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Know your Devil

By Natalie Smyth

Like so much with the law, the devil is usually in the detail, and what might seem a good idea at the time may have consequences from left field.  It is no different with conveyancing contracts for the sale of residential property in Brisbane.

Take the example of Tara.  Tara made her living as a medium sized property developer in Brisbane.  She purchased land and developed one or two apartment blocks per year with an average of 10 to 15 units each. When the market was good, Tara had no trouble selling her apartments. She was very proud of her finishes and the quality of her fittings. “They sell themselves really”, she told me.

But recently things have been different. There has been a glut of good product on the market and prices were falling.

Tara was sick and tired of Buyers putting down a small deposit and walking away when they found an apartment which was cheaper. It was unfair she thought, after all the planning and work she put in for Buyers, to be able to walk away like that with very little consequence.  She decided to do something about it.

Tara told her agent that she would now require Buyers to put down a deposit of thirty percent and the contract of sale must now specify that the deposit was non-refundable.  Her agent told her she may lose some prospects but Tara said she didn’t care, “If they are not prepared to do that, they are not serious anyway”,  she replied.

For a while everything worked well. She was attracting Buyers who were fair dinkum. But then one Buyer, having paid the 30 percent deposit refused to pay the balance. Tara was very patient and gave the Buyer every opportunity to come up with the balance of the purchase price but the Buyer just refused to pay.

“Oh well, so be it, the deposit is non-refundable, I will just take that and find another Buyer….the deposit will compensate me for the extra interest I have had to pay, while the Buyer has been dithering around”, she thought.

However, when Tara came to sign the transfer documents for the new Buyer she found that the previous Buyer had placed a caveat on the property preventing the sale.  If that was not bad enough, the previous Buyer had now engaged a solicitor who had written to her bank demanding that the mortgage be removed from the property and the Bank was listening, they wanted Tara to pay back the mortgage. Tara needed to mortgage her apartment blocks to finance the construction, she simply didn’t have the funds to pay for everything upfront.

The previous Buyers solicitor claimed that the contract of sale, even though it was in the standard REIQ form, was an Instalment Contract and the deposit wasn’t really a deposit at all but part payment of the purchase price which gave the previous buyer an interest in the apartment. A ‘non-refundable’ deposit can make a contract an Instalment Contract with unintended consequences.

What is an Instalment Contract?

In most land contracts in Queensland, the Buyer will pay a deposit that is held by the ‘stakeholder’ (usually the agent or Seller’s lawyer) until settlement. On settlement, the Buyer will then pay the balance of the purchase price, in exchange for the Seller providing them with clear legal title to the property.

An Instalment Contract, as the name suggests, has the Buyer make payment of the purchase price by a number of instalments. It is sometimes called a vendor finance arrangement. Usually, these instalments will be non-refundable.

Most importantly, Instalment Contracts change the legal relationship between the Buyer and Seller, and provide more protection to Buyers than under a standard REIQ contract.

Can a non-refundable deposit make a contract an Instalment Contract?

Section 71 of the Property Law Act 1974 (Qld) defines an Instalment Contract as one in which the Buyer must make a payment, other than a deposit, without becoming entitled to a transfer of the land.

A deposit is defined in the Property Law Act to be an amount that:

  • does not exceed 10% of the purchase price (for existing lots), or 20% of the purchase price (or proposed/off the plan lots); and
  • is paid or payable in one or more instalments; and
  • is liable to be forfeited to the Seller in the event of default by a Buyer.

Where a deposit is truly non-refundable, it is not ‘liable to be forfeited’. The Buyer is deemed to have already paid to the Seller part of the purchase price. Even though, the contract itself specified that the amount was a deposit, it does not overrule what is provided in the Property Law Act.

What are the consequences of an Instalment Contract?

Instalment Contracts provide more protection to Buyers than a standard REIQ contract. In summary, where a contract is deemed to be an Instalment Contract because of a non-refundable deposit these protections are:

  • Restriction on Termination by Seller on default of the Buyer

Under a standard contract, a Seller can terminate the contract and forfeit the deposit if the Buyer breaches it in a material way. However, section 72 of the Property Law Act requires a Seller under an Instalment Contract to provide a Buyer with 30 days’ notice to remedy this failure to pay, before the Seller is able to terminate the contract or take any other action. This means that time is not of the essence in relation to the payment of monies. The settlement date may be extended by up to 30 days by the Buyer without a Seller’s consent.

  • Property cannot be Mortgaged under an Instalment Contract

Under a standard REIQ contract, there is no prohibition against mortgaging the property after the contract is formed, provided that the mortgage is removed from title at or before settlement. However, Section 73 of the Property Law Act provides that under an Instalment Contract, a Seller must not mortgage the property without the consent of the Buyer.  However, you can insert a Special Condition into the contract that provides the Buyer’s consent to the registration of a mortgage.

  • Registration of Caveat by Buyer under an Instalment Contract

Section 74 of the Property Law Act provides that a Buyer under an Instalment Contract has an express right to lodge a caveat over the Land.

When we told Tara that she would have to pay the previous Buyer out she was very upset. But when we told her that, as the price for removing the caveat, she would also have accede to the demand of the previous Buyer’s Solicitor to pay a share of the profit from the sale as well as his legal costs, she was furious.

“The Previous Buyer is an absolute devil. I have been taught a very expensive lesson. I should have made sure of the details before getting the agent to change the contract and then I wouldn’t be in this mess,” Tara complained.

The creation of an Instalment Contract can severely impact a Seller’s right to terminate a contract, if a Buyer defaults. It is important to get legal advice before you enter into any contract, including Instalment Contracts.

What can I do to avoid an Instalment Contract?

As a general rule, special conditions should not express or imply that the deposit is ‘non-refundable’, and the Seller should be under an obligation to refund the ‘deposit’ if the contract is terminated because of the Seller’s default. However, don’t try this at home. You should always obtain legal advice before including conditions that allow for release of the deposit.

Just Us Lawyers – for the best Conveyancing lawyers in Brisbane call/email Just Us Lawyers or complete our enquiry form for a quote today


Cyber scams and Conveyancing

By Remy Forster

Recent news of scammers hacking into the software system of PEXA to divert funds from a MasterChef star have made gripping headlines, see Dani Venn: MasterChef star hacked out of $250,000.00. Cyber scams are not a new development – after all, it would be difficult to find a member of Generation Y who hasn’t heard of Nigerian princes. What has emerged over the past few years is a worrying trend of cyber scams targeting the legal arena, and specifically targeting conveyancing transactions. So far 2018 has included numerous incidents of cyber scams affecting conveyancing transactions, including Buyers transferring deposits to incorrect accounts and sale proceeds being deposited into incorrect accounts.

It is an obvious trend that cyber scams which affect law firms and their clients would most often be associated with conveyancing transactions. Conveyancing transactions are easy targets mostly due to:

  1. They comprise the most common legal transactions,
  2. They involve large sums of funds being transferred to multiple parties,
  3. A majority of the communication in the transactions are via email, with little telephone communication or face-to-face contact, and
  4. Online programs for the transactions being relatively new and still in the process of being established.

Fraudsters are now taking advantage of these risks to try to defraud clients in conveyancing transactions through a variety of methods.

The first method used by hackers is to intercept deposit payments made by Buyers to real estate agents. Hackers attempt this by accessing a real estate agent’s emails, waiting until the agent has sent their account details to a potential Buyer, and then sending a “follow up” email to the Buyer advising the original account details were incorrect and supplying alternate account details. The Buyer then transfers the deposit funds to the alternate account, not being aware that they have sent their deposit funds to the fraudster instead of the real estate agent. Cases of this fraud have emerged steadily over the past twelve months [1] and will no doubt continue to rise.

A second method is to intercept settlement payments made by Buyers to their legal representatives. Hackers use the same method described above, but instead access the legal representative’s emails and contact clients following the legal representative requesting their client transfer them funds for their property settlement. Incidents of clients losing funds to these instances of fraud have also increased over the past 12 months [2].

Finally, the third method is to intercept the disbursement of funds from a property settlement. This method is more sophisticated, and generally requires the property settlement to be settled using an online system such as PEXA. Hackers access the legal representative’s emails, use their emails to set up a new user on the representative’s PEXA system, change the entered account details for a PEXA transaction from the Sellers’ account details to the hacker’s account details, and hope that the legal representative doesn’t notice the change in account details prior to the transaction settling [3]. Instances of this type of fraud are becoming more prominent as use of the PEXA system increases.

All three methods rely on some form of access to the emails of the real estate agent or the legal representative, and that the parties involved in the conveyancing transaction won’t verify the information they have received through a secondary method. Law firms do have a responsibility to alleviate as much of the risks with conveyancing transactions as possible by implementing the following: [4]

  1. Requiring staff to delete emails from any suspicious email addresses without opening,
  2. Requiring staff to use secure passwords, and to change these passwords regularly,
  3. Ensuring accounts for any inactive staff are deleted, and monitoring established accounts to ensure no unauthorized accounts have been set up,
  4. Requesting that any potential clients contact the office via telephone before being engaged for legal services,
  5. Warning clients of potential fraud risks, and requesting that clients telephone their office if they receive a request by email to transfer funds,
  6. Where possible, encouraging clients to hand over funds as cheques in place of EFTs,
  7. Requesting clients provide their account details on physical documents instead of emailing account details, and
  8. For PEXA settlements, requiring staff to not enter in client account details in advance of the settlement and to triple check the entered account details match their client’s details before signing off on the property settlement.

Unfortunately, as outlined in the above items, there is also a partial responsibility on clients in conveyancing transactions to remain vigilant throughout their transaction for potential fraud. This by no means implies that clients are entirely to blame if they are the victim of a fraudulent action, and in some cases (such as PEXA fraud), clients have limited or no actions they can complete to prevent these actions. However, for instances of fraud to decrease, all parties involved in conveyancing transactions should complete the transaction with no presumptions and with secondary verification of crucial information.

PEXA settlements are not mandatory in Queensland, and if you are concerned about your transaction proceeding via PEXA we recommend you contact your legal representative no later than 10 business days prior to settlement to request that your settlement proceed via the traditional paper settlement method. Just Us Lawyers are registered for PEXA settlements, but still conduct a majority of their conveyancing transactions using the traditional paper settlement method. For more information on how PEXA settlements work, see PEXA’s website[5] and our previous blogs about our experiences settling through the PEXA system[6]

For the best Conveyancing lawyers in Brisbane call/email Just Us Lawyers or complete our enquiry form for a quote today

[1] https://www.smartcompany.com.au/industries/property/consumer-affairs-victoria-warns-real-estate-agencies-and-buyers-over-new-email-scam/

[2] http://www.abc.net.au/news/2017-10-25/scam-targets-conveyancing-clients-in-sa/9086172 and http://www.abc.net.au/news/2017-09-19/elderly-woman-loses-more-than-half-a-million-in-property-scam/8959218

[3] https://www.propertyobserver.com.au/forward-planning/advice-and-hot-topics/85862-pexa-warning-as-conveyancing-fraud-funds-end-up-in-thailand.html

[4] http://www.qls.com.au/Knowledge_centre/Ethics/Resources/Cyber_security

[5] https://www.pexa.com.au/buyers-sellers

[6] https://justuslaw.com/advent-e-conveyancing/ and https://justuslaw.com/e-conveyancing-reality-follow/


Depreciation – The property investor’s friend

By Skye Nicholson

Don’t be another property investor who forgoes thousands of dollars of unclaimed money, simply for being none the wiser! This tax time, we look into claiming depreciation deductions for your investment property.

In recent data released by SQM Research this week, it is noted that the national vacancy rate sits at 2.1%, with Brisbane specifically siting at 2.9% [1]. This reflects 9,331 rental vacancies, and, as a direct result, tenants are more inclined to request rent reductions. At a time where vacancy rates in investment properties are ever-so-prominent and asking rent is decreasing, investors should be maximising tax breaks where possible.

Every investor has an “Investment Property Strategy”, increasing the amount of return you receive on your investment property at tax time is a crucial element to be included in that strategy. While depreciation tax breaks are predominately greater on newer properties, they are applicable for all investment properties and should be incorporated into your Strategy irrespective of a property’s construction date and construction type. The process of claiming depreciation directly improves your cash flow by reducing your taxable income or assessable income, and accordingly, increases the potential to expand your portfolio further.

The table below highlights the average depreciation deduction for investors who requested schedules during the financial year 2015-2016.

AGE OF RESIDENTIAL PROPERTIES SELECTED: 2015-2016 FINANCIAL YEAR [2].

Description: Construction dates: Percentage of total:  Average first full year deduction
Old Pre 1987 22.3% $4,899
Pre 2000 1987 – 2000 16.9% $7,543
Up to 15 years old 2000 – end of 2012 26% $11,303
Fairly new 2012 – 2015 13.3% $12,316
Brand new  Built after 1/3/2015 21.5% $12,680

It is clear that, regardless of the age of the property, it is worthwhile to speak with a specialist quantity surveyor on exactly what can be claimed with respect to your investment property. As demonstrated in the above, residential properties that have been constructed prior to 1987 can receive an average depreciation deduction of $4,899.00 in the first financial year alone. This means investors in those circumstances could pocket roughly $94.00 a week! Even those who have a depreciation schedule set up may be underestimating just how much they could be claiming. We note also, these figures are merely indicative on investors who requested depreciation schedules.

Practical Aspects

Maximising property depreciation requires a thorough understanding of the legislation surrounding depreciation deductions, and how to structure your depreciation report so that deductions are utilised to their full potential. In the following paragraphs, we look into the practical aspects for you.

The Australian Taxation Office (ATO) sanctions depreciation of assets that have “a limited effective life and can reasonably be expected to decline in value over the time it is used” [3]. Further, the two main types of expenses that can be depreciated for investment properties at tax time are as follows:-

  1. Wear and Tear of Fixtures and fittings – Plant and equipment (Division 40); and
  2. Capital Works expenses – Capital Works Allowance (Division 43).

The ATO recognises that the ageing of investment properties, and items within the property that suffer wear and tear, cause a decline in overall value. In light of same, the ATO allows investors to claim this financial loss as a tax deduction each financial year against their assessable income.

Noting the above, deductions can only be claimed for the period during the financial year that the property is rented or is available for rent. This means that if you live in a property and intend to rent it out in future, investment property depreciation is not available to you until the property is used specifically for the purposes of rent generation, whereby providing an investment return/benefit to you.

1. Plant and equipment depreciating assets (Division 40).

Division 40 of the Income Tax Assessment Act 1997 (Cth) (“the Act”) provides that an amount that is equal to the decline in value of the “Depreciating asset” is claimable at tax time. As a result, lowering your assessable income, and which in turn provides you with a greater tax return.

In accordance with section 40-B of the Act, “Depreciating Assets are assets with a limited effective life that are reasonably expected to decline in value” [4]. In other words, depreciating assets are plant and equipment items within the property that have a limited “effective life” as determined by the ATO. The depreciation deduction available on that item is then calculated with respect to said effective life.

These items are removable fixtures generally described as ‘not structural’. Items for example include, carpet, blinds, kitchen appliances, light shades, security systems, elevators, air conditioners, hot water systems, etc.

The depreciation deduction available on these items is calculated with respect to the specified “effective life”.  Accordingly, this forms one significant aspect of an investor’s depreciation schedule. We refer you to section 40-30 of the Act for a more definitive list of the claimable assets.

2. Capital Works Allowance (Division 43).

Division 43 of the Act, more commonly referred to as “Capital Works Allowance” covers deductions available to investors for fixed items/assets and the structural elements of the property. Essentially, this division provides a system of deducting capital expenditure incurred by the investor in respect of the construction of a building, and other capital works, to lower assessable income, similar to the purposes of Division 40 of the Act.

The age and type of fixed assets and construction determine the allowance provided under the Capital Works Allowance division. This can be complex and we recommend you engage a Quantity Surveyor to provide advice over the allowable deductions.

At Just Us Lawyers we strive to understand your investment strategy and to help you fashion legal solutions to achieve your property goals – from discussing and advising on property holding entities, planning issues and objections, and contract design, to helping you with your conveyancing needs.

For the best Conveyancing lawyers in Brisbane call/email Just Us Lawyers or complete our enquiry form for a quote today

[1] Vacancy Rates Steady In May, Asking Rents Dip (2018) Sqmresearch.com.au

[2] Maverick, BMT Quantity Surveyors. 2017. Depreciation data highlights investment trend www.bmtqs.com.au

[3] Guide to depreciating assets 2017, Page 3, Australian Taxation Office, “a limited effective life and can reasonably be expected to decline in value over the time it is used.”

[4] Income Tax Assessment Act 1997 Federal Register of Legislation, Division 40 Capital allowances, Section 40-10, “Depreciating Assets are assets with a limited effective life that are reasonably expected to decline in value.”


Be on time! Or suffer the consequences

Unlike other Jurisdictions, such as New South Wales, those familiar with conveyancing understand that in Brisbane residential property contracts “time is of the essence”.

But what does that actually mean?  

This was considered by the Queensland Supreme Court of Appeal in the matter of Caprice Property Holdings Pty Ltd v McLeay.

The contract involved an expensive Gold Coast property. The contract was due and the parties had nominated 3pm as the time for settlement. The Buyer’s solicitors arrived and were informed that the release of mortgage would not be available for another 15 minutes. The Buyer declined to wait any more than five minutes and left. The Seller’s solicitor contacted the Buyer’s solicitors shortly thereafter and requested that the Buyer return stating that the Sellers had reserved their rights to settle any time up to 5pm. The Buyer’s solicitor did not agree to re-attend settlement nor did the Buyer attempt to make any other arrangements for settlement.

The Seller’s solicitor then sent a fax to the Buyer’s solicitor at 4.36pm holding the Buyer in breach of the contract as it had not effected settlement by 5pm. This fax was sent prematurely, in that it was not 5pm, and the Buyer was not yet in breach of the contract. The Buyers argued that this facsimile was intimidation because it was sent before 5.00pm, and they were, as a result, excused from having to settle.

The court disagreed with the Buyers. The court held that rather the Buyer’s refusal to return on the settlement date excused the Sellers from performing their obligations under the contract and the Buyer was in breach of the contract in failing to settle because time was of the essence.  As a consequence, the Sellers were fully entitled to terminate the contract after 5.00pm for the Buyer’s failure to comply with the contract.

The lesson to be learnt by the parties to residential conveyancing contracts is that it is always important to look at the terms of the contract before taking rash action – no matter how inconvenient the practices of the other party may be. Most standard contracts for the sale of residential property in Queensland provide that settlement must take place up to 5.00pm on the settlement day. Failure to make yourself available will entitle the other party to avoid the consequences of the contract, even if the failure is caused by the bank’s inability to get it’s act together.

If you are the Buyer, who is at fault, as a minimum you will forfeit your deposit. If you are the Seller, the Buyer can terminate without loss of the deposit and the agent will probably still be able to claim his commission from you.

It is essential that you be ready, willing and able to complete the sale at the time set out in the contract because in Queensland, as the term says, time really is of the essence!

For further information on conveyancing and how we can assist in pre-contract advice please contact our Conveyancing Team based at our Wilston office.  

For the best Conveyancing lawyers in Brisbane call/email Just Us Lawyers or complete our enquiry form for a quote today


When “sufficient to complete” is simply not enough

By Natalie Smyth

Purchasers entering into a Contract for the purchase of residential or commercial property in Queensland may require the Contract to be subject to obtaining satisfactory finance. Such a provision is often an important and essential term of the Contract entitling a purchaser to terminate the Contract in the event that satisfactory finance is not obtained.

In circumstances where the finance condition is vague or uncertain as to be meaningless, it can render the clause unenforceable and purchasers may find themselves in a situation where they are legally bound to complete the Contract in the absence of obtaining finance.

In the Fourteenth Edition of the REIQ Contract for the sale of Houses and Residential Land, in order for the Contract to be subject to the finance condition, all of the “finance amount” “financier” and “finance date” sections in the reference schedule must be completed. It is common practise for real estate agents in Queensland to complete the reference schedule of the Contract, and we often seen the phrase “sufficient to complete” next to the “finance amount” heading, as opposed to an exact dollar figure.

Failure to insert an exact dollar figure could be problematic in circumstances where a purchaser also requires finance to cover:-

  1. any potential transfer duty imposed on the transfer of property;
  2. title registration fees; and
  3. legal fees.

It could be argued that a purchaser who obtains finance for the balance purchase price has obtained an amount that is “sufficient to complete” the purchase. The fact that a purchaser, who requires finance to pay a stamp duty liability or legal fees, has only been able to secure finance for the balance purchase price, may find themselves unable to rely on the finance condition, as technically, those liabilities are extraneous to completion of the Contract.

What is the Court’s view?

In the High Court case of Meehan V Jones & Ors (1982), a purchaser sought specific performance of a contract of sale expressed to be executed subject to “the Purchaser or his nominee receiving approval for finance on satisfactory terms and conditions in an amount sufficient to complete the purchase.”

Facts of Meehan v Jones

The purchaser had obtained finance and had notified the Seller of his intention to proceed with the Contract, however, in the interim the Seller had found another purchaser and did not wish to proceed with the first Contract. Accordingly, the Seller sought to resist the claim for specific performance on the grounds that:-

  1. the finance clause was uncertain and therefore rendered the contract void; and
  2. That the clause, if certain, reserved to the purchaser a discretion or option to elect to carry out the contract, which rendered the contract illusory.

The Court’s decision

The High Court recognised that the finance clause in the Contract was potentially ambiguous in the sense that it failed to define the extent of the purchaser’s obligations with respect to the search for finance and the criteria to be used in the determination of whether such finance was in fact satisfactory, however, ultimately decided that the purchaser was entitled to specific performance of the Contract.

The Court held that the contract was not void for uncertainty because:

  1. “The courts should be astute to adopt a construction which would preserve the validity of the contract” (per Mason and Wilson JJ); and
  2. “It was only if the court was unable to put any definite meaning on the contract that it could be said to be uncertain” (per Gibbs CJ and Murphy J).

The Court was unanimous in holding that “subject to finance” clauses will not generally result in a contract for sale being held void for uncertainty, and the fact that a clause might contain some ambiguity will not preclude a court from ascertaining the intention of the parties with respect to the clause in question.

Further in the case of Clarke v Relstar Pty Ltd (1982), a contract expressed to be subject to the purchaser’s obtaining finance by a given date on terms wholly satisfactory to the purchaser to enable him to complete the transaction was held to be not void for uncertainty.

In the case of York Air Conditioning and Refrigeration (Australasia) Pty Ltd v The Commonwealth , Williams J commented, “If the court comes to the conclusion that parties intended to make a contract, it will if possible give effect to their intention no matter what difficulties of construction arise.”

Does this also apply to commercial contracts?  

Note 7 of the REIQ Contract for the purchase of commercial land and buildings provides: “the dollar amount of the loan being sought must be inserted in item U. Do not insert the words ‘sufficient to complete this purchase ‘or words of a similar effect.”  We understand the reason for this notation, is to avoid the situation described above, whereby a purchase may require an amount of finance that is above that required to complete the Contract.

As far as we are aware there is yet to be decision of  a court determinative of this issue..

Conclusion:-

  1. The courts will attempt to give proper effect to commercial transactions;
  2. If the courts can ascertain the intention of the parties with respect to the clause, and deduce a meaning from the clause, it will likely not be void for uncertainty;
  3. “subject to finance” clauses will not generally result in a contract for sale being held void for uncertainty; and
  4. the fact that a clause might contain some ambiguity will not preclude a court from ascertaining the intention of the parties with respect to the clause in question.

Despite Chief Justice Gibbs’ comment in Meehan v Jones with respect to “subject to finance” clauses, that their “natural effect is to leave it to the purchaser to determine whether or not the available finance is suitable to his needs,” in circumstances where a purchaser obtains finance for the balance purchase price, but requires a finance amount that is above that required to complete the contract (i.e for a stamp duty liability), in the absence of obtaining additional finance, the purchaser may still be bound to complete the Contract.  Accordingly, the phrase “sufficient to complete” is potentially ambiguous, and we therefore recommend that purchasers insert a specific dollar amount  (or a figure expressed as a percentage of the purchase price) next to the “finance amount” heading in the reference schedule that includes not only the balance purchase price, but also stamp duty costs, legal and title registration fees.

We recommend that you seek pre-contract advice from our team at Just Us Lawyers prior to signing any Contract for the Sale and Purchase of residential or commercial property in Queensland.

Just Us Lawyers – for the best Conveyancing lawyers in Brisbane call/email Just Us Lawyers or complete our enquiry form for a quote today


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