixed overnight either
  2. Prepare a budget and be honest with what you spend – it will be very illuminating
  3. Consider where economies can be made
  4. Talk openly to your creditors – tell them your position and what action you intend to take – most (if not all) will look to work with you
  5. Plan your action and stick to it – many clients that I have assisted use those 100 packs of envelopes and put money into each envelope for major bill (rent, gas, electric etc) and most importantly their “Fun” envelope – this is really important because without having some fin money you will be in likely to stick to your plan

Good Luck With Your Financial Health

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