3 FAQ's from Victorian retail leasing tenants

The following are typical of the FAQs we receive from tenants:

1. I have been given a Letter of Offer to lease retail premises by the landlord’s real estate agent.  What should I do now?
   

   Ideally, you should not sign the Letter of Offer before:

   1. conducting physical due diligence of the building structure and the landlord’s fixtures, plant and equipment contained within it.  In this regard, we recommend a building report be obtained from a qualified tradesperson.  Similarly, a suitably qualified tradesperson should inspect all landlord fixtures, plant and equipment within the premises, such as air-conditioning, for example.  Any problems arising out of those reports should be dealt with as amendments to the Letter of Offer, requiring the landlord to rectify those problems prior to the commencement of the Lease; and
   2. speaking to a retail leasing lawyer.  The lawyer should conduct legal due diligence of the premises and the landlord and advise you on the terms of the proposed Lease as described in the Letter of Offer.   If necessary, the lawyer may be able to negotiate any changes you may require to the Letter of Offer before it is signed.   The lawyer should also advise you on whether the Letter of Offer constitutes a binding agreement to enter into the proposed Lease. Many Letters of Offer we see require tenants to pay significant deposits to the landlord’s agent. Those deposits may be jeopardised if the tenant does not proceeding with the Lease after having signed the Letter of Offer.
2. After signing a Letter of Offer, I have been given copies the landlord’s Disclosure Statement signed by the landlord and Lease documents for execution.  What should I do now?
    
   Ideally, you should provide the documents to a retail leasing lawyer to:
   
    
   1. ensure the terms of the documents correspond with what you have agreed to in the Letter of Offer and to check the terms of the documents against the requirements of the Retail Leasing Act 2003 (Vic) (RLA);
   2. advise you on the wider legal terms of the Lease which were not mentioned in the Letter of Offer;
   3. seek amendments to the terms of the documents which do not correspond with the Letter of Offer,  the RLA  or your understanding of how you will occupy the premises; and  
   4. advise you on the tasks you (as the incoming tenant) may need to undertake before you can take possession of the premises, which may include:
      1. obtaining the landlord’s approval to any proposed fitout;
      2. the provision of a cash security deposit or obtaining a bank guarantee (and complying with the requirements for bank guarantees under the terms of the Lease); and
      3. obtaining public liability insurance coverage which complies with the insurance requirements of the Lease (which will usually include noting the landlord’s interest as an insured party on the insurance policy);
   5. assist with the timely execution and return of the Lease documents to the landlord’s agent; and
   6. seek from the landlord the return of the fully executed Lease documents and, where relevant, the consent of any mortgagee on title to the grant of the Lease by the landlord.
   
   
   
   
3. I have entered into a Lease and have taken possession of the premises.  Is there anything more I should do concerning the Lease?
   
   
   Yes, at a minimum you should:
1. ensure you and your employees comply with the various obligations applying to the tenant under the Lease document;
2. ensure that you and your employees comply with the tenant’s obligations under any building rules which might apply (where the premises are located within a larger building: for example, a shopping centre);
3. diarise the last day you can exercise any option to renew the lease for a further term (noting that if you exercise the option after that last date, the landlord might not be obliged to extend or renew the Lease);

If you would like assistance with your retail leasing, please contact Andrew Bini, Senior Commercial Lawyer at Nevett Ford Melbourne.

 

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Victorian retail landlords – remember your notice obligations

Landlords of premises regulated by the Retail Leases Act 2003 (Vic) (RLA) should diarise the various dates needed for them to comply with their notice obligations under Sections 28 and 64 of the RLA, especially if they wish to avoid unintentionally extending the term of the lease.  In this regard, even though the relevant lease document may clearly record the last day of the lease, that date may be extended by Sections 28 and 64, which may have consequences for a landlord who requires the premises to be vacated by a particular date.

Section 28 provides:

• If a lease contains an option exercisable by the tenant to renew the lease for a further term, the landlord must notify the tenant in writing of the date after which the option is no longer exercisable.  That notice is to be given at least 6 months and no more than twelve months before the date the option is no longer exercisable (Last Date);
• However, the landlord is not required to provide that notice if the tenant exercises or purports to exercise the option before being notified of that Last Date;
• If the landlord fails to provide the notice to the tenant within the required timeframe, the lease is taken to provide that the Last Date is extended to a date which is 6 months after the date landlord notifies the tenant;
• If that extended date is after the term of the lease ends, the lease continues until the extended date;
• However, if the tenant exercises the option prior to the extended date, the new lease commences at the expiry of the old lease, rather than the total term of the lease being extended.

Consequently, an unplanned extension of the term of the lease may occur where a landlord fails to provide, or is late in providing, a Section 28 notice to the tenant and where the tenant does not eventually exercise its option.

Section 64 provides:

• If the tenant under a lease does not have an option to renew the lease for a further term, the landlord must at least 6 months but no more than twelve months before the lease term ends, give written notice to the tenant:
  • offering the tenant a renewal of the lease on the terms specified in the notice; or
  • informing the tenant that the landlord does not propose to offer the tenant a renewal of the lease;
• An offer to renew the lease cannot be revoked without the tenant’s consent for sixty days after it is made;
• If the landlord fails to give the notice within the required time frame:
  • the landlord must give the tenant a notice containing that information; and
  • the lease continues on the same terms and conditions until the day being 6 months after the notice was actually given to the tenant.

Accordingly, a failure by a landlord to give a Section 64 notice to a tenant may have the effect of extending the term of the lease (and, accordingly, the date upon which the premises may be vacated) to a date which is 6 months after receipt of the notice.

If you require assistance with regards to drafting and serving Section 28 and Section 64 notices (in accordance with the provision of notices clause in your lease) please contact Andrew Bini, Senior Commercial Lawyer, at Nevett Ford Melbourne.

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Why do we need terms and conditions of trade?

Many of our clients who are suppliers of goods and services operate under formal written terms and conditions of trade.

Prudent clients usually have their terms and conditions periodically reviewed to ensure they provide the best available protection.

For example, in recent years many suppliers of goods have amended their terms and conditions to include new provisions under which the customer grants a security interest over the goods supplied in favour of the supplier, to support the customer’s payment obligations. The grant of the security interest enables the supplier to register that security interest on the register created under the Personal Properties Security Act 2009 (Cth) (PPSR).  Without registration of a security interest, a supplier might not have the ability to recover the goods, or amounts owed with respect to the goods, if the customer goes into liquidation or declares bankruptcy.

However, it is evident to us that there are many suppliers who trade without proper terms and conditions or with outdated terms and conditions which do not entitle the supplier to register security interests on the PPSR.

The simple answer to the question as to why terms and conditions of trade are necessary is twofold:

• to clearly set out the terms of the sale of goods and/or services arrangement (ie the contractual relationship) between the supplier and the customer; and
• to provide the some protection a supplier of goods may need in the event of non-payment.

Typically, when a supplier is dealing with a new customer the supplier will provide the new customer a credit application, usually accompanied by a director’s guarantee.  At this point we recommend the supplier also provide its terms and conditions of trade to the new customer and arrange to have the credit application, the director’s guarantee  and the terms and conditions of trade signed by the new customer.

Apart from the usual mechanical provisions regarding ordering of goods and/or services, price, delivery, price variation and variation and cancellation of orders, terms and conditions should clearly set out:

• the terms of payment;
• an obligation on the customer to pay interest on outstanding amounts at a specified rate if payment is not received on the relevant due date;
• a right in the supplier to charge the customer all costs (including legal costs) incurred by the supplier in pursuing and recovering unpaid amounts;
• retention of title (whereby title to the goods is not provided to the customer until such time as payment for the goods delivered have been received by the supplier) and the right for the supplier  to access the customer’s premises to recover the goods; and
• PPSR provisions enabling the supplier to register a security interest on the PPSR.

Of course, there may be other specific or unique provisions depending upon the nature of the goods and services to be provided.

We have experience in preparing and amending terms and conditions of trade for suppliers of goods and services of various types.

If you would like more information on terms and conditions of trade please contact Andrew Bini, senior commercial lawyer, Nevett Ford Melbourne.

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Buying a business? Do your due diligence first!

Whether you intend on purchasing a small retail business or the business operations of a listed public company, the same fundamental approach should be applied: do your due diligence first!

As advisors to purchasers of businesses of various types and sizes, we are regularly involved in conducting legal due diligence.

However, a purchaser’s pre-contractual due diligence should not be limited to a lawyer’s review of legal matters, but should extend to:

• Inspection of plant and equipment: being a physical investigation by the purchaser (or preferably by qualified contractors on behalf of the purchaser) into the state of plant and equipment and other hard assets sold with the business.  If there are any problems with those assets, then the purchaser’s lawyer should be in a position to negotiate amendments to draft sale contracts requiring the vendor to rectify those problems prior to settlement.  Physical due diligence should also indicate whether the sale price reflects the true value of the physical assets being sold;
• Inspection of the premises including the landlord’s fixtures, fittings and installations.  Again this should be done by a qualified person on behalf of the purchaser and a report provided.  Issues arising out of that report should be dealt with in the sale contract to ensure the vendor rectifies issues prior to the purchaser taking possession of the premises and potentially becoming liable for hidden problems.
• Financial due diligence into the business including a detailed review of the financial statements of the business for at least the last five years.  The purchaser’s accountant should report on the financial status of the business including whether the purchase price is reasonable based on the business’s financial performance in recent years.
• Enquires with the local council and with owners of adjoining businesses as to potential changes to the local environment, such as the construction of roads, the construction of multi-level buildings adjacent to the business premises and other matters which might lead to business disruption in the future. 

Ideally legal due diligence will involve at least the following:

• An investigation into the status of the vendor:  If the vendor is a company, what is its registration status with ASIC?  In this regard, the assets of a deregistered company are vested in ASIC and cannot be dealt with by that company until re-registration, which may be problematic;
• Determining whether the vendor a trustee: If it is, then the sale contract should record the vendor as being the trustee of a trust to ensure the purchaser will acquire both legal and equitable title to the business assets;
• Personal Property Security Register searches to determine the existence security interests which may be registered over the assets of the vendor.  This will identify the parties from which the vendor must obtain releases of those security interests prior to or at settlement;
• An examination of significant contracts held by the vendor including the extent to which plant and equipment is leased by the vendor.  Also, significant customer contracts should be reviewed to determine whether those incomes streams can be assigned to the purchaser at settlement.  If they are not capable of assignment then, the sale price may have to be reduced to reflect the loss of those income streams;
• A review of the premises lease documentation including a determination of the extent of time remaining under the lease and options and, consequently, the amount of time the purchaser will have to obtain a return on its investment.  If there is insufficient time remaining under the lease we suggest the sale contract be made conditional upon the vendor obtaining the landlord’s consent to extending the term of the Lease as part of the transfer of lease documentation;
• A review of the status of all licences and permits held by the vendor to conduct the business which are to be transferred to the purchaser at settlement – thereby enabling the purchaser to lawfully conduct the business at the premises on and from settlement; and.
• Review of employment agreements and liabilities.

Once each area of due diligence has been undertaken and the material issues have been identified, it becomes the purchaser’s lawyer’s role when negotiating the sale contract to have included in the contract specific obligations on the vendor to rectify those issues prior to or at settlement.  Of course, that depends on how willing the vendor is open to bearing the cost of rectifying those issues.

Quite often impatient purchasers pay the price for poorly conducted and/or limited scope due diligence.  Although sale contracts may offer some form of vendor warranties (covering things such as the operational condition of plant and equipment) they can be little comfort to a purchaser when after settlement the vendor has disappeared overseas on vacation or doesn’t have the finances to compensate the purchaser for breach of a vendor warranty.  On that basis, we firmly believe quality pre-contractual due diligence which extends beyond legal due diligence is prudent practice all purchasers should consider adopting.

At Nevett Ford Melbourne we have experienced commercial lawyers with extensive experience in assisting purchasers of all types of businesses.

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Changes to SMSF “Safe Harbour” Guidelines

In an earlier article this year we mentioned the ATO’s Practice Compliance Guideline 2016/5 on what constitutes arm’s length borrowing terms for limited recourse borrowing arrangements (LRBA).

PCG2016/5 sets out the “Safe Harbour” terms on which SMSF trustees may structure their LRBA’s consistent with an arm’s length dealing.

For existing LRBA’s with related parties, PCG2016/5 states that the ATO will not select an SMSF for income tax review for the 2014-15 year or earlier years in certain circumstances provided that the SMSF entered into or amended its LRBA’s consistent with an arm’s length dealing by 30 June 2016.

However, since the release of PCG2016/5 the ATO has determined that many taxpayers may require more time in order to review the terms of their LRBA’s.  The ATO has advertised that it will not select an SMSF for income tax review purely because it has an LRBA for the 2014-15 income year and prior years, provided that the SMSF trustee ensures that any LRBA’s their fund has is on commercial terms, or is alternatively brought to an end by 31 January 2017.

It is anticipated that by September 2016 the ATO will provide further information and illustrative examples to assist SMSF trustees to make decisions about their LRBA arrangements.

If you require assistance in establishing an LRBA or amending your existing LRBA’s so that they are on arm’s length commercial terms by 31 January 2017, please contact Andrew Bini.

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When is FIRB approval required for the purchase of Australian commercial land?

There is much interest from offshore investors, or foreigners living in Australia on a non-permanent basis, in buying Australian commercial land, often for redevelopment or to enjoy an existing rental income stream.   

For a foreign purchaser (individual or corporation) of Australian residential property, they must obtain the approval of the Australian Government's Foreign Investment Review Board (FIRB) before signing a contract of sale.  However, a foreign purchaser buying commercial land, FIRB approval is not always required. 

What is commercial land?

Commercial land means any land in Australia (including any building on the land), except for:

1. land used wholly and exclusively for a primary production business;
2. land on which the number of dwellings that could reasonably be built is less than 10; or
3. land on which there is at least one dwelling (except commercial residential premises).  Examples of commercial residential premises are hotels, serviced apartments or retirement villages.  

In FIRB’s Guidance Note 14 which was last updated on 1 July 2016 (see https://firb.gov.au/resources/guidance/gn14/), FIRB approval is required if a foreign purchaser intends purchasing the following types of commercial real estate:

1. vacant land for commercial development, regardless of the value of the land;
    
2. developed commercial land that is valued at $252 million or more.  However, a different threshold may apply for a country investor or foreign government investor.  Commonly, if the value of the land the foreign purchaser intends to buy is less than $252 million, then FIRB approval is not required;    
    
3. if the land is considered to be 'sensitive', such as a land will be leased to the government, then a $55 million threshold applies.  

You should always seek professional advice before entering into a contract of sale for the purchase of Australian commercial land. 

When is FIRB approval not required when buying commercial land?

Foreign purchasers do not require FIRB approval to acquire an interest in commercial land in following situations:

1.  the acquisition is pursuant to a last will and testament of a deceased person, or is a  devolution by operation of law;
2. The acquisition is from an Australian Commonwealth, State, Territory or local government or local governing body, or an entity wholly owned by the Australian Government;
3. the foreign purchaser will hold less than 10% of shares in a listed company that is acquiring the commercial real estate, or less than 5% of shares in an unlisted company,  and the foreign purchaser does not hold a management position within the purchaser company. 

Different rules may apply for the purchase of commercial residential premises. 

If you are unsure if FIRB approval is required, please contact Yuan (Nathan) Xu at nxu@nevettford.com.au or Yao (Chloe) Chen at cchen@nevettford.com.au for more information.

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Due Diligence and IPO’s

On 14 July 2016 ASIC released Report 484 “Due Diligence Practices in Initial Public Offerings”.  The Report outlines ASIC’s key findings from its review of due diligence practices of issuers of securities in relation to twelve initial public offers (IPO’s).  The Report is designed to help issuers of securities, their directors and advisors to conduct effective due diligence.

Due diligence practice is the process issuers adopt to comply  with their obligations under Part 6D.2 of the Corporations Act 2001 (Cth) in the preparation of IPO (and other rights issues) prospectuses.  The due diligence process involves among other things a thorough investigation into the issuer and its activities to ensure that all material information is contained within the relevant prospectus for consideration by investors.

Responsibility for the quality of the information in prospectuses lies with the issuers of securities and their directors who must ensure the prospectus is accurate and complete.

Typically the due diligence process comprises the establishment of a due diligence committee, the preparation of and adherence to a due diligence compliance program, the participation by directors, management and advisors of the issuer in investigating particular tasks and the verification of the content of draft prospectuses to ensure they do not contain false and misleading statements.

The key findings of the Report are as follows:

1. Poor due diligence often leads to defective disclosure, such as misleading and deceptive statements, statements with no reasonable basis or the omission of material information;
2. There was considerable variation in due diligence processes which led to different levels of investigation resulting in sometimes less desirable outcomes;
3. Some issuers adopted a “form over substance” approach to due diligence indicating less focus on actual disclosure in prospectuses and more on “ticking the boxes”;
4. Instances of superficial involvement by boards, despite significant directors’ liabilities under the Corporations Act;
5. Poor oversite by some Australian legal advisors of due diligence enquiries conducted by foreign advisors;
6. Inconsistent quality of contribution in the due diligence process between investigating accountants (who usually ranked high in their contribution) compared to legal advisors, which in some cases demonstrated a less consistent standard in conducting due diligence;
7. The costs of conducting due diligence may have an effect on the result.  It was found that a well-advised issuer would be better placed to mitigate risks.

The Report makes 5 recommendations for effective due diligence:

1. Issuers should adopt a due diligence process that promotes the oversight of the process, promotes investigations into the information contained in the prospectus, promotes record keeping of significant matters, promotes verification of all material statements contained in prospectuses and involves the continuation of the process after lodgement of the prospectus to capture any further material issues arising after lodgement;
2. Issuers should adopt a “substance over form” approach to ensure prospectuses comply with the law and promote informed decision making by investors who are relying on the content of prospectuses;
3. Directors should take an active role in the process and ensure that a robust due diligence process is undertaken;
4. Competent expert advisors should be engaged to identify material matters in the preparation of the prospectus; and
5. Australian advisors should focus on effective overside of due diligence carried by foreign legal advisors.

The clear message in the Report is that issuers should adopt a more rigorous approach to due diligence, their obligations under Part 6D.2 of the Corporations Act and to prospectus writing.

If you require assistance with IPO due diligence planning please contact Andrew Bini.

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Landlords and Essential Safety Measures

We often receive enquiries from landlords and tenants concerning essential safety measures obligations and whether it is the landlord or the tenant who must comply with those obligations.

Essential safety measures (ESM) are defined in Part 12 of the Building and Regulations 2006 (Vic) and are essentially a broad range of obligations ranging from sprinkler and air-conditioning systems, fire extinguishers, exit signs and compliance inspection, reporting and maintenance.

Until May 2015 there was much confusion in the property industry over whether a landlord could require a tenant to comply with the ESM provisions.  Many existing lease documents attempted to make it the tenant’s responsibility for complying with and bearing the cost of compliance with the ESM provisions. However, even if existing lease documents do allocate responsibility for compliance, the position has since been clarified by the VCAT Advisory Opinion (Building and Property [2015] VCAT 478) opinion handed down on 1 May 2015 (Opinion).

Summary of the Opinion

The Opinion was sought to clarify, amongst other issues, who (landlord or tenant) is responsible for the cost of complying with Section 251 of the Building Act 1993 (Vic).

Section 251 of the Building Act provides:

• if the owner of a building or land is required under the Building Act 1993 (Vic) to carry out any work or do any other thing and the owner does not carry out the work or do the thing, the tenant of that building or land or any mortgagee may carry out the work or do the thing; and

• a tenant may recover any expenses incurred by it from the owner as a debt due to the tenant and deduct those expenses from or set them off against any rent due to the owner. 

The main points in the Opinion are:

1. if a landowner is required to undertake work or do a thing under Sction 251 of the Building Act 1993 (Vic) and related provisions in the Building Regulations 2006 (Vic) (Building Act) including ESMs, the cost of undertaking that work or doing that thing must be borne by the landowner.  This applies to leases regulated by the Retail Leases Act 2003 (Vic)(RLA) and leases outside the scope of the RLA , such as commercial leases; and
   
2. for some obligations the landlord may agree with the tenant for the tenant to meet the requirements, but at the landlord’s expense.

Status of the Opinion

While the Opinion is not binding on courts or tribunals, it will clearly influence VCAT Members and Judges of the Magistrates’ Court, County Court and the Supreme Court.

On that basis:

1. landlord’s should consider the Opinion as being a statement of the law which will be applied by VCAT and the Courts;
   
2. landlords should not charge ESM outgoings to tenants;
   
3. and landlords should reserve their right to charge ESM outgoings to tenants at a later date, should the Opinion not become law.

Recovery of ESM Outgoings by Tenants 

There is commentary that some tenants are considering whether they have claims against landlords for ESM outgoings that have been incorrectly paid by tenants.  It is suggested that only tenants who have substantial claims which justify taking action may consider seeking reimbursements of those amounts from landlords.

However, landlords should not automatically repay such amounts without considering:

1. the effect of Statute of Limitations which limits claims back to six (6) years;
2. whether in fact, it is commercially viable for the tenant to make a claim, especially in a jurisdiction such as VCAT which does not provide orders as to costs;
3. the extent of any benefit received by the tenant for the payments;
4. the possibility of future amendments to the Building Act;
5. the possibility that the Opinion will not be adopted by a subsequent court or tribunal, especially on appeal; and
6. a consideration of the relevant provisions of the Building Act.

Please contact Andrew Bini if you would like assistance with your leasing matters.

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Liquor Licensing and changes of directors and shareholders of Licensees

Quite often we are engaged to assist with the purchase of a licensed business which usually occurs by way of a sale by a licensed vendor of its business assets to a purchaser which is accompanied by an application to transfer the liquor licence to the purchaser.

Where the licensee is a corporation, an alternative method exists for effecting the sale of the licensed business, which involves the sale of shares in that corporation to the purchaser and a change of directors of that corporation.  This method does not require an application to transfer the liquor licence (as the liquor licence remains with the licensed corporation) but will require compliance with the Liquor Control Reform Act 1998 (Vic) (Act) which provides as follows:

1. Section 103 (regarding change of directors of a licensed entity):

• If a person ceases to be a director of a body corporate that is a licensee, the licensee must notify the Commission in writing within 14 days after the person so ceases;

• A body corporate that is a licensee must not appoint a person as, or allow a person to become, a director of the body corporate without the approval of the Commission under Section 104 (Penalty: 5 penalty units).

2. Section 103A (which deals with the change of “associates” which includes shareholders) provides:

• A licensee must within 14 days after the occurrence of either of the following events notify the Commission in writing of the event;

• That a person has ceased to be a shareholder; and

• That a person has become its associate. (Penalty: 5 penalty units).

3. Section 104 (regarding the approval of directors) provides, amongst other things:

• A licensee may apply to the Commission for the approval of a person to be a director of the licensee;

• The Commission must give a copy of an application under section 104 to the Chief Commissioner of Police;

 

• The Chief Commissioner of Police may object to the application on the grounds that the person is not a suitable person to be director of the licensee; and

 

• Further provisions regarding the timing of the notification of objections and extension to time.

 

On that basis:

 

4. The resignations of the vendor’s appointed directors of the licensed corporation will need to be notified to the Victorian Commission for Gambling and Liquor Regulation (VCGLR) within 14 days after they have resigned as directors (ie usually within 14 days after settlement of the sale of shares);

 

5. The transfer of shares of the licensed corporation will need to be notified to VCGLR within 14 days after settlement;

 

6. The appointment of the new directors as nominees on behalf of the purchaser  cannot occur without the VCGLR’s approval under section 104 (1) of the Act.   

 

Accordingly, any sale documentation will need to accommodate the notification requirements under sections 103 and 103A and be conditional upon the purchaser’s nominee directors obtaining VCGLR’S approval.

 

We can assist with the sale and purchase of licensed businesses, notifications to VCGLR and applications for approval.

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Do we need a Shareholders Agreement?

This is a question we are often asked by shareholders of newly established and existing proprietary limited companies.  The simple answer is, a properly drafted Shareholders Agreement can help shareholders avoid potential disputes over the way in which a company is operated, by proving an agreement between the shareholders on predominately commercial issues not covered by a company’s Constitution.

Upon incorporation a company is regulated by the Corporations Act 2001 (Cth) (Corporations Act), its regulations and to the extent a company has one, its Constitution.  However, the Corporations Act and the Constitution primarily focus on the legal, regulatory and corporate activities of the company and do not do deal with business objectives including the commercial expectations of the shareholders.



In this regard, shareholders should ask themselves:

• What are the business activities and purposes of our company?
• How long will the company operate and build up the business before selling the business and providing a return on each shareholders’ investment?
• Which shareholders are entitled to be appointed directors and thereby have a say in the day to day management of the business?
• What decisions may only be made by shareholders as a group, rather than the directors?
• How do shareholders with minority shareholdings have an impact in the decision making process, rather than having their wishes ignored by majority shareholders?
• Should shareholders as a group restrict the sale or transfer of shares outside the current group of shareholders?
• How are the funding requirements of the business to be met? Debt, equity or both?
• What happens when a shareholder who is active in the business dies or suffers a permanent disability?  How can the other shareholders acquire the shares of the affected shareholder?
• Should shareholders be restrained from being involved in other businesses which complete the business of the company?

In answering these and other related questions, the shareholders should be able to formulate the commercial issues to be agreed to in their Shareholders Agreement.

Although Shareholders Agreements are not vital to the success of a company’s business, especially where there is a small number of like-minded shareholders, they are generally recognised as greatly assisting the objectives of the shareholders as owners and operators of the business.

The content of the Shareholders Agreement will follow a generally accepted structure developed over the last 30 or so years of commercial legal practice, with additional specific clauses to deal with the company’s own circumstances.

It should be noted that despite what shareholders may agree, the Corporations Act will in most cases take precedence over the terms of a Shareholders Agreement.

The Constitution, on the other hand, may be overridden by a Shareholders Agreement to the extent of any inconsistency. However, ideally the Constitution should be amended to incorporate the terms of the Shareholder Agreement.

Nevett Ford Melbourne’s Commercial lawyers have a wealth of experience in the preparation of Shareholder Agreements and advising companies and shareholders alike.

Please contact Andrew Bini if you would like further information.

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Waiting time reduced on applications using experienced lawyer early

David O’Brien a 40 year veteran in the quarry industry and Managing Director of Prosper Valley Enterprises speaks of his difficulties in applying for a Work Authority and Work Plan Variation licence in the Sand and Stone Magazine’s February/March edition. 

 

The application “seemed like a very drawn out and expensive process,” but after changing from a local solicitor who had been creating delays, David was advised by the CMPA to engage Andrew Lumb of Nevett Ford Lawyers. 

 

Mr O’Brien said "once Andrew had taken charge the blockers were quickly eliminated and the Work Authority and Work Plan Variation licences were finally granted".

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Builders Warranties

Under the Domestic Building Contracts Act, statutory warranties as to quality of workmanship are deemed to be given by all builders carrying out domestic building work under domestic building contracts, and these obligations cannot be negatived by anything in the building contract.  Domestic building work includes the construction of a house or renovation or alterations to a house.  What is not always understood is that under the Domestic Building Contracts Act the benefit of these warranties is available to subsequent owners of the property (not just the original owner who had the work done) as if the subsequent owner had been a party to the original building contract.  Unfortunately, what the Act does not address is the position of a subsequent owner if the original owner, whether before or after selling the property, does a deal with the builder, perhaps in the context of some wider dispute, which involves releasing the builder from all liability under the building contract.  The outcome in such a situation is uncertain at the present time.

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Owners Corporation - the importance of proxies

If you are a member of an owners’ corporation, it’s important to check that the parties who speak and vote at an annual general meeting, special general meeting or committee meeting are legally entitled to do so.  A lot owner must be “financial” (i.e. their owners corporation fees must have been paid in full) to vote at an owners corporation meeting. This is required by the law governing owners corporations in Victoria, being the Owners Corporation Act 2006 (Vic).

If a lot owner cannot attend a meeting (in person or by telephone) then they can appoint a proxy or representative to attend and vote on their behalf.  A proxy form must be completed by the lot owner naming the person appointed as proxy, and state what matters the proxy can speak on and how they must vote.  Often a lot owner will appoint the owners corporation manager or another lot owner to vote on their behalf.

However, a proxy form does not operate indefinitely.  It lasts for 12 months only and must be renewed annually to be valid.  A proxy granted to one person cannot be transferred to another person as a substitute proxy.

A prudent owners corporation manager or secretary will always check the proxy forms held by an owners corporation are current before allowing a proxy to vote.  This is important when a vote is required to pass a resolution (i.e. make a decision) at an owners corporation meeting.

Speak to us today is you need to know more about how appointing a proxy works.

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Buying real estate? Do your research first

When considering the purchase of residential or commercial property, it’s critical you do your market research so you don’t pay too much.  We often suggest to prospective purchasers to subscribe to a property market research service, such as CoreLogic RP Data (www.corelogic.com.au) or Australian Property Monitors (www.apm.com.au) on a month to month basis, for a fee.

Knowing the market is important when bidding at an auction or making an offer to purchase in a private sale campaign.  A market research service can provide you with:

• comparative sales information;
• how long a property has been marketed (i.e. number of days on the market);
• details of the marketing campaign, including changes made to the campaign such as changes made to the price listed, etc; and
• historical sales and rental prices.

Some mortgage brokers can provide you with a report for a particular property without you needing to pay a monthly subscription cost to access this information from a market research provider. Talk to our property team today if you would like to know more.

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