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New laws for off-the-plan purchases in New South Wales

New South Wales has introduced laws for off-the-plan residential property contracts to foster improved transparency and protection for purchasers.

The reforms amend the Conveyancing Act 1919 (NSW) and Conveyancing (Sale of Land) Regulation 2017 and commenced on 1 December 2019.

Purchasers, vendors and developers should take note of the key changes, explained below.

Additional disclosure requirements for vendors

Off-the-plan contracts usually contain numerous conditions, with many elements of the ‘finished product’ subject to change during the construction phase. Additional disclosure requirements are anticipated to give greater certainty to purchasers who must rely on the written information provided by a vendor when making decisions.

A disclosure statement, in the approved form, together with prescribed documents must now be attached to an off-the-plan contract before it is signed.

The disclosure statement highlights key information such as the sunset date, whether the development has been approved and other conditional events, and identifies the relevant clauses in the contract for further explanation.

The disclosure statement must include a draft plan prepared by a registered surveyor setting out details such as the proposed lot number, the area and its location, the site of any proposed easements affecting the lot and details of any restrictions on the use of the land or covenants affecting all of part of the lot.

A draft floor plan and location plan must be included for strata schemes and a draft location diagram, detail plan and community, precinct or neighbourhood property plan, as relevant, for these types of developments.

Other disclosure documents include:

  • any proposed schedule of finishes;
  • details of proposed section 88B instruments;
  • draft by-laws for lots contained in a strata scheme;
  • draft management statements and any proposed development contracts for lots contained in a community, precinct or neighbourhood scheme;
  • draft strata management statements or building management statements, as relevant.

If the contract does not contain the disclosure statement and prescribed attachments before it is signed, the purchaser may rescind (cancel) the contract within 14 days of exchange.

Vendors should note that these requirements are in addition to those prescribed documents and warranties already imposed for contracts for the sale of residential land.

Vendors to give notice of material changes with potential compensation (including termination rights) available to purchasers

Off-the-plan contracts generally allow for changes in the construction, design and other aspects of the development. Although sometimes necessary to satisfy legal requirements and for practical reasons, significant changes can leave purchasers feeling short changed.

Purchasers now have additional rights in circumstances where certain material changes are made.

Vendors must give notice to purchasers, in the prescribed form, of any changes that would make a ‘material particular’ disclosed in the contract inaccurate, either at the time it was signed or after.

A ‘material particular’ includes, but is not limited to changes to a draft plan, draft by-laws or schedule of finishes that will, or is likely to adversely affect the use and enjoyment of the subject lot; or the creation of an easement or covenant that will, or is likely to adversely affect the use or enjoyment of the subject lot.

The Regulations may prescribe other matters that will be considered a ‘material particular’, as well as certain excluded matters, such as changes to lot numbers or proposed street names.

Purchasers who can prove they are materially disadvantaged by a change in a material particular and would not have entered the contract had they been aware of the change, may have rescission rights. These rights may arise at the time the relevant notice is served, or after being served with a registered plan that reveals a change in a material particular.

Alternatively, purchasers may choose to complete the contract, despite the change, and claim compensation capped at 2% of the purchase price.

Purchasers must exercise their rights within 14 days of service of the notice of change or registered plan.

Minimum settlement timeframe of 21 days

Vendors must provide purchasers with a copy of the final registered plan at least 21 days before the purchaser is required to settle. Purchasers retain their right to rescind or to claim compensation, as noted above, should the final plan reveal a change in material particular.

Extension of cooling-off period to 10 days

Generally, purchasers of residential property have statutory cooling-off rights which allow them to rescind a contract within five business days of exchange. In doing so, the purchaser will forfeit .25% of the purchase price. These cooling-off provisions have been extended to ten business days for off-the-plan purchases.

Vendors must ensure the prescribed cooling-off warning notice is included in all contracts.

Deposit and instalments under the contract to be held in trust

The reforms mandate that any deposit or instalment paid under the contract be held in a trust or controlled money account until completion. Earlier release of these funds to the vendor / developer will not be permitted.

Conclusion

The reforms aim to minimise uncertainty and provide greater protection for purchasers of an off-the-plan residential property by increasing disclosure and providing remedies for those adversely affected by certain changes to the development.

Vendors and developers should consider these reforms carefully and may need to give greater thought to the planning phase of their projects to ensure contracts are compliant with the new laws.

This article is intended to provide general information only. You should obtain professional advice before you undertake any course of action.

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: Sole Trader

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 the sole trader business structure – how to set up as one and the pros and cons of this structure.

Key features

A sole trader business structure is where the business and the owner are one and the same. A sole trader is the sole owner of a business, has all of the control of the business and is entitled to all of the profits. There is no separate legal entity, other than the individual owner.

Setting up as a sole trader

A sole trader can trade under his or her own personal name or a business name. If a business name is to be used, then it must be registered with the Australian Securities Investment Commission.

If the business is to be run under the personal name of the sole trader, all that is needed is to register for an Australian Business Number (ABN).  An ABN will also need to be obtained if a business name is registered. An ABN can be obtained online through the Australian Business Register.

Regardless of whether business is to be run under the personal name of the sole trader or a business name, a Tax File Number (TFN) is needed. If the sole trader has been employed in the past, it is likely that he or she already has a TFN which is sufficient for the purposes of running a business as a sole trader.

A sole trader must be registered for GST if his or her annual turnover is $75,000 or more.

Pros and cons

The advantages of setting up as a sole trader include:

  • It is easy to set up, with minimal start-up costs and less paperwork than other structures
  • A sole trader has complete control of the business and keeps all of the profits
  • It offers privacy (in comparison to the reporting requirements of other structures)
  • It is easy to change the legal structure later if need be

The disadvantages include:

  • Unlimited liability of a sole trader for all debts of the business and all other liabilities (such as negligence)
  • Tax is paid at the sole trader’s marginal tax rate, which may be higher than the company tax rate
  • It can be difficult to raise finance
  • The business ceases to exist upon the death of the sole trader. As such, continuity of the business is limited and succession planning is difficult

Conclusion

This type of business structure might be appropriate if the proposed business venture is small (with minimal capital investment) and/or the sole trader intends to run his or her business alone and without partners. That is because this is the simplest form of business structure, with lower establishment costs and with few legal and compliance requirements.

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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Bankruptcy and family law proceedings

Dividing property after partners separate is generally stressful, with each party concerned about his or her financial future. The bankruptcy of one party adds a further dimension of complexity to a family law property settlement.

Even partners whose relationship is intact should seek urgent legal advice if one of them is facing bankruptcy or insolvency issues. In particular, the non-bankrupt party should take immediate action to protect his or her interests in assets.

This article explains how bankruptcy laws apply to insolvent individuals, how property is usually divided after a relationship breaks down, and how the processes interact when one of the parties to a property settlement is bankrupt.

What happens when a person becomes bankrupt?

A person is considered bankrupt when he or she is unable to pay his or her debts. Apart from certain protected property, the bankrupt’s assets vest in an appointed trustee in bankruptcy who may sell those assets to satisfy the claims of creditors. Protected assets generally include clothing, certain personal possessions, tools of trade, a motor vehicle to a prescribed value, awards of compensation and superannuation and life policies.

The trustee controls the bankrupt’s financial affairs while the bankrupt is protected from being personally sued by creditors.

How is property divided after a relationship breakdown?

The division of property after a relationship breakdown essentially requires a four-step process to:

  • identify the parties’ pool of assets available for distribution;
  • determine the parties’ respective financial and non-financial contributions;
  • consider the parties’ future needs; and
  • determine a split that is, in all the circumstances, just and equitable.

What happens when one of the parties to a property settlement is bankrupt?

When a relationship breaks down and one of the parties is bankrupt, the interplay of the Bankruptcy Act 1966 which regulates individual bankruptcy, and the Family Law Act 1975 which governs the division of property, must be considered.

The Family Law Act enables a person to apply for the alteration of property interests after the breakdown of a relationship, and specifically includes circumstances where property is vested in a trustee for bankruptcy if one of the partners is bankrupt.

This allows the Court to alter the interests of property that would otherwise vest in the trustee, enabling the non-bankrupt partner to claim an interest in vested assets for his or her benefit and / or the benefit of any dependants. The legal title to the property in such cases is irrelevant.

The interests in the family home of a non-bankrupt party may also be protected. The family home is generally not a protected asset and the bankrupt’s interest is available to a trustee to satisfy creditors. However, where legal title to a family home is held solely by a bankrupt, the Court may nevertheless conclude that the home is held jointly thereby protecting the interest of the non-bankrupt party.

A person affected by an order or proposed order such as a creditor, may apply to have it varied or set aside. In some circumstances, a trustee will apply to be joined as a party to the proceedings and to have orders set aside on grounds of fraud, duress or a failure to disclose relevant information. This could result in the recovery of certain assets to satisfy creditors.

The Court must balance the competing rights of the creditors and the non-bankrupt party and make orders that are just and equitable in the circumstances. It will take into account a range of factors including:

  • the non-bankrupt partner’s direct and indirect financial and non-financial contributions to the relationship;
  • the effect of a proposed order upon either party to the relationship;
  • the future needs of the non-bankrupt party including the responsibility for caring for children, employment status and health;
  • the effect any orders will have on creditors of the bankrupt person including whether the debt will be repaid in full.

The need to achieve a just and equitable outcome may result in the non-bankrupt partner and his or her dependants obtaining a share of certain assets that would otherwise be vested in the trustee, to the detriment of the creditors.

Key takeaways

  • The property of a bankrupt individual vests in the trustee in bankruptcy for distribution between creditors.
  • The ex-partner of a bankrupt person may pursue a property division despite the bankruptcy.
  • Court proceedings for a family law property settlement when one partner is bankrupt will generally be between the non-bankrupt party and the trustee in bankruptcy.
  • In such proceedings, the Court may be required to determine:

–        applications by the non-bankrupt party to restrain the trustee from dealing with certain property and / or distributing funds amongst creditors;

–        claims that property vested in the trustee and otherwise available to satisfy creditors should be altered for the benefit of the non-bankrupt partner;

–        claims that exempt property or property not vested in the trustee should be made available for distribution to creditors.

If you or your partner are facing insolvency issues, whether or not your relationship has ended, or is likely to end, you should obtain immediate legal advice.

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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HomeBuilder Program to assist the residential construction market

On 4 June 2020, Prime Minister Scott Morrison announced the immediate commencement of the HomeBuilder program.

HomeBuilder is one of the federal government’s economic responses to the effects of the coronavirus pandemic. Its aim is to stimulate demand for new homes and substantial renovations across the residential construction market which is forecast to drop during the second half of this year due to the impacts of COVID-19.

By providing grants of $25,000 to eligible owner-occupiers and first home buyers for the construction of a new home or substantial renovation of an existing home, HomeBuilder is expected to support direct and related jobs within the domestic building industry. It is anticipated that 27,000 grants will be made to the value of approximately $680 million helping industry participants such as building businesses, sole traders and contractors, property developers, material manufacturers, engineers, designers and architects.

How does the HomeBuilder program work?

The HomeBuilder program is available now until 31 December 2020 and will be implemented through a National Partnership Agreement with each state and territory.

In New South Wales the program will be administered by Revenue NSW.

Eligible owner-occupiers (including first home buyers) may be able to receive a tax-free grant of $25,000 to build a new home or substantially renovate an existing home. The contract for the work must provide for construction to commence within three months of the contract date.

Eligibility

Proposed applicants are encouraged to contact their relevant state or territory department for full details on how to apply for the grant, the eligibility requirements, and their obligations if accessing the grant.

Applicants for the HomeBuilder grant and the proposed construction work must meet strict criteria. Information can be found on the HomeBuilder Fact Sheet and HomeBuilder – Frequently Asked Questions.

Below is a summary:

  • Applicants must be natural persons (i.e. not a company or trust), Australian citizens and at least 18 years.
  • An income cap applies of $125,000 per annum for individual applicants (based on 2018-19 or later tax returns) or $200,000 per annum for a couple (based on 2018-19 or later tax returns).
  • A building contract must be signed between 4 June 2020 and 31 December 2020 providing for construction to commence within three months of the contract date.
  • The contract must be for:
    • the construction of a new home (house, apartment, house and land package, off-the-plan purchase) as a principal place of residence where the property value (house and land) does not exceed $750,000; or
    • the substantial renovation of an existing home as a principal place of residence where the renovation contract price is between $150,000 and $750,000 and where the value of the existing property (house and land – before renovation) does not exceed $1.5 million.
  • The principal place of residence requirement precludes new homes to be used as investment properties or renovations to investment properties. Owner-builders are also ineligible for the grant.
  • Renovations must ‘improve the accessibility, safety and liveability’ of the home – consequently, additions such as swimming pools, tennis courts, spas and sheds are ineligible renovations.
  • The builder must be registered / licenced (as relevant for each state and territory) and the relationship between homeowner and builder must be at arms-length.
  • The contract terms and price for the work must be commercially reasonable and at market value.

If you already owned vacant land prior to 4 June 2020, you may be eligible for the grant, subject to meeting all other criteria, if you propose to build and the total value of the land and new build will not exceed $750,000.

You may also be eligible under the ‘substantial renovation’ provision if you own property and propose knocking down an existing house to rebuild. In this case you will be subject to the renovation price range of $150,000 to $750,000, and the value of the property pre-renovation must not exceed $1.5 million.

HomeBuilder to complement existing grants

HomeBuilder is expected to further assist first home buyers by supplementing existing state and territory first home-owner grants, schemes and stamp duty concessions, the Commonwealth First Home Super Saver Scheme, as well as the First Home Loan Deposit Scheme which was introduced earlier this year. The grant however is not restricted to first home buyers.

 

Reviewing your building contract

Whether you are renovating or building a new home, it is important that the proposed work is documented in a complying agreement and all builders’ licence, registration checks and company searches, where relevant, are conducted.

Contracts must contain adequate protection for the homeowner with the legal rights and responsibilities of the parties clearly stipulated and provisions included to deal with unexpected events with processes to resolve disputes.

Building contracts can be complex and usually contain various technical and legal terms and we recommend having your building contract reviewed by a lawyer before signing.

This article is intended to provide general information only. You should obtain professional advice before you undertake any course of action.

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 happens when parenting orders are ignored?

Separating parents must arrange for the future care, welfare and development of their children. These arrangements may be formalised in parenting orders which are endorsed by the Court. Where the parties are unable to agree, the Court will impose orders. In all cases, the arrangements must be in the best interests of the children.

Parenting orders are binding and enforceable and include matters such as:

  • who the children will live with;
  • who the children will spend time and communicate with (which may include parents, grandparents and others who are significant in the children’s lives);
  • who will make decisions concerning the children’s daily and long term care, welfare and development;
  • the form of consultation required for determining long term decisions.

Where parents have been unable to agree between themselves, the circumstances surrounding the making of parenting orders are generally complex and highly emotive.

Although most parents involved in a parenting dispute will have a genuine concern for their children, their actions may be overshadowed by anxiety and past hurt. This may lead to circumstances where parenting orders are ignored by one or both parents.

In such matters and, with the best interests of the children being paramount, the Court is empowered to take significant measures.

Court reverses parenting orders in favour of father

The case of Ralton and Ralton [2017] FamCAFC 182 is a sober reminder for parents, in the absence of safety and welfare issues, to uphold the terms of a parenting order by putting conflict aside and taking a sensible approach to co-parenting. In this case the Full Court dismissed an appeal from the mother by upholding the earlier decision (Ralton and Ralton [2016] FCCA 1832) to discharge orders made in 2010 and completely reverse the responsibility and care arrangements for the children.

This meant that the children would live with the father instead of the mother and that he would have sole parental responsibility for them (on the proviso that he kept the mother informed and seek her input regarding certain significant decisions). The orders allowed the father to enroll the children at a certain school. Apart from specified, supervised visits, the mother’s contact with the children was suspended for six months, which the Court considered necessary to enable the children to adjust to their new circumstances. After the six-month period, the mother was able to spend time with the children on alternate weekends and for half of the school holidays.

What prompted the Court to make such a drastic change in orders?

The Court’s decision in a case where, on the facts, the children had been well cared for by the mother and were in no physical danger, may seem extreme. In its determination however, the Court considered that the children were at risk of psychological harm given the mother’s ongoing attempts to alienate them from their father.

Parental alienation

One of the factors a Court must consider in determining what is in the children’s best interests is the benefit of them having a meaningful relationship with both parents.

Parental alienation is well-recognised as a specific legal issue in family law cases. It occurs when one parent deliberately tries to damage the relationship or potential relationship between a child or children and the other parent.

In this case, the mother had continually resisted to foster any relationship at all between the children and their father, and the Court’s intervention was considered a necessary step to facilitate such a relationship.

Contrary to earlier parenting orders, contact between the father and children had ceased from around 2014. The mother was completely opposed to the children spending time with their father and her conduct towards him had caused the children to become fearful and anxious, thwarting any relationship with him. The Court was assisted in its decision by reports of family counsellors and the views of an Independent Children’s Lawyer.

Contravention of parenting orders

A Court may make various orders in circumstances where a person does not comply with a parenting order or interferes with or hinders a person in carrying out the obligations of a parenting order.

A contravention application may be made against the non-complying party by the affected person. The Court will determine whether or not a breach is established, the seriousness of the breach and, whether there was a reasonable excuse for it.

If the contravention is not established, the primary order may be varied and, in some circumstances, costs ordered against the applicant.

If the Court is satisfied that a parenting order has been breached, it will consider the severity of the contravention, and may order that:

  • one or both parents attend a post separation parenting program;
  • the proceedings be adjourned to allow either party to file an application to discharge, vary or suspend the existing orders;
  • varies the primary orders so the children spend more time with the affected party;
  • the children spend ‘make up time’ with the affected person;
  • the affected person is compensated for expenses incurred as a result of the breach;
  • the contravening party enters a bond of good behavior, attends family counselling or dispute resolution, or undertakes community service;
  • the contravening party pays a fine and / or pays the affected person’s costs;
  • imposes a sentence of imprisonment on the contravening person.

The Court’s overriding consideration in such applications will be the best interests of the children. Accordingly, despite a proven breach of a parenting order, even without reasonable excuse, the Court may not make any order at all if, in its discretion, to do so would not be in the children’s best interests.

Conclusion

Parenting orders are binding, and the Court will intervene upon application to enforce or vary orders. The circumstances of each case will vary however the overriding principle will always be the best interests of the children. Accordingly, a Court’s decision can range from a significant change to the original orders (as seen in the case above), to little or no modification at all.

This article highlights the benefits of effective co-parenting. In most cases, parties should be encouraged to put differences aside and work together to find solutions that foster a meaningful relationship with both parents. Various services and organisations can help parents resolve conflict and find workable arrangements. If however, existing parenting orders are being breached or are unworkable, you should seek advice from a family lawyer.

This article is intended to provide general information only. You should obtain professional advice before you undertake any course of action.

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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A Widow Contesting a Will

All jurisdictions in Australia provide statutory rights for eligible persons to contest a Will on the basis that they have not been left adequate provision by the testator for their proper maintenance, education and advancement in life.

In New South Wales, an eligible person includes a spouse, de facto partner, or child (of any age) of the deceased. An eligible person may also include a former spouse and certain persons who were partly or wholly dependent upon the deceased or living in a close personal relationship with the deceased at the time of his or her death.

If a family provision claim is successful, the Court can order an appropriate adjustment to the terms of the Will to satisfy the claim. In doing so, the Court considers a range of factors including the needs of the applicant and his or her relationship with the deceased person.

The expectation that spouses should provide for each other generally places a widow’s needs ahead of other interested parties in a family provision claim. However, all cases will be individually assessed and balanced with the needs of the applicant and the competing needs of other entitled recipients.

The moral duty to provide for a spouse

There is a general expectancy that testators have a moral duty to provide for the proper maintenance of their spouse or de facto partner. The Court has explained this as providing what is necessary for the spouse to enjoy accommodation to the standard to which he or she is accustomed and, to the extent possible and having regard to the size of the estate, a fund to meet unforeseen contingencies. This is particularly so in long marriages or relationships.

Competing claims

Family provision claims by widows commonly involve a contest between the applicant and a child or children from the deceased’s former relationship.

The applicant will generally apply for greater provision than what has already been provided in the Will based on his or her personal and financial circumstances, current financial position and future needs.

Generally, the widow and children of the current relationship (if any) will stand favourably against the children of a former relationship. This is because the testator’s primary duty is perceived as being owed to his current family and the likelihood that the children of the former relationship may have already been provided for through child support payments. This of course is not always the case and each matter will turn on its own circumstances in consideration of a range of factors.

Determining the sufficiency of proper maintenance

The Courts have explained the difficulties of determining the meaning of ‘proper maintenance’. In Re Harris [1936] SASR 497 it was considered to be ‘…more than a provision to keep the wolf from the door – it should at least be sufficient to keep the wolf from pattering round the house or lurking in some outhouse in the back yard – it should be sufficient to free the mind from any reasonable fear of any insufficiency as age increases and health and strength gradually fail’.

Sometimes, widows are left a ‘right of residency’ in the testator’s property. This allows the widow to occupy the family home or other property of the deceased for his or her lifetime with the intention that the property will pass to a residuary beneficiary, such as the testator’s child or children from a former marriage, after the widow’s death.

A right of residency however is not always practical and may be considered insufficient to meet the moral duty expected of the testator. The widow may, due to age or health, need to vacate the residence, being left vulnerable and without security of a home.

The alternative approach of leaving the home to the widow may also be inappropriate – if the widow passes soon after the deceased, then the result may be a significant capital asset being inherited by the spouse’s relatives, contrary to the wishes of the testator.

As can be seen there needs to be a balance between a tokenistic provision and the risk that a testator’s significant assets might inadvertently be inherited by an unintended beneficiary.

In Luciano v Rosenblum (1985) 2NSWLR 65 the Court gave some guidance as to the expectation of a widow after the passing of a spouse:

‘Where the marriage of a deceased and his widow has been long and harmonious, where the widow has loyally supported her husband and assisted him to build up and maintain his estate, the duty which a deceased owes to his widow can be no less than to the extent to which his assets permit him to achieve that result…’

Conclusion

A testator owes a moral duty to provide for his or her spouse and, as a general rule, a spouse will have priority over other entitled beneficiaries in a Will contest. Having said that, every case is different and will turn on its own unique circumstances.

There are a range of factors a Court must consider when assessing the merits of a family provision claim. Your family circumstances should be assessed in light of these factors when preparing your Will to minimise the potential of a Will contest when you die.

If you feel you have not been given adequate provision from the Will of a family member or 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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Important considerations when planning a Granny Flat

A granny flat is a secondary self-contained dwelling established on the same parcel of residential land as a principal dwelling. The granny flat may be a conversion forming part of the main residence, an extension of the existing dwelling or be free standing. Granny flats range in size, features and amenities.

With an aging population and housing shortages on the rise, building or creating a granny flat can offer a cost-effective solution to accommodate family members or an investment opportunity utilising your existing land to generate income.

This article discusses important matters when planning a granny flat.

Building a granny flat as an investment

To increase housing affordability and address accommodation shortfalls, legislation in various jurisdictions permits the construction of a secondary dwelling (granny flat) on residential land for investment purposes.

Homeowners in New South Wales, Tasmania, Australian Capital Territory, Northern Territory and Western Australia may use a secondary dwelling to earn rent. These arrangements are currently not permitted in Victoria, South Australia and Queensland which only allow granny flats to be used to house dependants of the homeowner. In these states, the addition of a secondary dwelling however may add value as extra space for use as a home office or guest area.

Approval processes

When planning a granny flat, it is important to follow the approval process applicable in your local Government area.

Councils have varying requirements for building a granny flat and many have streamlined processes for ‘complying’ developments that meet specific development standards.

Generally, a granny flat may only be built on residential-zoned land and only one flat is permitted on a single parcel. Specific size requirements apply and the granny flat must have its own entrance.

You will need to provide Council with a survey plan, architectural and engineering drawings and any other relevant certification.

Many builders specialise in granny flats, are familiar with the regulations and can assist with the entire process.

Creating a granny flat interest

Many families arrange for their relatives (usually a parent or parents of a child) to rent or reside in a granny flat. This is ideal in circumstances where an elderly or frail parent wishes to downsize and stay close to family who can provide ongoing care and support.

Often the parent transfers property or money to their child in exchange for a lifetime right to reside in the granny flat.

This is known as a ‘granny flat interest’ and is an important legal concept in terms of social security legislation. The interest is recognised by the Department of Human Services when using the assets test to determine the pension paid and any entitlement to rental assistance.

Under the ‘granny flat provisions’ the occupant / parent may sell or transfer property and avoid or minimise the circumstances under which disposal of the asset to the child would be considered a gift and thus impact upon Centrelink entitlements.

A granny flat interest arises when:

  • the proposed occupant of the granny flat transfers title, assets or money to the homeowner in exchange for the right to enjoy and live in the granny flat for life;
  • the granny flat co-exists with a main dwelling on one parcel of land that is a private residence;
  • the occupant does not have legal title to the land and accordingly does not ‘own’ the granny flat;
  • the interest exists only during the occupant’s lifetime and therefore does not form part of his or her estate;
  • the granny flat is the occupant’s principal home and the occupant has exclusive occupancy of the flat.

Every situation is different and the arrangements can vary greatly from family to family.

Documenting your arrangements

A granny flat agreement is used to document the parties’ negotiations and set out their respective rights and obligations.

The agreement should cover responsibilities for cooking and cleaning and for contributions towards insurance, rates, electricity and water usage. It should also set out what happens if there are changes in circumstances such as the need for the homeowners to sell, the need for the occupant to move to an aged-care facility, separation or divorce of the homeowners, financial hardship or health issues.

As the arrangements are likely to have financial, taxation and estate planning implications, each party should obtain independent legal and financial advice before finalising the agreement.

A granny flat arrangement can also impact significantly on the potential value of the occupant’s estate, particularly if he or she has disposed of funds in exchange for the life interest. Consequently, a Will may need to be updated to reflect this and, if desired, to ensure an equal distribution to beneficiaries.

Conclusion

Granny flats can be an excellent means of accommodating and supporting family members or generating income using your existing land.

If you are considering building a granny flat or creating a granny flat interest it is important for those involved to obtain advice on the legal, financial and estate planning implications.

If you would like to utilise your land to build a granny flat for investment purposes you will need to obtain information on the relevant regulations, processes and permitted uses within your area.

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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Yours, mine and ours – inheritances and family law

When a relationship breaks down, it is common for disputes to arise over the ‘ownership’ of an inheritance received by one of the parties.

The biggest question is whether an inheritance received by one party forms part of the pool of assets for distribution between both.

This article provides guidance on when an inheritance might be available for distribution between the parties, the affect the inheritance will have on proportioning the property settlement, and the circumstances when an inheritance may be protected.

How is a property settlement determined?

When assessing the impact of an inheritance, it is helpful to understand the process used to reach a property settlement in family law matters. This includes:

Step 1 – Identifying all assets, liabilities and financial resources of the parties – assets include those held jointly between the parties, jointly with another party, or separately.

Step 2 – Identifying the financial and non-financial contributions made by each party – financial contributions include earnings and assets brought into the relationship (lump sums, property or an inheritance) and non-financial contributions include caring for family, renovating a home, carrying out domestic duties and managing finances.

Step 3 – Assessing additional factors such as each parties’ future needs – their respective earning capacities, state of health, physical and mental capacity and the needs of primary carers to provide a suitable home for children.

Step 4 – In all the circumstances, determining a settlement that is ‘just and equitable’.

The starting point is generally an equal distribution of assets, however the Court’s powers are discretionary in reaching a ‘just and equitable’ outcome and no two cases are alike.

How is an inheritance treated in family law proceedings?

The way in which an inheritance is treated in a property settlement depends upon:

  • when the inheritance is received;
  • the length of the relationship;
  • the amount of the inheritance compared to the overall asset pool; and
  • the unique circumstances of the parties.

The timing of receiving an inheritance is important in determining whether it forms part of the asset pool. The length of the relationship and the parties’ circumstances will influence how the inheritance will be treated.

An inheritance received before or during the relationship forms part of the asset pool. This however does not mean that its value will be equally proportioned between the parties and various factors will be relevant.

The inheritance is considered a financial contribution by the person receiving it, who may be found to have made a greater contribution to the overall assets. This depends however on when the inheritance was received, its value, what it was used for, and the other parties’ financial contributions.

For example, the significance of an inheritance will usually diminish over the course of a long marriage with less effect on the ultimate division of its value between the parties. For instance, after a 20 to 30 year marriage the value of the inheritance may be reduced by other contributions made by the parties and merely form part of the matrix of family finances to be brought into the pool of assets for distribution.

Alternatively, if the relationship is not so long and provided the party receiving the inheritance used it for the benefit of the parties, then the beneficiary of the inheritance may have a greater entitlement to it.

An inheritance received close to the time of separation, or afterwards is generally precluded from the asset pool and not available for distribution. Accordingly, it may more readily be retained by the beneficiary.

The inheritance however may be considered a financial resource of the party receiving it which is potentially available to meet the needs of the other party, after considering the parties’ future needs set out in step 3 above. In such a case, and after considering various other factors, a needy party may obtain a greater division of the net asset pool. This outcome is more likely where the available assets are minimal and it would be ‘just and equitable’ to make the distribution.

The role of the Court and the interplay of the parties’ circumstances

Bonnici and Bonnici [1991] FamCA 86 is a leading family law case regarding an inheritance received late in the relationship. The following extract explains the discretionary nature of the Court when dealing with an inheritance and the circumstances that will be considered:

            ‘The answer…must depend upon the circumstances of individual cases. If…there had been no other assets than the husband’s inheritance, but the wife had…clearly carried the main financial burden in the support of a family and also performed a more substantial role as a homemaker and parent than the husband, then it would clearly be open…to make a property settlement in her favour from such an inheritance.

            A property does not fall into a protected category merely because it is an inheritance. On the other hand, if there are ample funds from which an appropriate property settlement can be made and a just result arrived at, then…a recently acquired inheritance would normally be treated as an entitlement of the party in question.

            The other party cannot be regarded as contributing significantly to an inheritance received very late in the relationship and certainly not after it has terminated, except in very unusual circumstances…’

Conclusion

Inheritances received before or during a relationship must be considered part of the parties’ pool of assets when dividing property post-separation. The proportioning of the value of the inheritance is influenced by various matters, and particularly by the length of the relationship.

An inheritance received post-separation is not available as property for distribution however will be considered a financial resource and, in some circumstances, result in a division of property that favours the party in most need.

Each case is determined on its merits and the Court’s power is discretionary in achieving a ‘just and equitable’ settlement that takes account of all relevant factors.

If you would like to know how an inheritance affects your property settlement, or 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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Apprehended Violence Orders – things you need to know

Relationship difficulties and breakdowns are a sad reality of modern life. Difficulties can arise in any relationship – with your spouse or partner, your ex, adult children, a work colleague, even between flatmates. In today’s high pressure, fast-paced world, relationship difficulties or breakdowns can sometimes involve actual or threatened violence. At times of stress or when emotions are running high, some people “lose their cool”, while others routinely use intimidation or violence to control another person. Occasionally, one person thinks they may gain an advantage by untruthfully alleging violence by another person.

If you find yourself in such a situation, can you get help? Maybe someone claims you have been violent towards them and has sought an apprehended violence order against you. What do you need to do?

Domestic violence protection

The Courts and police take domestic violence seriously. Domestic violence includes killing, threatening or conspiring to kill, actual or threatened assault or sexual assault, sexual offences against a child, kidnapping, destroying or damaging property, failing to provide necessities of life, stalking or intimidation with intent to cause fear of physical or mental harm, or attempting to do those things.

The Crimes (Domestic and Personal Violence) Act sets out a regime to protect a person who fears or has experienced such violence from someone with whom they were in a domestic relationship. That includes a partner or spouse, an ex-partner or spouse, someone with whom the victim has or had an intimate personal relationship even if that relationship was not a sexual one, any relative or child, someone who normally lives or lived with the victim, and someone with whom the victim was in a dependent carer relationship.

Interim Apprehended Domestic Violence Order

In the first instance, the police could issue an Interim Apprehended Domestic Violence Order, where the police officer believes the victim is in need of immediate protection. The Interim Order would require the alleged perpetrator to go to Court, within 28 days, where the Court would decide whether to issue an Apprehended Domestic Violence Order.

Apprehended Domestic Violence Order

You or, if they agree, a police officer on your behalf can apply to the Court for an Apprehended Domestic Violence Order if you have reasonable grounds to fear domestic violence. In granting an ADVO, the Court will impose on the perpetrator those restrictions the Court considers necessary to ensure the victim’s safety. For example, preventing the perpetrator from:

  • approaching or communicating with the victim
  • remaining in or entering the victim’s home, workplace, school or other place the victim frequents, even if the perpetrator is the owner or tenant of that property
  • assaulting, harassing, intimidating or stalking the victim
  • destroying, damaging or interfering with the victim’s personal property
  • causing someone else to do those things to the victim
  • possessing firearms or weapons
  • holding a firearms’ licence.

It is possible to obtain an ADVO against a minor child.

What about parenting orders?

When granting an ADVO the Court must have regard to the terms of any Family Court parenting order or any application for such an order, while also endeavouring to ensure the safety of the victim and any protected child.

What if I am not related to the perpetrator?

The Crimes (Domestic and Personal Violence) Act also contains provisions for the protection of victims of personal violence, where the perpetrator and the victim are not in a domestic relationship. Rather than applying for an ADVO, the victim, or the police on the victim’s behalf, would apply to the Court for an Apprehended Personal Violence Order.

What happens if the AVO is breached?

If someone breaches an Apprehended Violence Order, whether an ADVO or an APVO, he or she could be arrested and prosecuted. The maximum penalty is two years’ imprisonment, a fine of $5,500 or both. In most cases where the breach of the AVO involved violence, the Court must sentence the perpetrator to imprisonment.

Can I defend an application against me for an AVO?

Yes. You may want to challenge an application against you for an ADVO or APVO, if, for example, your version of what occurred differs from that of the alleged victim. It is also possible to appeal a Court’s decision to grant such an Order.

Conclusion

Today, the Courts and police take the issue of domestic violence and personal safety seriously. The definition of domestic violence is very broad, as is the range of prohibited conduct which could give rise to an Apprehended Personal Violence Order. Breaches of such orders are also treated seriously, and the Court has the power to impose a range of significant penalties, including imprisonment.

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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Commercial Leases – responsibility for repairs and maintenance

A commercial lease is a legally binding contract that gives a tenant certain rights over a property for a set period of time subject to the terms and conditions set out in the lease. 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.

General terms

It is rare to find a commercial lease that is prepared by the tenant. It is almost always the landlord that prepares the lease when commercial premises are rented and the terms of the lease will generally strongly favour the landlord. Once the lease is signed the tenant is required to comply with the terms and conditions of the lease during their occupation of the landlord’s premises.

The lease sets out the obligations of the landlord and the tenant and the rights of each during the term of the lease and any options for lease that are exercised after the initial term of the lease has expired.

Commercial leases usually have longer terms than residential leases. This gives the tenant, usually a business, a longer security of tenure and allows them to transfer the lease if they sell the business before the lease has expired. This can be appealing to a buyer of that business to already have the lease in place.

Repairs & maintenance of the premises

The legal obligations of a landlord and tenant regarding maintenance and repair of the premises are set out in the lease.

In most commercial leases the tenant is responsible for the rented premises including walls, floors, fixtures and inclusions and the landlord requires the tenant to repair and maintain the premises during the lease term.

This will usually not include “fair wear and tear” on the premises, repairs to structural parts of the building or other expenditure of a capital nature (air conditioning, walls and the landlord’s plant and equipment).

The landlord is generally responsible for repairing and maintaining major structural aspects of the building including the roof and the building systems contained in it such as common areas and lifts.

Items such as air-conditioning, cool-rooms, heating fixtures and wall partitioning should be carefully defined in the lease to avoid costs and disagreements as commercial leases are often silent on items such as air-conditioning and cool-rooms which are capital items but used by a tenant in their day-to-day business.

Fixtures such as refrigeration and plant and equipment should be repaired by the landlord but a tenant should ensure that this is written into the lease as it is not an automatic obligation.

Avoiding disputes – common scenarios

The majority of disputes that arise between landlords and tenants and the issue of who is responsible for repairing or maintaining the premises arise out of interpreting the terms of the lease, in particular what is meant by “maintenance” and “repair” and sometimes what is “structural”.

Structural repairs include repairs to the building support system and foundations, flooring and ceiling structures, column support, walls and roof but not partition walls, internal stairways, decorative features such as carpeting and sometimes plumbing depending on the building.

A “repair” is generally defined as an act necessary to fix something that has been damaged, whether accidentally or as a result of continued use. If a tenant or their staff or customers damages part of the premises the tenant is always responsible for the repairs needed to reinstate the item. It is when an item, say a latch on a cool-room door that is used frequently, wears out and requires repair that the landlord and tenant may not agree about who should fix it.

The landlord may say that the latch was damaged due to the tenant’s lack of care or proper or regular maintenance and the tenant may say that it was faulty or had reached the end of its useful life. Disputes may arise and cost the parties time and money so it is best to ensure that the lease is specific in the areas where the potential for disagreement exists.

“Maintenance” is generally considered to be the taking of some action to delay wear and tear or deterioration or breakage of an item. For example, cleaning and servicing of plant and equipment or proper disposal of waste and garbage. The common exception from “wear and tear” is where non-structural items such as carpeting have deteriorated over time and should be replaced by the landlord.

If a lease specifies that the tenant clears the drains, for example, and there is a plumbing issue the landlord may say that the reason the drains failed was that the tenant did not do proper maintenance. The tenant may say that the plumbing is old and needs updating and then a dispute exists about who is to fix the costly plumbing problem.

Both parties can lessen the likelihood of dispute by undertaking a full inspection report of the premises and both signing off on the report. This will establish and document what condition the premises was in prior to entry of the tenant and should be carried out and updated yearly.

A commercial lease should contain clear obligations and well-defined standards for the repair and maintenance of the premises under the lease to reduce the risk of dispute and misunderstanding between the parties.

The law is not always clear in this area particularly with regards to repairs and maintenance obligations. Even where legislation may say that a repair is the landlord’s obligation the lease (written by the landlord) can change this and make the tenant responsible. Each party should therefore ensure that they receive their own legal advice to ensure their best interests are protected in the lease.

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]