Once the terms of a contract have been agreed upon and all parties are ready to proceed, it’s critical an experienced conveyancer checks and enters the correct Buyer’s entity, writes Property Lawyer, Andrea McGarry.
One of the most common and problematic mistakes we see is when a cheap conveyancer has not checked that the correct entity is listed under the ‘Buyer’ field on the contract, and a Buyer has signed the contract in the belief that they can confirm and amend the contract to reflect whatever the correct entity is, later on.
The reality of the situation is much more troublesome for all parties involved as well as the real estate agent. Where the contract reflects the incorrect entity, the termination of the existing contract is best practice and entry into a new contract is required with the correct entity. This ensures the Buyer does not pay Stamp Duty twice.
Incorrect entity a problem for real estate agents
If a Buyer’s entity is incorrect, the sale of the property can stall and the real estate agent may be forced to compensate everyone for the error. This is because in order to terminate an existing contract, it must be terminated by Deed of Rescission. In order to enter into a new contract, the Seller must consent to the termination of the existing one. In Queensland, there is no provision to terminate the standard REIQ contract due to the wrong entity being entered. In New South Wales, the situation is the same.
If the Seller does not consent to the termination, the Buyer may be stuck with the contract as is. If the Seller does consent, the process can be costly as it will require a brand-new conveyance and the Seller will likely require the real estate agent to pay their costs for preparation of a new contract, Deed of Rescission and any associated legal advice.
As a real estate agent, referring your Buyer to an experienced conveyancer or Property Lawyer will help you avoid these problems. Attwood Marshall Lawyers can assist your Sellers and Buyers to ensure the correct entity is entered. A range of entities can be used to purchase property, and strategically speaking a Buyer must seek legal advice on which is the best and correct entity to choose. Below we identify various buying entities:
One of the most common ownership structures is to buy a property in the name of an individual or jointly with others. Individuals can benefit from negative gearing, eligibility for a full CGT discount and as an individual entity it can be more cost-effective to set up and maintain. However, this can limit the individual’s asset protection capabilities, particularly if they own a business.
It is commonplace that when buying property, the Buyer will often be a company or a company acting as Trustee (often in connection with a superannuation fund). Buying investment properties within companies has become less common over the years because companies are not eligible for the 50% CGT discount that individuals receive if they hold a property for more than 12 months.
There are two main types of trusts you can purchase property within; unit trusts (sometimes referred to as fixed trusts) and discretionary trusts (sometimes referred to as family trusts). When the buying entity is a Trustee on behalf of a trust, the Trust Deed must have been entered into before the date of the contract and the Trustee must have powers within the deed to be able to enter into a contract. Again, if the trust is left off the contract, it is not a simple fix to hand-write the trust after the contract has been dated.
Executor of an Estate
A Seller may be selling a property on behalf of an estate. If the property is still registered in the name of the deceased, the contract will require special conditions to ensure the Executor is registered on the title prior to settlement. An experienced Property Lawyer must assist with this to ensure that Probate has been granted in order for the property sale to go ahead.
What about ‘or nominee’?
Some agents believe including the phrase ‘or nominee’ is a way to allow the Buyer to enter into a contract now and finalise their entity at a later date. This is simply not the case. If the Buyer wishes to appoint a nominee and avoid double Stamp Duty implications, there must be specific nominee documents which predate the contract.
What about the Seller?
Completing a title search is the best way to ensure the Seller has been correctly described in the contract. The description of the Seller should mirror the registered proprietor on the title.
What’s wrong with handwritten amendments to the Buyer’s entity?
The most prevalent issue that can arise from changes to the Buying entity after the contract has been dated is potential double Stamp Duty implications. An incorrectly described entity on a contract can potentially result in additional transfer duty for the Buyer – and a headache for the Seller. You should always ensure you give Buyers the opportunity to seek independent legal advice prior to signing a contract. An experienced Property Lawyer will always ensure the Buyer uses the correct entity.