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Alternative Dispute Resolution Explained

Litigation can be a costly and time consuming process and parties are increasingly seeking alternative forms of resolving disputes.

This article provides an overview of the main types of alternative dispute resolution (ADR) and their respective benefits and limitations.

What is ADR?

The term ADR is used to describe dispute resolution processes that do not involve traditional litigation procedures or final adjudication of a Court or Tribunal. The aim of ADR is to provide participants with a quicker and cheaper alternative to going to Court.

There are many different forms of ADR, including the following:

  • Mediation: involves a trained mediator facilitating negotiations, but with no authority to make binding decisions.
  • Conciliation: involves a neutral third party helping the participants to identify the issues in dispute, develop options and endeavour to reach a resolution. It differs from mediation in that a conciliator may offer an opinion or suggest a resolution. It has an element of advice.
  • Arbitration: involves a professional arbitrator who has the authority to impose a binding decision on the parties. An arbitrator’s award can only be appealed on limited grounds.
  • Expert Determination: is a process where an independent third party, with expertise in the subject matter in dispute between the parties, assists the parties to resolve their dispute.

Use of ADR

The commercial world has been seeking alternative forms of dispute resolution in order to avoid the costs of litigation and the executive time and energy expended on lengthy court procedures. Many commercial contracts contain arbitration, mediation or expert determination clauses making it a requirement that the parties commence an ADR process if a dispute materialises and as a prerequisite before commencing legal proceedings.

However, both the Courts and legislature have also driven the increasing trend of using ADR in order to try and alleviate the cost of litigation and the pressures of case management. This has further been encouraged by the obligation on prospective litigants in many jurisdictions to take ‘genuine steps’ to resolve their disputes before litigation is commenced. It is suggested that genuine steps include considering whether the dispute may be resolved before litigation through some form of alternative dispute resolution.

The advantages of ADR

ADR processes can deliver efficient and cost effective results which provide satisfactory outcomes for the parties involved. The primary advantages include:

  • the process is informal, quicker and cheaper;
  • it is a less intimidating process and parties can express their grievances without fear that their legal rights will be compromised;
  • ADR can remain confidential;
  • there is scope for non-monetary remedies; and
  • commercial relationships can be preserved by adopting a co-operating rather than adversarial approach.

The Disadvantages of ADR

The disadvantages of ADR include:

  • ADR might not be appropriate where a party requires emergency relief, for example, a court injunction;
  • agreements made at ADR may not be as easy to enforce as a Court or tribunal order;
  • ADR can be used as a delaying tactic; and
  • ADR is rarely successful unless all the parties to the dispute are committed to seeking to resolve the matter.

Conclusion

There are clear benefits to parties utilising alternative processes for resolving disputes. If you are considering whether ADR is suitable for a dispute you are involved in, we recommend that seek legal advice from your lawyer.

If you or someone you know wants more information or needs help or advice, please contact us on (02) 9602

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‘Divorce’ explained for de facto partners

Unlike married couples, de facto partners cannot apply for a divorce when their relationship breaks down. Their property affairs and arrangements for the future care of their children however may be finalised by agreement, with the assistance of their legal advisors or, if necessary through Family Court proceedings.

Couples in a de facto relationship generally share the same rights and responsibilities as those who are married and may access provisions of the Family Law Act 1975 (Cth) (the ‘Act’) to determine property and children’s matters if the relationship breaks down.

The Act will apply to all children’s matters regardless of whether the parents were married or in a de facto relationship. To access the provisions for property and maintenance matters however, a party must establish the existence of a de facto relationship and meet other criteria.

If you are separating from a de facto partner, it is important to be aware of how a de facto relationship is defined and how the Act applies.

What is a de facto relationship?

A de facto relationship is where a couple, of the same or opposite sex and who are not legally married or related by family, live together in a genuine domestic relationship. Factors considered in establishing a ‘genuine domestic relationship’ include the duration of the relationship, the nature and extent of common residence, the existence of a sexual relationship, financial interdependence and property acquisition and ownership.

Once a de facto relationship can be established, the Family Court may make maintenance and property orders if:

  • the de facto relationship has lasted for at least two years; or
  • there is a child of the de facto relationship; or
  • the party applying for orders has made substantial contributions to the relationship and would suffer injustice if a property order was not made; or
  • the relationship is registered under a prescribed law of a State or Territory.

Time limits and keeping records

Timeframes and time limits are relevant to family law proceedings so it is important that you maintain accurate records. As noted above, unless there are children of the relationship or extenuating circumstances, property proceedings may only be commenced if the person bringing an application can show that the de facto relationship lasted for at least two years.

Additionally, property proceedings must normally be commenced within two years of separation. In this regard records of the date of separation should be maintained and ex-partners should provide written notification to the other confirming that the relationship is at an end.

Agreeing on the division of property

The least exhaustive and most efficient way to divide property after ending a de facto relationship is to negotiate a settlement with your ex-partner and document the consensus reached in a financial agreement or consent orders.

A financial agreement sets out the agreed division of assets between the parties and can include provision for the sale of real estate or other property, the payment of outgoings and distribution of surplus funds. The agreement can also require the parties to pay off joint credit cards or loans and close bank accounts.

When negotiating a financial agreement, the parties must give proper disclosure of their assets and financial resources.

Once a verbal agreement is reached, the parties meet separately with a lawyer to receive independent legal advice and sign an acknowledgement that they are each aware of their rights and obligations under the agreement.

If done correctly and in the right circumstances, financial agreements can be a less formal and cost effective solution for dividing property.

Sometimes, it is preferable to have an agreement for the division of property endorsed by the Court through consent orders. This is more formal than a financial agreement because the Court must approve the orders proposed.

The application for consent orders must include full financial disclosure by both parties and the Court will only approve the order if it is just and equitable to do so.

Because of the Court’s involvement in considering and consenting to the orders they are usually considered more binding than a financial agreement, providing greater finality to the parties’ financial affairs.

Court proceedings

Parties to property or children’s matters must first attempt to resolve their conflict through dispute resolution processes, unless there are extenuating circumstances. Proceeding to Court requires careful preparation and consideration of the expense and emotional stress likely to be involved in light of the asset pool.

If a matter proceeds to Court, the following steps are taken to determine the division of property:

  • The assets, liabilities and financial resources of the parties are identified – this includes real estate, motor vehicles, business interests, investments and shares, furniture, cash and superannuation.
  • The parties’ contributions are assessed including monetary contributions such as assets brought into the relationship and earnings from employment, and non-financial contributions such as caring for the family.
  • The parties’ future needs are evaluated in consideration of their respective earning capacities, age, health and need of the primary carer of children to provide a suitable home.
  • In all of the circumstances, orders are made that are ‘just and equitable’.

The Court’s determination in these matters is discretionary and it will take account of various factors. The starting point however is usually an equal distribution of assets.

Arrangements for children

If there are children of the de facto relationship, agreements regarding their future care may be documented in parenting plans or consent orders (as for property division) without going to Court.

If agreement cannot be reached on parenting issues it may be necessary to apply to Court for the appropriate orders. The overriding principle considered in children’s matters is always that the best interests of the child are paramount. Essentially, this means that children:

  • should have the benefit of a meaningful relationship with both parents;
  • be protected from physical and psychological harm;
  • receive parenting that allows them to reach their full potential;
  • unless there are issues of risk, have the right to spend time on a regular basis with both parents.

Generally, parental responsibility should be equally shared. This does not necessarily mean that the children will spend equal time with each parent but that the parents are jointly responsible for long-term decisions affecting the health, welfare and education of their children.

The length of time children spend with each parent will depend on various factors such as their ages and ability to cope with change, their relationship with other siblings, the parents’ respective work commitments, schooling and location.

Summary

If you are ending or beginning a de facto relationship it is important to know your legal rights and obligations.

If your relationship has broken down, even if you and your ex-partner are amicable, agreements on property division should be documented to legally end your financial affairs.

If there are children involved, a conciliatory process is almost always better for all, bearing in mind that care arrangements and the needs of the children may change over time.

If you or someone you know wants more information or needs help or advice, please contact us on (02) 9602 2535 or email [email protected]

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Business Structures – Trusts

When commencing a business venture, it is necessary to consider the most appropriate type of business structure to put in place. Different business structures have different benefits and disadvantages. This article looks at trusts – how to set up a trust and the pros and cons of the trust structure.

Key features

A trust is an obligation imposed on a person (the trustee) to hold property or income for the benefit of others (the beneficiaries). A trustee is responsible for the operation of the trust. A trustee can be an individual, partnership or a company. There are a number of laws which govern how a trustee must perform his or her obligations to the trust. The primary obligation of a trustee is to act in the best interests of the beneficiaries of the trust.

Trusts are set up for a number of reasons, including family and charitable purposes. For business purposes, the most common types of trusts are:

  • Discretionary trusts (also called a family trust): The trustees of a discretionary trust are able to distribute income and capital gains to beneficiaries in whatever way they desire. There is no fixed entitlement for each and every beneficiary.
  • Unit trusts: A unit trust is like a company where the trust property is divided into a number of shares called units. The number of units held by each beneficiary determines his or her entitlement to a share of assets and income.
  • Hybrid trusts: are a cross between a Discretionary and a Unit Trust. Beneficiaries hold a defined amount of units but the trustee has the discretion to vary each beneficiary’s entitlements and income.

How to set up a trust

A formal deed is required to set up a trust. A trust deed outlines the purpose of a trust, the property involved, the rights and obligations of the trustee and beneficiaries and how assets will be distributed to the beneficiaries. It is recommended that a trust deed be prepared by a solicitor.

A trust must have its own Australian Business Number (ABN), which can be obtained online through the Australian Business Register.

A trust must also have its own Tax File Number (TFN), which can also be obtained online from the ATO.

A trust must be registered for GST if annual turnover is $75,000 or more.

Trusts that run a business must complete a tax return, showing the income the trust earns, deductions it claims and the amount of income distributed to each beneficiary.

Pros and cons

The advantages of a trust structure include:

  • Flexibility in how income is distributed
  • Tax planning flexibility, including income splitting
  • Asset protection
  • Beneficiaries are generally not liable for the debts of a trust
  • Beneficiaries of a trust pay tax on the income they receive from the trust at their own marginal tax rates
  • A trust is more private than a company

The disadvantages include:

  • A trust is a complex legal structure, which is expensive to set up and run
  • There are considerable legal and compliance requirements
  • There can be inflexibility, as powers are restricted by the trust deed and the law
  • It can be difficult to make changes to the structure once it is set up

Conclusion

A trust might be an appropriate structure if a business venture will involve a sizeable amount of property and money. That is because a trust can be beneficial in protecting assets and minimising taxation obligations. Trusts are also a common structure choice for family businesses because various family members can be made beneficiaries of the trust that is operating the business.

A trust is the most complex of all the business structures, with complicated tax implications and legal and compliance requirements. As such, it is highly recommended that advice is sought from a solicitor to check whether a trust suits your circumstances.

If you or someone you know wants more information or needs help or advice, please contact us on (02) 9602 2535 or email [email protected]

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What a Will Kit doesn’t do

There are various ‘Will Kits’ available on-line – most are cheap or ‘free’ and all you need to do is download them and fill in the blanks. Many websites boast that you can prepare your Will ‘without spending hundreds of dollars on legal fees’.

Simple, right? Not really.

Generating an on-line Will may seem easy, but the ‘hundreds of dollars’ that you might save will never make up for some of the possible pitfalls in preparing a Will without sound legal advice.

When you generate your own on-line Will, you don’t meet personally with the writer of the Will. This is the most significant issue with self-generated legal documents. You don’t have the opportunity to discuss your family and your circumstances, and a solicitor does not have the opportunity to identify issues unique to you, that could otherwise be addressed with careful planning.

A solicitor with an understanding of succession law will guide you through this process and create not just a Will, but an effective estate plan.

The following are some of the important considerations that an experienced solicitor will address, that a Will-Kit may not.

Your solicitor will prepare an estate plan, not just a Will

A solicitor will take a holistic approach and will consider all aspects relevant to your estate plan. Not only is it important to plan how your assets are distributed when you die, but you need to provide for contingencies such as appointing guardians and attorneys if you become incapacitated and are unable to manage your financial and personal affairs.

A solicitor will also consider how your assets are held – whether that is jointly or individually – as this can determine how and to whom those assets may be left. For example, when assets are held jointly with another person, the surviving person will automatically inherit the deceased person’s share when he or she dies. A contrary direction in a Will to leave that share to somebody other than the joint tenant will not override this legal principle. A solicitor will advise whether it is in your interests to sever the tenancy which will then enable you to leave your share to whomever you wish.

Your solicitor will also discuss your superannuation and death benefits which do not automatically form part of your estate. In most cases, your benefits will be paid directly to a superannuation dependant either at the discretion of the trustee or in accordance with a death benefit nomination.

Different categories of beneficiaries are taxed differently under taxation law and your solicitor can advise on these tax implications so you can make an informed decision.

Preventing a gift from failing

A common problem with do-it-yourself Wills is the risk that a gift to a beneficiary may fail. ‘Ademption’ occurs when specifically named property in a Will no longer exists at the time the Will-maker dies. Consequently, the intended beneficiary of that gift may lose out altogether. The ademption of a gift, can have a significant impact on the value of assets received by a beneficiary, particularly where the asset is significant such as real estate or a prestige motor vehicle.

Fortunately, the law has developed certain exceptions to the rules of ademption and a beneficiary may be saved from missing out on his or her inheritance. Having said that, a properly drafted Will can prevent the issue arising in the first place and is likely to avoid the potential for unwanted estate disputes.

Protecting your assets and tax planning

Your solicitor will advise on how to best structure your Will to protect your assets against distribution to an unintended beneficiary (such as a child’s estranged partner or the creditors of a bankrupt beneficiary).

A testamentary discretionary trust may be recommended. This is a trust created in your Will that comes into effect after you die. The trust is administered by a pre-appointed trustee who determines how and when estate assets are managed and distributed.

If properly managed, the flexibility of a discretionary trust allows beneficiaries to access favourable taxation treatment with respect to their inheritance and provides protection for vulnerable beneficiaries. With careful planning, the timing of transferring estate assets may also postpone or minimise capital gains tax liabilities.

An on-line Will Kit is unlikely to consider these matters and, in any event, cannot provide the legal advice necessary to decide whether this type of Will is appropriate in your circumstances.

Guarding against family provision claims

A successful family provision claim may result in the terms of your Will (despite your intentions) being amended to provide for an ‘eligible person’.

Family provision rules vary between jurisdictions however an eligible person generally includes a current or former spouse or de facto partner, a biological, adopted or step-child of any age, and certain dependent members of the deceased’s household.

An eligible person may make a claim against the estate of a deceased person if he or she believes they have been unfairly treated under the Will or the proposed distribution is unfair. Whilst warranted in some circumstances, such claims are usually an unwelcome interruption and will result in additional time, delay and cost in finalising the estate.

Your solicitor can identify potential claimants under the family provision rules relevant in your jurisdiction and, if necessary, advise on how to reduce the likelihood of such a claim.

Conclusion

Planning your estate and having your Will prepared by a solicitor is a smart move. Your solicitor will ensure your Will is valid, correctly signed and protects your assets and your beneficiaries. He or she will advise how future changes may affect your estate plan and will usually provide a friendly reminder to review your Will when your circumstances change.

Yes, you can prepare a valid Will on-line however, there is considerable risk that it will not be tailored to your unique circumstances, may not achieve exactly what you want, and may not take advantage of structures to protect assets and save tax.

Meeting with a solicitor to discuss your estate plans and finalise a well-considered Will that caters to your circumstances is money well spent.

If you or someone you know wants more information or needs help or advice, please contact us on (02) 9602 2535 or email [email protected]

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The family business and property settlements – the importance of valuations

Separating couples involved in a family law property settlement are often under emotional and financial pressure. When one or both parties are involved in a business, this can add additional stress and complexity to the division of property.

A business interest, whether held individually or jointly, through a partnership, company or trust, forms part of the asset pool and must be accounted for when dividing property.

A formal valuation for the business can help provide clarity and assist the parties to negotiate a financial settlement.

Why value a business?

When couples separate, the division of property is not purely a mathematical exercise. This is particularly so when considering a family business which may be the sole or significant vehicle for the family income.

If the business is profitable, or likely to become profitable, one of the parties may wish to retain it and ‘pay out’ the other. This is where disputes most likely arise as there will be discrepancies about what the business is worth, influenced respectively by whether each party is the proposed continuing or exiting business owner.

Many factors must be considered to provide a pragmatic and workable solution for both parties. This is where a formal business valuation by a qualified expert can be of benefit.

Choosing a valuer

It is important that the valuer appointed be an impartial and neutral expert who is familiar with family law matters, the requirements for preparing expert reports and, if necessary, giving evidence in Court.

Both parties should agree on the expert appointed and provide joint instructions.

The benefits of engaging a single valuer are that the parties usually share the expense, the process is streamlined, and the evidence is generally accepted by the Court without further application. In limited cases, individual valuations may be requested, and permitted by a Court.

If the parties are represented, their lawyers should work together to identify a suitably qualified valuer, obtain costings and determine the terms of reference for the valuation. Correspondence should include the relevant Family Law Rules with which the appointed expert must comply in providing the report.

Arranging the report and the importance of disclosure

Once the valuer and costs are agreed, written instructions are provided by each party’s lawyer. The instructions will set out the terms of reference and additional information is provided to assist in making the assessment.

The Family Law Act 1975 (Cth) requires that separating couples make genuine efforts to resolve disputes, and, as far as practicable, comply with the duty of full and frank disclosure. Where business interests are concerned disclosure documents may include balance sheets, profit and loss statements, budget and cashflow forecasts, supply and service contracts, business activity statements, tax returns, deeds, joint venture agreements and trusts.

The extent of information required will be determined by the complexity and (likely) value of the business and the valuer may request additional information to consider a proper assessment.

Valuing the business

By nature, businesses can be inherently complex and attributing a monetary value to a business will require consideration of several factors.

The business may be in its start-up phase with minimal assets but potential for good future earnings and growth. Significant benefit may be placed on the goodwill of a business by one party, which value may be fiercely contended by the other.

The valuer will review the information provided and adopt the most appropriate means of valuing the business, usually from a set of generally-accepted principles and valuation methods. The likely taxation consequences should the business be sold, may be considered as well as a comparison with other businesses within the same industry.

The method used to determine the value may be based on income, on assets, a market approach or an approach that considers the unique value to the potential business owner.

Conclusion

Relationship breakdowns can have a disruptive effect on a family business, and it is important that parties try to work amicably to maintain its usual activities and preserve business relationships and reputation.

If you have been operating a family business and are separating, it is important to understand the value of the business which will ultimately form part of a financial property settlement.

A formal business valuation can be used in the early negotiations of a financial property settlement, during mediation or, if necessary, in Court proceedings.

If you or someone you know wants more information or needs help or advice, please contact us on (02) 9602 2535 or email [email protected]

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Airbnb: Legal tips for property owners

If you have looked at booking holiday accommodation recently chances are you have come across Airbnb or maybe you know someone who rents out their spare room and is always talking about the extra money they are making.

But what is Airbnb exactly, how does it work and what are the potential pitfalls and legal implications of making money out of your spare room on a casual basis?

What is Airbnb?

Airbnb styles itself as a “Community Built on Sharing” and an easy way in which people can make money from their extra space. The idea of making money out of spare space or an empty property is not new. The difference with Airbnb is that both hosts and guests must create a profile which is rated after every stay. So both hosts and guests are rated.

Airbnb started in San Francisco in 2008 and from quite modest beginnings has grown to a worldwide network of both hosts and guests, with in excess of 2 million listings in over 34,000 cities worldwide. Airbnb claims to have had in excess of 60 million guests use its services.

So how does it work?

Both hosts and guests start by creating an Airbnb profile. If you are planning to host you then add details of the accommodation you wish to offer.

Accommodation options currently offered on Airbnb range from rooms in private home with shared facilities through to sole use of a castle and everything in between.

The price for the accommodation is set by the host and Airbnb add a service fee to every booking.

Is it legal?

When you sign up as a host on Airbnb you agree, under the terms and conditions that any accommodation you list will not breach any lease or rental agreements or any homeowners’ association rules and that you are complying with all applicable zoning laws that govern the renting of residential properties. But is this true?

At the present time whether you are likely to run into strife with your local council will depend on where you live and whether your neighbours lodge a complaint about you, as Mr Wally Salinger, a resident in the popular inner west suburb of Annandale in Sydney recently found out.

Mr Salinger recently received a notice from his local council threatening him with a $1.1 million fine for using his home as an Airbnb rental after a neighbour lodged a complaint. Mr Salinger sought advice from the council as to what he needed to do to make sure his property could be legally rented out on Airbnb but met with a brick wall in terms of any clear solution.

Presently different council areas have different rules governing what they will and won’t allow in terms of home sharing and short term rentals. There is pressure on state governments to clarify the rules around home sharing so that there is consistency. Some councils will allow bed and breakfast arrangements (with appropriate approvals) and some councils prohibit these types of short term rentals altogether.

In Victoria and other states there is also a similar level of uncertainty. Although a recent decision of the Victorian Civil and Administrative Tribunal (“VCAT”) may bring some comfort to would be Airbnb hosts.

VCAT recently held that the owner’s corporation at the Watergate Apartments located in Melbourne’s Docklands area did not have the power to make a rule which prohibited stays of less than 30 days paving the way for Airbnb style rentals to be permitted in that particular complex.

What about insurance?

While noting on its website that it provides a “Host Guarantee” for certain types of damage done to a host’s property, Airbnb’s terms and conditions stress that any agreement between a host and a guest is strictly between those parties and that Airbnb is simply a limited authorised payment collection agent for the host for the purpose of accepting the guest’s payments.

Airbnb recommends that hosts obtain appropriate insurance for any accommodation they are offering and also that hosts review their insurance policies to make sure the insurance coverage extends to the property when it is being rented out.

Importantly, the Host Guarantee is not insurance and should not be considered to replace the host’s own home or renters insurance. The Host Guarantee does not protect cash and securities, pets and personal liability and certain types of property such as jewellery and artwork have more limited protection than say furniture.

What if someone is injured while staying at an Airbnb property?

A recent tragedy at an Airbnb rental in Texas highlighted the potential issues that can arise with this type of rental. In a tragic accident a man died after a tyre swing that he was sitting on fell when the tree trunk that it was tied to broke in half and fell on the man’s head.

In that particular instance the man’s family did not pursue a claim against Airbnb as the host’s homeowner’s insurer responded to the claim and there was no commercial activity exclusion on the policy. If the host’s insurance policy had not responded then the host could have faced potential financial ruin if a claim had been made by the family. Whether a claim against Airbnb would have succeeded remains untested.

It is always best to check first

If you are thinking of renting your home out for short term accommodation it is important to sort out all necessary insurances and permits before you offer the accommodation to potential guests. As regulations vary widely between local government areas it is always a good idea to seek legal advice first rather than waiting until a complaint or some other problem arises.

If you or someone you know wants more information or needs help or advice, please contact us on (02) 9602 2535 or email [email protected]

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Business structures: partnerships – the pros and cons

When commencing a business venture, it is necessary to consider the most appropriate type of business structure to put in place. In Australia, there are 4 common business structures – sole trader, partnership, trust and company. Different business structures have different benefits and disadvantages. This article looks at partnerships – how to set one up and the pros and cons of the arrangement.

Key features

A partnership is an association of 2 or more people who carry on business as partners and distribute income and losses between themselves. In a partnership, the partners all own the business, all have control of the operation of the business and all the profits belong to the partners jointly.  With a partnership, the business is not a separate legal entity.

How to set up a partnership

A partnership is one of the simplest ways to structure a business and is relatively easy to set up.

Most partnerships are established by a partnership agreement which sets out the rights and obligations of the partnership. Although a partnership agreement is not compulsory, it is advisable to have a written document which clearly outlines the important aspects of the partnership at the outset of the business venture and before any disputes have arisen.

A partnership can be run under the personal names of all the partners or a business name. If a business name is to be used, then it must be registered with the Australian Securities Investment Commission.

Regardless of whether a partnership is to be run in the names of the partners or a business name, an Australian Business Number (ABN) is required for the partnership. An ABN can be obtained online through the Australian Business Register.

A partnership also needs its own Tax File Number, which can also be obtained online from the Australian Taxation Office (ATO).

A partnership must be registered for GST if its annual turnover is $75,000.00 or more.

A partnership must file an annual tax return but it does not pay income tax. That is because it is not a separate legal entity. Instead, each partner pays tax on their share of the net income of the partnership. That means that not only does each partner have to lodge their own personal individual income tax return, but that the partnership must lodge its own tax return as well.

Pros and cons

The advantages of forming a partnership include:

  • Inexpensive to set up
  • No formalities, registration or reporting obligations other than tax returns
  • More privacy than other business structures such as a trust or company
  • A broader management base, with a wider pool of expertise and capital

The disadvantages include:

  • Unlimited liability for the partners, which means that the partners’ personal assets are exposed if the partnership’s assets are insufficient
  • If a partner will not or cannot pay his or her share of the partnership liability, then the other partners must do so personally, jointly and severally
  • Partners can be sued personally for anything done in the name of the partnership
  • Potential for disputes and loss of trust between the partners
  • Difficulties with the transfer or termination of partners
  • Limitations on size (generally the maximum number of partners in a partnership is 20)

Conclusion

A partnership may be the right business structure if there is compatibility between the business partners or if a sole trader is looking to grow his or her business through establishing a partnership.

Consideration should be given as to whether the advantages of setting up a partnership outweigh the disadvantages or whether some other business structure might be more appropriate. An accountant or lawyer can help you understand the cost and risks of a partnership.

If you or someone you know wants more information or needs help or advice, please contact us on (02) 9602 2535 or email [email protected]

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Understanding a commercial lease

When renting business related property it is important for both Landlords and Tenants to understand the relationship they are entering into and the rights and obligations that they each have, the document that governs this relationship is usually a Commercial Lease.

So what is a commercial lease?

A lease is a legally binding contract that gives you certain rights to a property for a set term. A commercial lease is used when leasing property used primarily for a business.

You should never sign a lease without understanding all of its terms and conditions. If you don’t understand what you are agreeing to you could experience serious financial and legal problems.

It’s important to properly investigate the property and lease document before you sign. It is a good idea to ask your lawyer to explain each clause of the lease to you. Your lawyer can give you legal advice, draft new clauses and help you negotiate the terms and conditions to suit you.

Important issues to consider when entering into a lease

A commercial lease will usually contain terms dealing with items such as:

Rent: How much is the rent and when is it due? The amount of the rent will usually be calculated based on the area of the premises. This may not always be a simple as it sounds if the shape of the property is irregular or the area includes a lift, more than one floor, outdoor area or interior walls.

Rent Increases: Rent will usually increase annually during the term of the lease, with increases determined by a fixed percentage, be market based or tied to the CPI. It is common for CPI or fixed reviews to occur during the term of a lease and for a market review to occur at the expiry of the initial term and each option period.

Security Deposit: The landlord will usually ask for some form of security from the tenant in case the tenant defaults on their obligations (e.g. not paying rent). The security is usually for an amount equal to 3-6 months’ rent and is by way of bank guarantee or security deposit. If the tenant is a company then personal guarantees from the company’s directors may also be required. The lease should also specify the terms regarding its return.

Term of the lease: The lease should set out the length of the lease and any options to renew the lease and any terms relating to the renewal. A landlord will generally want a longer initial lease term (typically 3, 5 or 10 years) whereas the tenant is likely to want a shorter period (1-3 years).

Option to Renew: An option allows the tenant to continue leasing the property on similar terms at the end of the period of the lease for a further defined period and rent (subject to any review). An option gives the landlord potential greater security of income and the tenant the ability to make longer term plans for their business.

Knowing the procedure for exercising the option especially when the option can be exercised is critically important

Improvements: A lease should address what improvements or modifications can be made to the property, who will pay for the improvements and whether the tenant is responsible for returning the property to its original condition at the end of the lease.

Description of the property: The lease should clearly describe all of the property being leased, including bathrooms, common areas, kitchen area and parking spots. A plan of the property should also be included.

Signage: Any restrictions on putting up signs, say that are visible from the street, will be included in the lease. Also, check local zoning regulations to determine what other limitations may apply.

Use of the property: Most leases will include a clause defining what the tenant can do on the property (e.g. what type of business). A tenant should ask for a broad usage clause just in case the business expands into other activities. Ask your local council if your business can operate in your desired location. Also consider the council’s development plans for the area.

Outgoings. The lease will set out who is responsible for costs like utilities, property rates & taxes, insurance, and repairs.

Insurance. You should contact your insurance company and discuss the clauses referring to insurance so you fully understand what is covered by the lease.

Exclusivity clause: This is an important clause for retail businesses renting space in a commercial complex. An exclusivity clause will prevent a landlord from renting space to a competitor.

Assignment and subletting: A tenant should maintain the right to assign the lease or sublet the space to another tenant. Usually the tenant is still ultimately responsible for paying the rent if the business fails or relocates, but with an assignment or sublet clause in place, the business can find someone else to cover the rent.

Maintenance & Repair: the lease should clearly set out who is responsible for maintaining or repairing the property and the fixtures and fittings during the term of the lease.

Make Good: A tenant should carefully review the make good obligations in the lease.  Often these can be onerous and involve considerable expense on the tenant having to reinstate the premises to their original condition when the lease commenced.

Termination: The circumstances under which the lease will be terminated should be set out in detail in the lease.

Costs: The landlord may want the tenant to pay the costs of preparing the lease, this should be clearly set out in the lease.

Retail lease or general commercial lease?

The Retail Leases Act 1994 has specific legislation relating to retail leases. This legislation is designed to promote fair leasing arrangements, improve communication and provide access to low cost dispute resolution for the retail industry.

For a new retail lease the landlord is legally required to give the tenant:

  • a written lease with matters agreed to and signed off by both parties.
  • a disclosure statement.
  • The NSW Retail Tenants Guide, which gives notice of some of the tenants’ rights and obligations and some commercial matters that the tenant should be aware of.

The disclosure statement outlines important information about the lease, it must be in the prescribed form and contain a statement notifying the tenant that independent legal advice should be obtained. It would also normally include details about:

  • the term of the lease
  • whether there are options for further terms
  • the occupancy costs for leasing the premises (including rent and any outgoings)
  • specific information for shopping centre leases
  • tenant’s fit out requirements
  • if there are any relocation or demolition clauses

Conclusion

Although many of the terms of a commercial lease are fairly standard it is important that you fully understand your rights and obligations, especially the provisions which relate to retail leasing.

It is a good idea to ask your lawyer to explain what each clause in the lease means and to get their assistance in negotiating the terms and conditions that suit you.

If you or someone you know wants more information or needs help or advice, please contact us on (02) 9602 2535 or email [email protected]

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Social media and family law – Just don’t do it!

Social media – Facebook, Instagram, Twitter, Snapchat and the like – can be a lot of fun and have become an accepted part of modern life.  Many of us use such forms of electronic communication to share the exciting, as well as the banal events in our lives, to express our views and to stay in touch with loved ones.  But what happens when people going through a relationship breakdown take to social media?  Usually little good comes of it, and sometimes quite a lot of bad can result.

Social media as evidence

If you are going through a separation, you should expect your former partner, their lawyer or the children’s lawyer to search social media to see if they can find out anything damaging about you that could be used as evidence. For example, if you are involved in a financial dispute and might be claiming that you cannot afford to pay spouse maintenance or increased child support, it would probably not be a good idea to share on Instagram photos of your latest holiday or new car.

Similarly, when involved in a parenting dispute, you would be wise not to post to Facebook about your latest “big night out”, especially if the children were in your care at that time.

When making a decision about where children are to live and with whom they are to spend time, the Court can take into account the ability of the parents to communicate and cooperate with one another.  So, it is not likely to be helpful if the Court is shown evidence of abusive or derogatory posts you have made on social media about your former partner.

Of course, many people have social media privacy settings which limit the information that can be seen by non-“friends”. If you haven’t set your social media privacy in that way, you would be wise to do that while you’re sorting out the issues arising from your relationship breakdown. However, even with tight privacy settings, it’s still better to be very careful about what you post, or just don’t do it at all.

Social media and prosecution

The law prohibits the publication, including by electronic means, of information relating to family law proceedings which identifies the parties involved, people associated with those parties or any witnesses. Anyone who breaches that rule is guilty of an offence, the maximum penalty for which is 12 months imprisonment.

That prohibition has not prevented some people involved in family law proceedings from using social media as a weapon against their former partner, by carrying out a campaign of cyber-bullying against their former partner, his or her lawyers, the children’s lawyers and the judicial officers involved in the case.

In two recent cases involving such unlawful social media publication, the Court focused primarily on two things.

Firstly, the Court invoked its child protection jurisdiction and concerned itself with the harm that might befall the children if, as a result of social media publication of information relating to family law proceedings, members of the public could identify the children involved, such that the children might then be exposed to ridicule, curiosity or notoriety.

Secondly, the Court considers it in the public interest to preserve public perception of the integrity and impartiality of the Courts and judicial system, which some litigants have used social media to attack.

In both cases, the Judges commented on the difference between unlawful publication of information about family law proceedings in a one off newspaper article, for example, and publication on the internet, which is and remains available for quick and easy access by anyone, anywhere, at any time.

In one of those cases the offending parent was ordered to remove all references to the parties and the proceedings from the website he or his family had set up to cyber-bully the mother and to expose the lawyers and judges involved in the case as “corrupt”. In addition, the Court ordered the Federal Police to investigate whether the father had committed an indictable offence.

Similar orders were made in the other case in which the offending party, again the father, had used Facebook to denigrate the mother and her lawyers, the Court, the Department of Community Services and the children’s lawyer.

Can social media be good?

The cases referred to above involved ongoing bitterness and acrimony between the separated couple. Happily, that isn’t always the case, and some separating parents can respectfully communicate and cooperate with each other for the benefit of their children. In such a situation, tech savvy parents may find a way to use electronic communication or social media to their mutual advantage, for example privately sharing necessary information about the children and their activities.

Conclusion

Unless you and your former partner can find a way to privately use electronic communication to help you co-parent your children after separation, the general guideline when it comes to social media and family law disputes is just don’t do it.

Not only would you not want to find your Facebook posts being used as evidence against you in court proceedings, you could even expose yourself to prosecution by the Federal Police for breaching the law against publication of information relating to family law proceedings.

If you or someone you know wants more information or needs help or advice, please contact us on (02) 9602 2535 or email [email protected]

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Take care when buying a property Off the Plan

The term “buying off the plan” usually refers to purchasing a property that is not yet registered as a separate lot with the government department responsible for land title registrations, or not yet built.

Buying off the plan can refer to the purchase of a block of vacant land that is part of a subdivision, or a house or unit being built for sale where the land on which it stands is not yet registered as a separate title.

Selling property “off the plan” allows a land owner to develop the land in a less-expensive way, as the developer can negotiate lending rates with its Bank at a lower rate if some of the land, houses or units are already sold to buyers.

This is an advantage to the land developer and can also be attractive to a prospective purchaser who buys into an “off the plan” property in the early stages of the development.

There are however risks for the buyer of property “off the plan” and a diligent purchaser should take care when entering into this type of purchase contract.

The contract

A contract for the purchase of property “off the plan” is a contract that does not have a precise completion or settlement date due to the incomplete nature of the building project and the subsequent separate registration process for the title to the land or new building.

“Off the plan” contracts generally include several clauses that are different to those in a standard contract for a registered lot. The major difference is the timeframe for the owner to complete the subdivision or the building on the land.

A standard contract will have a precise date for settlement to occur (either an exact date in the future or a completion period say “60 days after the contract is dated”). An “off the plan” purchase contract will still have a timeframe but it is usually stipulated that settlement will occur within a number of days following completion of the building project and registration of a separate title for the property being purchased.

Off the plan contracts also often include a provision called a “sunset clause” which establishes a period within which the contract must be completed – say within 24 months of the date of the contract. This means that completion or settlement can be anytime in that 24 month period after the signing of contracts, subject to the land becoming registered as a separate title or the building works being finished. If the date passes the parties can terminate the contract.

If you are buying a block of land “off the plan” in a subdivision the contract will usually include a clause allowing a variation in the area of that land that you will purchase on completion of the purchase, often because the local council and the land title registering authority have the final say on the area of the lots in the subdivision and may require the land owner/developer to change the areas. This reduction is usually capped at “not more than 5% of the area” in the contract and does not normally occur, but if it does your land area may be reduced but the purchase price is not reduced if the areas are changed.

When houses or units are sold “off the plan” the dwelling is not fully built or construction may not have even started until after you enter into the contract. The usual concerns with this type of purchase are that the progress of the building and the standard of the building work may be different to what you as the buyer contemplated. Remember you cannot see the finished product when you buy “off the plan” as the work will be done after you have signed the contract.

Often the developer will have a demonstration or “display home” to inspect showing you a model of how the buildings should look once completed, or they may have design guidelines and artist’s impressions of the building. These may not resemble exactly the finished building as some changes may be made during construction and you need to ensure that the contract provides some protection here. It is essential that you check the details of features, fixtures and fittings such as the stove, range hood, dishwasher, etc. and ensure that the quality of all finishes is clearly specified in a schedule that should be attached to the contract.

Market fluctuations

You should keep in mind that like the economy, property market conditions fluctuate and with long-term building projects such as luxury high-rise units, the value of the units may change prior to completion of the building and your contract. The price you agreed to pay stays the same regardless.

Paying a deposit

Your deposit could be tied up for some time between signing the contract and settlement.

Paying a deposit by way of a Deposit Bond (not always available in all states) or bank guarantee may be a better choice than a cash deposit when buying “off the plan”. If you terminate the contract your bond or guarantee can be cancelled and you do not need to take steps to recover your cash deposit.

You should always seek legal advice if a request is made to release the deposit to the owner before the sale is settled. If you do pay a cash deposit you should stipulate in the contract who is holding the money and where it is being held, if possible it should be deposited in an interest bearing account by the stakeholder (often the real estate agent).

The developer’s financial position

Construction companies and land developers who become insolvent or go bankrupt during construction can leave a trail of destruction behind them. Rising building and material and labour costs may force a site closure and you may be locked into a contract for a home that is not finished within the timeframe you expected.

In some states the builder will be required to have insurance which may provide some compensation for defective work or loss due to a bankrupt builder. You should seek legal advice to see what protection is offered before signing a contract.

While an early buyer “off the plan” has the best choice of the land or homes available in a project and has a longer time to on-sell the property for potential profit, the strategy is not without risk. There are many factors to consider before entering into a contract and our property experts can help guide you through this process.

If you or someone you know wants more information or needs help or advice, please contact us on (02) 9602 2535 or email [email protected]