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Real Estate
Considering buying off-the-plan? Purchasers beware.
H & H Lawyers successfully defends a vendor developer against claims brought by the purchaser of an off-the-plan property in the Supreme Court of NSW. While the benefits of buying an off-the-plan property are often highlighted to a purchaser, the decision in Xu v Lindsay Bennelong Developments Pty Limited & Ors [2020] NSWSC 1692 confirmed the importance of having any terms that are “non-negotiable” for the purchaser to be clearly expressed in writing in the contract for sale of land. Facts In this case, the plaintiff was a purchaser of an off-the-plan property. During the handover inspection of the completed property, the purchaser discovered that there was only one car space attached to her property despite the representation being made prior to entering the contract for sale of land that there would be two car spaces. Subsequently, the purchaser brought a claim against the former vendors of the subject property and the substituted vendor, to whom the contract for sale was novated to, after exchange of contracts. Other relevant facts include: 1. prior to purchasing the property, the agent made representations to the purchaser that there would be two car spaces attached to the property; 2. prior to purchasing the property, the purchaser’s solicitor inquired and the former developer confirmed in writing that the property had two car spaces; 3. the front page of the contract of sale of land did not specify how many car spaces were attached to or formed part of the property; 4. the draft floor plan and draft strata plan of the property which were attached to the contract of sale marked that there are two car spaces allocated to the property; 5. there was no other mention of there being two car spaces attached to the property in the special conditions to the contract or anywhere else in the contract; and 6. it was a special condition to the contract for sale that the purchaser acknowledges and agrees that the vender may make alterations, from time to time, and vary the building floor plan or the draft strata plan, as it sees necessary or desirable. The plaintiff claimed that the defendants breached the fundamental term and purposes, or alternatively, an implied term of the contract, by only transferring one car space with the property instead of two car spaces. The plaintiff also claimed that, in doing so, the defendants engaged in misleading and deceptive conduct or false representation under sections 18 and 30(1)(e) of the Australian Consumer Law (“ACL”) and sought specific performance for the defendants to transfer one more car park under sections 237 and 243 of the ACL. The then Chief Judge in Equity, Ward CJ dismissed the plaintiff’s arguments and held that: 1. the contract was for the sale of a unit with a single tandem car space. However transferring two car spaces was neither a fundamental term nor an essential implied term of the contract; and 2. the representations that the plan would include a space for two cars were clearly made. Nonetheless, such representation does not amount to misleading or deceptive conduct in circumstances where the developer had reasonable grounds to make such representation at the time and the plaintiff suffered no loss by relying on the promise. Key takeaways While this case is not to be generally applied to all circumstances in relation to off-the-plan purchases, a purchaser of an off-the-plan property should be mindful of standard special conditions attached to contracts for sale of off-the-plan properties which are designed to allow a vendor developer to make changes (to a degree) to a draft floor plan or draft strata plan. As in this case, even if the court finds that the draft plan which formed part of the contract was varied, such variation may not constitute a breach of a fundamental or essential term of contract. Thus, a purchaser of an off-the-plan property must scrutinise the terms and conditions before entering into the contract for sale. Further, if the purchaser seeks to rely on any representations made by an agent or vendor prior to entering into the contract, such representation should be expressly and unequivocally included in writing in the contract to make sure the vendor makes good on the promise. The purchaser should also be mindful that the contract would generally provide a limited time to seek rescission. A vendor should also consider the litigation risks associated with the sale of off-the-plan properties. Even if the vendor is successful such as in this case, being involved in court proceedings is costly and time-consuming, and may impact its reputation as a developer as well as open the gate for other purchasers to bring a similar claim against the developer. Disclaimer: The contents of this publication are general in nature and do not constitute legal advice. The information may have been obtained from external sources and we do not guarantee the accuracy or currency of the information at the date of publication or in the future. Please obtain legal advice specific to your circumstances before taking any action on matters discussed in this publication.
Real Estate
Retail lease ②
Q: In order to start a cafe, I decided to rent a store. What should I keep in mind when entering into a lease contract? (A man in his 30s, working at a restaurant) A: For this case, we will focus on the law in relation to retail lease and explain the NSW "Retail Lease Act". For reference, similar laws exist in other states. Generally, a lease contract is drafted in favour of the Landlord. The Retail Lease Act was created and developed for situations in which there are disputes between Landlord and Lessee that have led to various social issues. Accordingly, the Retail Lease Act was enacted to bring fairness to retail store leases. Disclosure Statement Before concluding a lease contract, the Landlord is required to submit a document called a "Disclosure Statement" to the Lessee for the purpose of communicating all important matters related to the lease of the stop. If the Disclosure Statement is incomplete or contains false information, the Lessee may later be entitled to terminate the lease, and the Landlord may be fined. The contents of the Disclosure Statement include: Rent and rent review method; Details of maintenance expenses and the percentage of the burden; Details of equipment or facilities provided by the Landlord; Interior work performed by and portion of the payment by the Landlord; Details of the store structure required by the Landlord and other payments paid by the Landlord, etc. The Disclosure Statement should be given to the Lessee at least seven days before the lease contract is executed. Also, after receiving the Disclosure Statement, the Lessee is required to notify the Landlord and return it within seven days. In the Disclosure Statement, the L essee must confirm that "the terms of this lease will be fulfilled". It is important to note that if the parties orally agree on terms of the lease, such terms should be incorporated into the Disclosure Statement. Otherwise, the parties may not be able to make such oral claims at a later date. Payment of contract costs In the case of a typical commercial lease (such as an office), it is often found that tenants are responsible for all legal costs of the owner involved in entering into a lease agreement. However, in the case of retail lease, it is basically prohibited to impose such costs on the lessee. Similarly, it is forbidden to ask the lessee to pay for "key money" (equivalent to "reward" in Japan, which is not refundable unlike bonds and security deposits). If you live outside of NSW, please check with lawyers registered in your state about each state's Retail Lease Act.
Real Estate
Defects in Strata Building
There have been many reports of defects in new apartments in the Sydney region. To address these issues, the Strata Schemes Management Act 2015 Part 11 provides new obligations that property developers must follow. Under the new law, property developers are required to pay NSW Fair Trading a deposit, equal to 2% of the value of the contract exchanged with the Construction Company. Until the deposit is paid, the developer will not be able to obtain the Occupation Certificate for the apartment which is required during settlement with the purchaser. Additionally, 15-18 months after completing the construction of the building, there is a mandatory obligation to inspect the building by an independent building inspector who has no affiliation with the developer. Should a defect be found, the Construction Company that built the building must repair any damages and the cost of such repair is covered by the bond. The new scheme will only apply in the following circumstances: Apartments with four floors or more; Residential or mixed residential/commercial buildings; and Construction contracts signed on or after 1 January 2018. (Apartments with fewer than four floors are covered by the Home Building Composition Fund.) The obligations imposed on property developers under this new scheme aims to detect and repair any defects early on, and to avoid situations whereby buyers and owners are forced to repair long-term defects which may be costly.
Real Estate
Retail lease ①
Q: I want to lease out a store in order to open a cafe. What should I keep in mind when entering into a lease contract? (Male in his 30s working at a restaurant) A: The most important thing when running a café is leasing a store. You must be aware of basic clauses such as lease period, rent, rent review conditions, bank guarantee, burden of utilities expenses, business days and business hours and the obligation to repair equipment and fixtures in stores. However, there are other considerations and lease agreements which may be favourable to the Landlord. The best time to negotiate various contractual terms with the Landlord is before the draft lease is issued. Following this, it is best to consult with a lawyer or a specialist and receive advice and then negotiate with the Landlord on the basic conditions. Checklist before finalising the lease Confirm that there are no registration problems with the owner and property Check if the permission to run a café has been issued by a government body Have items such as toilets, air conditioners, refrigerators, stoves, grease traps etc. inspected for any problems When receiving equipment from the previous owner, confirm the ownership (whether it was leased or mortgaged) When renovating a store, ensure prior agreement is made with the Landlord If purchasing an existing business, it is best to complete the above research, together with your sales in order to determine whether the purchase price is reasonable. Bank Guarantee When renting a commercial property, the landlord will require a few months’ worth of bank guarantees, with a few exceptions. A bank guarantee is an agreement to pay the Landlord a mutually agreed rent on behalf of the Tenant, should the Tenant become insolvent. Banks usually require a fixed amount of deposit from the Tenant as collateral when issuing a guarantee. Therefore, during the lease period the deposit is frozen. Lease Period After the lease expires, it is up to the Landlord to decide whether to renew the lease and decide what the rent price will be. In the case of a thriving business, there is a chance that the Landlord may set a higher rent when signing a new lease agreement. Additionally, a third party may offer a larger rent price to the Landlord in order to take over the business. In this case, the rent provided by the third party may become the new rent amount. This does not mean that the lease period will be long. There are many contracts in which the borrower is granted an option to renew the lease term. Lease contracts vary widely, so various things need to be considered. As each business need differs, we recommend that you consult a lawyer before signing a lease contract.
Real Estate
Retail Lease Update 2017
1. Minimum Term (Section 16) Minimum 5-year term is removed from the Act. 2. Registration of Retail Lease (Section 16) Leases for a term of more than 3 years must be lodged for registration within 3 months after the signed Lease is returned to the Landlord 3. Bank Guarantee (Section 16BA) Bank Guarantee must be returned to the Tenant within 2 months after Tenant completes obligations under the Lease. 4. Mortgage Consent Fees (Section 3) The Act will be amended to specifically prohibit a Landlord from charging a Tenant expenses incurred in connection with obtaining the consent of a mortgage. 5. Demolition (Section 35) Clarifies that the protection to Tenants afforded by the Act applies to proposed demolition of the building or any part of the building. The Lease cannot be terminated by the Landlord unless the proposed demolition cannot be carried out practically without vacant possession of the shop (Section 35(1)(a1)). Previously this position was reflected in the definition of demolition. 6. Lessor’s Disclosure Statement (Section 11) Right to compensation for lessee: If a Landlord fails to serve a complete and accurate Lessor’s Disclosure Statement 7 days before the Lease is entered into, the Tenant now has the right to terminate the Lease within the first 6 months and claim compensation including the cost of its fit-out (Section 11(2A)). Disclosure of outgoings: The Tenant is now not liable to pay any outgoings unless the liability was disclosed in the Lessor’s Disclosure Statement (Section 12A). 7. Consent to Assignment (Section 41) Clarifies that the Landlord must provide an updated Lessor’s Disclosure Statement within 14 days of request (Section 41(c)). If the Landlord fails to do so, whereas previously this requirement could be ignored, now the Tenant must provide a Lessor’s Disclosure Statement completed by the Tenant to the best of the Tenant’s knowledge (but with information as to current outgoings) (Section 41(e)). A Landlord will not be able to withhold consent to assignment if a Lease was awarded by public tender and the proposed assignee fails to meet any criteria of the tender (Section 39). 8. Online Transactions Revenue from online transactions are not to be included in turnover for the purposes of determination of rent, except for transactions where goods or services are delivered or provided from or at the retail shop or where the transaction takes place while the customer is in the retail shop (section 20). The Bill will prevent the Tenant from having to provide the Landlord with information about online transactions, except for transactions in which goods or services are delivered or provided from the retail premises or when the transaction takes place while the customer is in the shop (section 47). Note “online transaction” is not defined in the Bill. 9. NCAT Jurisdiction (Section 73) NCAT now has jurisdiction in relation to claims of up to $750,000.00. 10. Excluded Uses (Schedule 1A) The Bill clarifies that Retail Leases Act does not cover the following: ATMs Car parking Children’s ride machines Communication towers Digital display screens Display of signage (not including the use of premises from which signage is sold) Internet booths Private post boxes Public tables and seating Public telephones Renewable energy generation Renewable energy storage batteries Self-storage units Storage of goods for use or sale in a retail shop (not including storage on premises from which goods are sold) Storage lockers Vending machines 11. Exclusion of Market Stalls (Section 6B) Clarification that the Act does not apply to market stalls unless the market is a permanent retail market. 12. Copy of Lease Term The Tenant must be provided with an executed copy of the Lease within 3 months after the Lease is returned to the Landlord or their lawyer/agent following execution. 13. Agreement for Lease (Section 3B) The Act clarifies that the Act applies to an agreement to lease in the same way as to a Lease. 14. Act Applies to Both Proposed Tenants and Landlords (Section 3(2)) Where the Act refers to the rights and obligations of a Landlord or Tenant, it also applies to a provision regarding a proposed retail shop lease, including the proposed Tenants and proposed Landlords. 15. Retail Bond An “online retail bond service” may now be available. 16. Police Checks If the Landlord wishes to require police or security checks and clearances for persons employed or other persons working in the shop, he or she must include a provision for it in the Lease.
Real Estate
Changes Foreign Resident Capital Gains Withholding from 1 July 2017
When a foreign resident sells Australian property over $750,000.00, the purchaser is now required to withhold 12.5% of the purchase price (or cost base) and pay that amount to the Australian Taxation Office (ATO) prior to completion, unless a clearance certificate has been obtained by the vendor from the ATO. On 22 June 2017, the Treasury Laws Amendments (Foreign Residents Capital Gains Withholding Payments) Bill 2017 came into effect which reduced the threshold and increased the rate of the foreign residents capital gains tax withholding. The effect of the legislation is that for any contracts entered into after 1 July 2017: The threshold to withhold has been reduced from $2M to $750,000 The withholding rate has been increased from 10% to 12.5% EXAMPLE: If you entered into a contract to buy a property from a foreign resident for $850,000 and you are not provided with a clearance certificate from the ATO by the vendor before settlement, you will now be required to withhold $106,250 from the purchase and remit that sum to the ATO.