New Strata Laws in NSW: How they’ll affect you as a resident

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From July 2016, new strata laws are set to come into effect, with implications for residents of strata apartments and building complexes; as well as property developers in NSW.

The laws represent the first major reform to strata laws since the Strata Titles Act was implemented in 1973. More than 90 proposed reforms will come into effect, modernising the existing laws.

Below is an overview of the most significant changes that could affect you as a resident of a strata managed property:

Maintenance

  • Owners corporations may enter into agreements with local Council to enforce a strata parking area on common property and enforce penalties

Renovations

  • Owners may perform ‘cosmetic work’ without the approval of the owners corporation. This includes installing/replacing picture hooks, laying carpet, painting and installing/replacing wardrobes, curtains or blinds.
  • Owners may carry out ‘minor renovations’ with the approval of the owners corporation at a general meeting. This includes renovating a kitchen, installing wooden or hard floors, installing/replacing wiring or power points, and the reconfiguration of non-structural walls.
  • Any work that involves structural changes, changes to the building’s external appearance, or involving waterproofing requires the owners corporation’s approval by means of a special resolution.

Renewals

  • Under new rules, only 75% of owners will need to be in agreement, for the collective sale or renewal of their strata scheme to proceed. Previously, 100% of owners must have agreed.
  • This exposes some owners to the potential for forced or pressured sale of their property. A hotline will be established to assist elderly & vulnerable owners.
  • A minimum compensation value, plus moving costs, will be required, however this may not equate to a real market value achieved by voluntary sale. We recommend that concerned owners consult their property law solicitor. In coming months, we will address strata renewals as a separate article with further information for concerned owners.

Technology

  • Voting may take place over Skype or teleconference if agreed by the owners corporation, or other means, if the owners corporation agree. The owners corporation may conduct meetings, without requiring people being physically present to vote.
  • Voting may be conducted by secret ballot.
  • For the purpose of serving notices, the strata roll may include an email address as the owner’s address.

Living arrangements

  • By laws may limit the number of adults residing in a lot, however the minimum must be at least 2 persons per bedroom.
  • Under model by laws, there would be no automatic ban on keeping pets and requests for keeping small pets should not be unreasonably refused, particularly when the pet is being kept indoors. Assistance animals cannot be banned under the model by laws.
  • The new Act recognises that smoking can be a nuisance or hazardous. A smoker may be banned from allowing smoke to drift into common property or another owner’s lot. This ban could be enforced by the owners corporation who may ultimately seek an order in the Tribunal.
  • Penalties of up to $1100 may be imposed by the Tribunal where a person commits a breach after being given a notice to comply with a by-law. Penalties would be payable to the owners corporation, and if a second breach of the same by-law occurs within 12 months, higher penalties may be imposed of up to $2200.

If you have any questions or concerns regarding these new strata laws, please contact Southern Waters Legal’s Property Law team.

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Off-the-plan property: Recent changes in the law

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There’s good news for investors nervous about purchasing property ‘off-the-plan’. Recent changes to NSW property laws will make it harder for unscrupulous developers to back out of off-the-plan contracts for residential property.

What are off-the-plan contracts?

An off-the-plan contract is a contract to buy a property which has not yet been created.  That property may be vacant land to be created on registration of a plan of subdivision (e.g., the Shearwater Landing development at Greenhills Beach), an apartment to be constructed and created on registration of a strata plan (eg. the Woolooware Bay apartments) or anything in between.

For the ordinary purchaser, entering into an off-the-plan contract will mean handing over and tying up a significant wad of cash for the promise, but not guarantee, of something wonderful a couple of years down the track.

Usually, a developer will enter into contracts to sell these yet-to-be created properties a year or two in advance of them being ready to hand over to the purchaser and will require the deposits paid under those contracts and the “pre-sales” in order to secure funding to proceed with the development.

What are the main issues with off-the-plan contracts?

There are many unknowns at this stage of the project.  The developer may not have development consent to undertake the development, they may not have secured a builder and one can never predict the weather!

Accordingly, an off-the-plan contract will usually include rights for the parties to pull out of the contract, or “rescind”, if certain milestones haven’t occurred by a specified date known as the “sunset date”.  For example, if development approval has not been obtained by 31 July 2016 or if the plan of subdivision isn’t registered by the date 12 months after the contract date.

Apart from the uncertainty as to whether a development will be allowed to proceed or proceeds on time, there is also uncertainty as to where the property market will be sitting at the time of settlement.  If the market has dropped significantly between the time that the contract was entered into and the time of settlement, the purchaser may have overpaid.  In a booming property market, like that we’ve seen in recent years, a developer may be left wondering if perhaps a better price could be obtained for the property.

What are these changes in the law?

Unfortunately, over the past couple of years, there have been reports of certain developers deliberately holding off completing developments by the sunset date and then rescinding contracts to obtain a better price.  As a result, the NSW Government was prompted to do something about this problem.

In late 2015, the NSW Government introduced new laws that will apply to all off-the-plan contracts, including those that have already been entered into.  Under the new laws, if a developer wants to rescind an off-the-plan contract under a sunset clause, it must first give 28 days notice to the purchaser setting out why it is rescinding and the reason for the delay.  It must then obtain either the permission of the purchaser or an order from the Supreme Court to proceed to rescind the contract.  The Supreme Court can only make an order permitting rescission of the contract if it is satisfied that rescission is just and equitable in all of the circumstances.

How will these new laws affect you?

  • If you are a purchaser under an off-the-plan contract for residential property and the developer attempted after 2 November 2015 to rescind that contract relying on a sunset clause, please seek legal advice.  If the developer has not provided you with the required notice and does not have legitimate reasons for the delay, you may be entitled to claim.
  • If you are a purchaser under an off-the-plan contract for residential property and you’re worried about the developer leaving you high and dry after holding your hard earned deposit for two years, you can sleep a little easier!
  • If you are a developer intending to rescind off-the-plan contracts in reliance on a sunset clause (obviously, for very legitimate delays in the development), please seek legal advice.  In particular, it is important to ensure that you comply with the new notice requirements and that you have regard in your notice to the circumstances that the Supreme Court will consider when deciding whether rescission of the contract is “just and equitable.”

If you have any questions concerning these changes, contact Southern Waters Legal’s dedicated Property Law team on 9523 5535

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Buying Property In Your SMSF

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Australians are known to love property as an investment vehicle. Generally this has been achieved by borrowing from a bank to purchase property before paying it off over time. Since 2007 self managed superannuation funds (SMSF) have been allowed to borrow money to acquire property, which has seen a large increase in the amount of SMSFs and the amount of property owned by SMSFs.

What is a SMSF?

A SMSF is a superannuation fund that has four (4) or fewer members and is an alternative to retail and employer sponsored superannuation funds. In a SMSF, the members (who are subject to strict rules) have control over the superannuation fund, its investments and decisions.

What are the benefits of an SMSF?

  • Investment control and opportunities – members have flexibility and control over the SMSF’s investments
  • Favorable tax concessions – a SMSF is one of the most tax-effective ways to hold investments.
  • Estate Planning opportunities – Upon death a member’s superannuation benefit is not covered by their Will and a correctly structured SMSF Trust Deed can allow the member’s superannuation to be paid to the right person in a tax effective manner.
  • Borrowing opportunities – laws allowing SMSF’s to borrow provide an avenue for members to acquire property and/or other types of property (for example shares) in their SMSF.
  • Unlock cash in business premises – a SMSF can purchase commercial property that a member may own personally which in turn unlocks cash that can then be personally re-invested.

Tell me more about unlocking cash in my business premises.

If your SMSF buys the property from you using money contributed to the SMSF, then you can use the cash received from the sale for your personal circumstances now! The property moves into your SMSF and the money moves out. Cash in the SMSF is unlocked!

Are stamp duty concessions available?

Yes, commercial property in your own name which is transferred to your SMSF may receive substantial stamp duty concessions. This strategy could save you thousands of dollars in stamp duty!

Can I buy residential property in a SMSF?

Yes, but strict rules apply and failing to comply with the strict rules can have serious consequences.

There may be capital gains tax concessions too?

Yes, tax concessions may apply depending on when the property is sold and for how much. Obtain proper advice before you act.

How does borrowing in a SMSF work?

The loan must be a limited recourse borrowing arrangement, which simply means that in the event of default under the loan the lender only has recourse to the property, not other assets of the SMSF.

How to avoid problems when buying property in a SMSF?

Seek appropriate advice from qualified professionals. Consult with Southern Waters Legal and an accountant or financial planner who are familiar with SMSF borrowing.

Want to know more about borrowing in an SMSF or transferring property to your SMSF? Please contact Southern Waters Legal on (02) 9523 5535.

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Helping Your Children Buy Property – Risk Versus Reward

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We’ve all heard the statistics about children living with their parents into their thirties, but while crippling house prices may be to blame, some parents are taking a more pro-active approach and shuffling their children out the door and into their very own first home.

Even the most kind-hearted parents however must think about how this may affect them and their children moving forward. Is the help going to be a one-time offer or ongoing, what sort of exposure will you face and does the reward outweigh the risk?

The more common approaches to helping your children buy property are:

1. GIFTS

Some fortunate first home buyers are given a helping hand from their Mum and Dad to raise a deposit. After this money is handed over however there is little recourse for parents to reclaim this money should the need arise.

Divorce and separation are becoming increasingly common. If this happens to your child’s relationship, the gift would form part of the joint relationship property pool and can be divided between the parties (even if this was not your intention). Similarly if your child starts facing financial difficulties or they have creditors at their heels, you and your child may never see this money again.

If you receive a pension, gifts may also be seen as the disposal of assets and could alter your entitlements, which is an important consideration in protecting your own financial interests.

2. LOANS

To protect your interests, as well as the interests of your children in the event of a relationship breakdown or financial woes, it may be wiser to loan the funds instead. A loan provides greater security and certainty in the arrangement, allowing the loan to be called upon if and when necessary. In this instance, you would be removing the loan funds from the pool of assets (potentially with interest).

Proper legal advice is crucial in ensuring the loan arrangement is established and recorded effectively, and potentially even registered on title by way of a mortgage for additional protection.

3. BINDING FINANCIAL AGREEMENTS

To go one step further, upon either gifting or loaning your child money you may wish to request that your child enter into a Binding Financial Agreement with their partner to acknowledge the sum of money and to exclude it in the event of a relationship breakdown. This will require both your child and their partner to get independent legal advice respectively, but it is important as it further protects the financial interests of you and your child should you choose to re-gift or re-loan this sum after their relationship is completely dissolved.

4. BUYING OR BORROWING TOGETHER

Another option is to purchase the property co-jointly with your child. While this allows you to retain some control as your name is on title, it may also have some serious tax and estate planning implications which should be considered before signing on the dotted line.

Alternatively some parents choose to guarantee their child’s mortgage, often putting their own homes or personal assets up as security. Here, parents get the financial risk without having a proprietary interest in the property. If your child was to default on their mortgage, the bank may come straight to you to remedy the default. To guarantee another persons debt, with potentially unlimited liability, is a serious decision and not to be taken lightly.

Protect everyone’s interests from the outset and get the right advice to ensure your good intentions achieve the reduced risk, tax effective, thoughtful objective that you intend.

At Southern Waters Legal we have solicitors who specialise in Property Law, Family Law, Tax Law and Estate Planning to guide you on giving your children a head start while minimising the risk. To discuss your situation call us on 02 9523 5535.

 

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