Our China Conveyancing Team Expands

We are delighted to announce the appointment of Peter (Chi-Yuen) Pang and William Spencer-He to our China Conveyancing Team.

Peter and William are experienced Australian trained lawyers and will add further depth to our expanding China Conveyancing Practice.

Peter has previously acted as an Academic Advisor for the China Law Society for a period of over 8 years, prior to that Lecturing at various Universities in Hong Kong and Australia.

William has acted as a Solicitor at various practices in Victoria.  Prior to this he has had experience as a professional translator for NAATI, the UN, the Government of Shanghai and for the State Council of the People’s Republic of China.  He is also a Lobbyist for the Mainland Chinese community in Australia and additionally has experience as a lecturer, broadcaster and news reporter in China.

Both Peter and William are fluent in Cantonese, Mandarin and English.

Peter will predominately be based in Hong Kong assisting our Hong Kong, Shenzhen and Guang Dong clients.  William will be predominately based in Beijing.

We also wish to congratulate Diane (Jing Pei) Xu on her admission as a Barrister and Solicitor of the Supreme Court of Victoria.  In the short term Diane will continue to assist with Melbourne based China Conveyancing Team before rotating through our other departments.

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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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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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Ask about incentives when buying property 'off-the-plan'

With purchasers finding it increasingly difficult to secure the purchase of a property at auction, many are turning to private sale negotiations to buy a property not yet constructed based on plans and specifications. This is called buying "off-the-plan" and is regulated by the Sale of Land Act 1962 (Vic). 

When negotiating to buy a property "off-the-plan" be sure to ask the selling agent or developer if they are offering any incentives to you as part of the sale.  Many developers do this to sweeten the deal and ensure a quick sale. 

There are many different incentives a selling agent or developer can offer.  The more common incentives we see in off-the-plan contracts are:

1. A one-off contribution by the vendor to the purchaser's legal costs of say $2,000 (including GST);
    
2. Inclusion of a 'blinds package' (window furnishings to all windows) which must be installed in the property by the settlement date;
    
3. A stamp duty rebate paid to you at settlement by the vendor provided you effect settlement on the due date.  The rebate might be a partial or full reimbursements of stamp duty liability, remembering that you are entitled to a reduced stamp duty liability when buying "off-the-plan";
    
4. A free or discounted purchase price for an accessory lot, such as an extra carspace or a storage area;
    
5. Interest which accrues on the cash deposit (the deposit being usually 10% of the purchase price) is payable to the purchaser at settlement.  This is on the basis the purchaser effects settlement on the due date and otherwise complies with all of the requirements of the contract;
    
6. A free optional upgrade of certain item/s in the fitout schedule or for electrical appliance/s in that fitout schedule;
    
7. Free variations to the standard fitout schedule or floor plan;
    
8. Any legal fees charged by the vendor's lawyer, if the purchaser nominates a substitute or additional purchaser/s, being waived;
    
9. Any special condition of the contract which passes on the cost of the vendor obtaining owners corporation certificate/s to provide to the purchaser prior to settlement being waived.  Note that each certificate usually costs $165 (including GST);
    
10. The defects liability period in the contract being extended from say 3 months to 6 months;
     
11. For investor purchasers, a guaranteed rental return being provided at no extra cost (called a 'rent guarantee') for a 1 or possibly 2 year period;
     
12. Some developers might offer other incentives like frequent flight points or a free air ticket to fly to the property prior to settlement to view it;
     
13. For investor purchasers, a vendor might offer a depreciation schedule for tax purposes at no extra cost.  That depreciation schedule would be provided at settlement to the purchaser to provide to their accountant.   

If you are looking to buy a property "off-the-plan" speak to our Property Department today.  Have the proposed contract of sale checked by us and we can discuss if you have been offered any incentives.  You may not have been, and it is worth asking the question in any pre-purchase negotiation. 

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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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Foreign resident capital gains tax withholding payments

On 25 February 2016 the Tax and Superannuation Laws Amendment (2015 Measures No. 6) Act 2016 (Cth) was enacted.  This Act introduces a 10% non-final withholding tax on payments made to foreign residents under contracts entered into on or after 1 July 2016 to dispose of certain taxable Australian property (Assets).


The Assets affected are:

• real property in Australia (excluding real estate with a market value under $2 million);
• lease premiums for Australian leases;
• certain mining, quarrying and prospecting rights;
• interests in Australian entities whose majority assets consist of such property or interests (excluding transactions listed on an approved stock exchange); and
• options to acquire such property or interests.

The obligation to withhold the tax rests with the purchaser, who must remit the tax to the ATO prior to or at settlement without delay.  The penalty a purchaser may incur for failing to withhold tax is equivalent to the amount that was required to be withheld and paid.

However, purchasers are not required to withhold tax if the vendor provides the purchaser a “clearance certificate” issued by the ATO or a declaration is provided which proves the resident is not a foreign resident before settlement.

Where the ATO determines a vendor is not entitled to a clearance certificate, the vendor may apply to the ATO for a variation requesting the ATO determine a withholding rate lower than 10%. The vendor must provide the notice of variation to the purchaser prior to settlement.

For further information please contact one of our property team members.

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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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Due Diligence – A Tenant’s Perspective

When assisting tenants in the negotiation of a new lease for commercial or retail premises we strongly urge tenants to arrange a physical inspection of the premises by a qualified inspector before entering into the Lease. 

The inspection should cover the building structure including power and plumbing systems, air conditioning and other installations.  The resolution of problems identified in the inspection report can then be negotiated with the landlord and form part of the written terms of the Lease. 

In some instances we have seen tenants not follow our advice, only to find that after the Lease is signed the tenant is deemed to have accepted the premises in their current condition, including problems (i.e. they are deemed to have accepted the premises “as is”).  This can be a costly issue for tenants as in most instances Leases require tenants to bear the costs of maintenance and repair of the premises including such problems. We can assist tenants with the negotiation of Letters of Offer, Head of Agreement, Agreements for Lease and Lease documents.

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Buying real estate? Do your research first

 

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:


1.  comparative sales information;


2.  how long a property has been marketed (i.e. number of days on the market);


3.  details of the marketing campaign, including changes made to the campaign such as changes made to the price listed, etc.; and


4.  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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