Leases: Exercising Options to Renew – What to Consider

Options to renew are common in both retail and commercial leases, to provide the Landlord and the tenant  with the opportunity to extend the term  of the lease without the need to renegotiate a majority of the terms.

However, in preparing a formal Lease  with an option to renew or in exercising it, there are important factors that must be considered under legislation or commonly found in leases.

  1. Exercise of Option – the Process

Leases with an option to renew should specify a specific time period within y which a party must exercise their option. This might  be the latest date by which the tenant must  exercise their option or lose the right to do so completely (e.g. no less than 6 months prior to the expiry of the initial term of Lease) or a range of earliest and later dates within which the tenant must  exercise their option (e.g. no earlier than 6 months prior but no later than 3 months prior to the Lease’s expiry).

As with all notices between parties of a Lease, a notice to exercise the option to renew a lease must  be made in writing, to the address for the Landlord as provided by the Lease. Failure by the tenant to exercise their option before expiry of  the option date will  have severe consequences, as the Landlord will have no obligation to accept a renewal request made outside of the exercise date.

Under the Retail Shop Leases Act 1994 (Qld), a Landlord is required to remind its tenant, in writing, at least 2 months prior, but no later  than 6 months before the option date, as stated in the lease.

  1. Exercise of Option – the Pre-Requisites

Once the option is exercised, the terms of the Lease for the extended term will mostly  remain the same. However, there may be several key obligations under the Lease to be completed or rental to be assessed including:

  • Redecoration: tenants are often required to periodically redecorate or renovate their Premises, usually triggered near the end of each term.
  • No defaults: while the Landlord will not be able to decline a validly exercised option to renew, the tenant must ensure that they do not default on the lease, prior to or after their option exercise. This includes payment of all rent and outgoings up to date as well as evidence of insurance renewal certificates;
  • Rent Review: leases generally require an annual review of rent under a fixed percentage increase or CPI review. In a new term, a market rent review is favoured, where the landlord will reassess the rent against the market value. Market review clauses will often contain mechanisms to resolve disputes regarding the assessed rent, for the market rent to be assessed by an independent valuer if the tenant does not agree with the initial rent review. Such mechanisms for disputes are required for Retail Shop Leases under the Act, regardless of the Lease’s provisions. It is much better for th etenat to have received notice of the market rental from the landlord as required under a lease, prior to the date for having to decide whether to renew the lease or not.

The timing of the market rent review should also be noted, to ensure that disputes regarding market rent do not delay the renewed term of the Lease.

Testamentary Trusts – What powers of the trustee are required?

Every person has different circumstances whether it be their family members, the assets they own or control and the wishes they have for the future should they pass away.

Like each person, a Will that creates a testamentary trust is as different as they are. Some examples of types of trusts are:

  1. Special disability trusts- These are special trusts that provide for beneficiaries that are disabled, vulnerable due to inherent medical conditions and are unlikely to be able to effectively manage the assets they are gifted through the Will. If the person suffers from a significant disability either physical or mental, they may meet the Centrelink guidelines to create a special trust that allows tax fee income for their support and a capital amount paid for their accommodation or main residence purchase. Compliance with the Social Security Act and regulations must be observed I the drafting of the terms of the trust.
  2. Restricted access to capital- Often a parent is very concerned about a child receiving a substantial amount by inheritance at a young age and losing it due to a business startup, an investment failure, or a relationship breakdown, early in their lives. To give a balanced approach, many clients create a gift of a percentage of the capital at an age say 25 years and then continue the control of the executors until a later date, say they reach 35 years. This assists a beneficiary by giving access to the income but preserving some of the capital from these risks and if they lose it all the first time, they have a second chance.
  3. Change of control of assets- A Family Discretionary Trust can be used to create long term asset protection and tax minimization for a family group. By creating a mechanism for a change of control over a family trust, the Will maker can effectively make a distribution to the intended person. Careful consideration of the controller or appointor stated in the deed is required as well as the change of Director and shareholder of a trustee company. This can be done in the Will and a resolution of the company, as well as by a variation to the trust deed. Sometimes a Will maker insists on a trust being wound up and the assets transferred through to the estate trust created in the Will.
  4. Restricted powers- Often the Will maker wants to ensure the benefits of the testamentary trust are utilized and to that extent they restrict the ability of the executor to dispense with or not establish the trust. They might also restrict who can be appointed to control the trust by excluding certain individuals such as a spouse of the child beneficiary.

Every case is different, and the Will should be drafted in a way that meets the wishes of the person making the Will. You only get one chance to get it right sometimes, so it is best to make it count. Our recommendation is always allow flexibility to meet changes in circumstances and leave as much potential benefit to the intended beneficiary as possible. Ask us how by contacting Tony Crilly at Tony.Crilly@Perspectivelaw.com.

Rights to access a Will – Can I obtain a copy of a Will?

The numerous films about estates have people believe that when someone dies, the family will be summoned to a meeting with a lawyer for the ‘reading of the Will’.  There is no requirement for this to occur and it rarely takes place.  Instead, we often have clients who come to us because they believe they are a beneficiary of an estate (or are considering making a claim on the estate) but have not received a copy of the Will.  In some cases, the Executor has refused to provide a copy.

Who is entitled to obtain a copy?

In Queensland, the Succession Act 1981 states that a person in possession of the original Will must allow certain people to inspect the Will or receive a copy.  The persons entitled include:

  1. A person named in the Will, whether as a beneficiary, executor or other person, including in an earlier Will;
  1. The testator’s spouse, parent or child;
  1. A person who would have been entitled to a share of the estate if the testator had died intestate (meaning without leaving a Will);
  1. The parent or guardian of a minor child mentioned in the Will or a child entitled under intestacy;
  1. A creditor and anyone with a legitimate claim against the estate;
  1. Anyone eligible to make a family provision application.

The obligation is not limited to the last Will – it also includes prior Wills, Codicils and other documents purporting to be a Will.

How can I obtain a copy?

If you know who holds the Will, and satisfy one of the above categories, you can contact the person confirming that you are entitled under s 33Z of the Succession Act and that you would like to inspect the Will or obtain a copy.  If you request a certified copy of the Will then you may need to pay their reasonable expenses.

If you are entitled to receive a copy but the person in possession of the Will is still refusing, it is important to seek legal advice.  There are deadlines for Court applications (9 months from date of death for further provision) including challenging the validity of a Will or making a claim for further provision from the estate and you do not want to miss the opportunity to file an application.

What if I don’t know where the Will is?

It can be trickier if you don’t know where to begin looking for the Will.  You may ask the next of kin or other family members.  Otherwise, the deceased’s solicitor, accountant or even the funeral home may know where the Will is held.  If a Grant of Probate is being obtained, then it is also possible to access documents from the Supreme Court of Queensland.  A search in the Queensland Law Reporter will show the name and address of the person or the law firm making the Application for a Grant of Probate.

Can I seek a copy of a Will while the person is still alive?

There are no obligations to provide a copy of your Will to anyone during your lifetime.  In certain circumstances your power of attorney may seek to obtain a copy of the Will to check whether they are selling assets which were specifically gifted in your Will.  It is otherwise entirely up to you whether you choose to disclose the contents of your Will prior to your death.

If you think that you are affected by an estate and a Will has not been disclosed to you please contact Lauren Nolan for advice at Lauren.Nolan@Perspectivelaw.com or call us today on 07 3839 7555.

Succession Planning for Blended Families

The historical view of an “average” family  comprised of a husband and wife (one marriage only) and their natural born children (more commonly!). However, as society evolves, so too does this picture. These days, we see a great variety of participants that make up the family unit. If you have seen the Film Blended with Drew Barrymore you know what I mean (and if you haven’t you should, it is fabulous!). The marital arrangements can vary in small ways (a couple on their second marriage) or it can be very complicated (think the brady bunch). I have seen a situation in the estate of man who died intestate where consideration was given to a Wife, a girlfriend, an ex-wife and children from the various relationships. All of them were “eligible applicants” for the definition under the Succession Act, to bring a claim on the estate for further provision. As I said, it can get complicated! A thorough family history is needed when you are embarking on estate planning. A question that arises often in light of this, is who a child of the relationship for the purpose of estate planning (and ultimately, in the context of Family Provision Applications).

The Succession Act defines “child” (in relation to a deceased person) as any child, stepchild, or adopted child of that person. Child, rather obviously referring to your natural born issue. An adopted child too, is relatively straightforward as this refers to a child with whom you have taken formal, legal steps to recognise the parent/child relationship. Stepchild however is where the situation gets more complicated. A stepchild under the Succession Act is a child of a spouse of the deceased person where the relationship continued until the deceased persons death. Importantly, this relationship of stepchild-stepparent does not cease merely because the spouse predeceases the deceased person in question. Clear as mud! Another example from practice. A couple are on their first marriage, but the wife has a child from a previous relationship. The couple have no children of their own and the wife dies. As the relationship between the husband and wife subsisted at the time the wife dies, the wife’s child is a stepchild of the relationship, despite the fact that the wife pre-deceases the husband.  It will be important what contributions they each made to joint assets.

Another scenario that is becoming increasingly thought provoking, is the impact of the In Vitro Fertilization (“IVF”) process in defining children of a relationship. If the IVF process uses samples from the father, the child is a natural born child despite the artificial intervention. However, where a couple have used a donor sample, legal adoption may be required to perfect your child’s interest in the fathers’ estate. Another scenario. A couple use IVF, one party uses their own sample and the other party uses a donor sample (for simplicity, lets say the mother uses her own sample and the father a donor sample). The IVF is successful, and the child is born. Whilst the couple are in a relationship, the Succession Act protects this child’s status as a stepchild (a child of the relationship). However, should the relationship between the mother and father end, the child would no longer be a ‘child’ of the fathers for the purposes of family provision application.  This is often a surprise to our clients as they have, for all intents and purposes, been the parent to the child through out their life. Sadly, too, this realisation often comes when it is too late to resolve any potential problems.

What these examples really highlight is how important estate planning is, particularly in the context of blended families. If you are in doubt about what steps you can take to protect your child’s interest, or if you are unsure about your position as a child of a relationship, please contact us for a consultation on 07 3839 7555 or email Katherine.Blood@Perspectivelaw.com or Tony.Crilly@Perspectivelaw.com.

Business Succession- “Going Concern” in a Commercial Property Sale – when is it GST free?

Planning the succession of your business may involve the structure of the ownership of all assets used and consideration of the tax effect on sale. When you are involved in a commercial property or business sale you must carefully consider if the “GST sale as a going concern” ruling applies as a simple way to save the cashflow effect of paying GST in addition to the Purchase price in their transaction. You need to obtain advice from your accountant and legal advisor to be absolutely certain the “going concern” exemption applies to your specific circumstances, as it is a complicated ruling. If you assume that the going concern ruling applies to all transactions it might be a costly mistake, subject to the burden of paying the GST under the contract. Perhaps it is best to provide an overview of the requirements of when a sale transaction is a “going concern” and in what circumstances it will be GST-free.

Part 1: When is a transaction a “going concern”

Under the A New Tax System (Goods And Services Tax) Act 1999 (“The GST Act”), a supply of a going concern is defined as an arrangement under which:

  • a seller supplies to the buyer “all of the things” that are necessary for the continued operation of an enterprise; [emphasis added] and;
  • “the seller carries on” or will carry on, the enterprise until the day of the supply (whether or not as part of a larger enterprise carried on by the supplier)

For the purpose of a commercial property, an enterprise is defined in the GST Act and it includes the provision of a lease, licence, or other grant of rights in a property. As this activity must be on a regular or continuous basis, the lease arrangement must be in writing, in the form of a Lease or a Commercial Tenancy Agreement. The lease document should be entered into on or before the date of the supply, in this case, the Contract for sale. 

The requirement that the enterprise “carries on” means that the seller, being the lessor, ensures that the lease continues at least until the settlement date and preferably for a period after that. 

The purchaser must be able to demonstrate a present right to possession of the premises as a necessary thing for the operation of the enterprise.

Part 2: When are such transactions GST-free?

The GST Act provides that a supply of a going concern is GST-free when:

  • the supply is for consideration; and
  • the seller is registered or required to be registered for GST; and
  • the supplier and the recipient have agreed in writing that the supply is of a going concern.

It is important to ensure that the above requirements are fulfilled prior to signing a sale contract. Every commercial sale contract should be reviewed by the parties’ lawyers and accountants, before being signed. Evidence that both of the parties are registered for GST should be provided.

Lastly, it is recommended to have a fallback clause, to ensure that if the transaction is not GST-free, there is an agreed party which is responsible for the payment of GST. Generally, this will be the buyer, unless the seller has failed to provide or fulfil the requirements in order to be eligible under the GST Act.

Often there are issues that arise which can cause the sale to fall outside of the exemption including:

  • failure to achieve registration for GST prior to the date of settlement (for example where settlement is brought forward);
  • failing to document and sign a formal lease agreement;
  • failing to supply “all of the things necessary” for continued carrying on of an enterprise (this might be an item of key equipment or fixture required to operate);
  • incorrectly stating the entity that owns the property to be sold where ownership is recorded differently;
  • having the same entity as buyer and assignee of a lease (you cannot lease to yourself).

The rulings are complicated and worthy of careful consideration. Make sure you consider other exemptions that apply such as rural farm land and always seek advice before you sign the contract.

If you have any questions about “going concern” or require any advice on a commercial property contract, please contact Jake Cho at jake.cho@perspectivelaw.com or Tony.Crilly@Perspectivelaw.com or give us a call on 07 3830 7555.

Trust Deeds – What do they mean for the practical use of your assets?

What do Trust deeds really do?

All trusts must have as a minimum, a Trustee, a beneficiary, Trust Property and the “Terms” of Trust on which the property (or asset) is held. This covers all types of trusts including “family trusts”, unit trusts in which each party holds a fixed interest in the income or capital and Self Managed Superannuation Funds, in which each member holds a “member benefits account” as a separate portion of the assets of the trust set aside for retirement. In each case the written terms of the trust are recorded in a signed document called a “Deed” by the person who settles the trust by providing the initial property of the trust (usually $ 10.00). The trustee accepts the appointment to act and the Principal or “Appointor” accepts the terms giving them the power to remove or appoint the Trustee. The precise wording of the deed is the basis for interpreting all of the powers of the trustee to distribute income and capital as well as how the trust will be managed, such as buying property or shares, selling, borrowing and final distributions at the end. The terms of the trust must be expressed with certainty and clarity, so the trustee knows to what extent they are authorised to do and the beneficiaries know when and how they can receive income or capital payments. It also governs what happens when you die and how you can allocate for tax purposes. If there are no clear rules then the ATO and any financial institution will use their position to limit what a trustee can do, often to the disadvantage of the beneficiaries.

Who keeps the trust deed and what if it is lost?

Usual practice requires at least three copies are created one for the client, one for the accountant and one for the legal advisor. This helps reduce the risk the original is lost.  If no Deed can be located this creates difficulty in providing evidence of the terms of trust. If there is a dispute between beneficiaries, then this can cause major legal problems. A practical solution might be to locate a true copy of the deed and execute a new Deed of Confirmation to ensure there is a clear record of the terms. It is crucial to consider if an application to a Supreme Court to approve the terms is required so there is no doubt in the eyes of the Commissioner.

If there is no document on which to base a confirmation this will often lead to a dispute between family members. Often this is a major problem for estate planning and administration, because it is not clear who the successor in control of the trust assets should be. The question arises whether the assets held by the trust should fall back into the estate of the person who originally contributed to the trust or continue to be held on trust for a wider class of individuals. The legal costs of resolving these questions can be significant and the result very uncertain.

Practical Solutions

You must do absolutely everything possible to locate the Deed. Find out the details of any lawyer, accountant, property conveyancer or financial planner that ever advised the family. Very often we track down a person who has been incorrectly named as controller or “Appointor” and get them to sign a Deed of Amendment to rectify the control. The cheapest and easiest solution is to locate any copy of the signed Deed and any variations that have occurred since the start. It is sometimes possible to get clear evidence of the version of the Trust deed used by the advisor at that time and use that as a basis for an application to confirm the terms. Evidence for payment of the deed to date it and letters received at the time assist. It is of no help to just pretend the deed is not lost as eventually there will be a day on which a bank, a court or an estate will require it to be produced. Deal with the issue now while you are able to follow up all possible leads and sources so if a replacement deed is at all possible to be confirmed, then it is done at a time when there are no beneficiaries fighting over an estate. It is also a major issue when dealing with the tax office especially if you own shares in the trust and want to allocate franking credits between beneficiaries for tax purposes. If you cannot prove the power to do so by the trustee based on the trust terms the Commissioner will take a view about which beneficiary is deemed to receive what proportion of income on which they are taxed.  The whole point of trusts is asset protection, the ability to invest collectively and the power to distribute in a way that saves tax. If you want a review of your trust deeds in the context of your estate plan please contact me at Tony.crilly@perspectivelaw.com or my direct line 07 3317 4312.

Estates- Leaving behind “digital assets”

As our “digital identities” become more predominant, planning around your “digital assets” is becoming increasingly important to consider as part of the estate planning process. One of many reasons to undertake careful estate planning, is to clarify your wishes and reduce the burden on the executors. It is important to specify who is legally entitled to administer your digital assets both within your Will and any other account by way of legacy nomination.

Social Media & accounts

Social media sites such as Facebook and Apple now allow their users to add legacy contacts to enable them limited control over the user’s account after their passing, once a death certificate is provided via their support page. If an executor or another individual was appointed to administer the user’s digital assets, taking advantage of such a function will simplify the process of administering the deceased social media account.

The ability to appoint a legacy contact is a new function, one that is not offered by a majority of websites. On websites such as LinkedIn or Twitter, a support page may simply assist you in deactivating the deceased account after providing a copy of a death certificate.

Passwords

In the more likely circumstance where websites have no method to appoint a legacy contact or even be deactivated externally, the only option would be to provide the administrator with the digital keys through passwords. Any person who is leaving a series of accounts, with different usernames and passwords, would be recommended to have a digital register, in a form of a spreadsheet or a table to be kept alongside their wills.

Given the frequency in which new online accounts are often created and passwords being changed, such digital registers should also be updated frequently. Alternatively, leaving behind the access to a  password manager, such as Lastpass can serve as an easier way for your administrator to access your full list of up-to-date passwords. 

Photos, videos and Cryptocurrency

A database of media files can be stored on online cloud servers or for larger databases, offline on hard drives or computers. The same is the case for cryptocurrency, which can be stored online for active trading, or offline in physical drives for added security.

In either case, a digital register should leave detailed information on how to access these accounts, via passwords in online accounts or instructions on where to locate and how to access a physical database of digital assets. The ways to leave your legacy on digital platforms are evolving, but it remains the best way to prepare by closely tracking and updating each of your digital assets individually.

For any questions regarding estate planning and your digital assets, please contact Jake Cho at jake.cho@perspectivelaw.com or call him today on 07 3317 4312.

Dealing with payments of money or property to your children under your Will

There are many ways a Willmaker can equalise the benefits for their children under their Will.

This situation often arises where one or more of the adult children have received payments of money or property from their parents during their lifetime, to the exclusion of their other children. The parents want to ensure that on their death, all children receive an equal share of their estate.

  1. Hotchpot

One option is to insert a ‘hotchpot’ clause under the parents’ Will. The effect of this is that advancements received from parents are taken as part satisfaction of a respective child’s share in the estate. This ensures that all of the children receive an equal share in the estate.  Below is a simple example:

Simon and Lisa are married and have three children: Matthew, Stuart, Monique and Catherine. Simon and Lisa pay Monique $250,000 to assist with purchasing her first home. They want this money to be taken into ‘hotchpot’ when the survivor of them passes, so that each child receives an equal share of the residue of their estate.

Monique’s share is reduced by $250,000.

This approach is not perfect. If there is no record of the payment to Monique, it may give rise to a dispute during the estate administration, which can result in litigation.  One approach to mitigate the risk of this happening is to have Simon, Lisa and Monique sign a Deed of Loan to record the advance of $250,000.

It needs to be clear within the terms of the Will, whether the unpaid amount of the advancement is to be repaid on the death of the parent, or is otherwise forgiven and forms part of the estate for the purposes of equalising the benefits between the children.

The equalisation provision best applies to distributions of cash, rather than distributions of assets, such as real estate or shares. If a beneficiary receives a transfer of real estate, and later disposes of the asset, then CGT may be applicable. Depending on their respective assessable income, the amount of tax payable will vary between the beneficiaries. This, in theory, reduces the value of the gift.

  • Specific Gifts

Another option is for the parents to make specific gifts to the other children, equivalent to the value of the advancement.   The gifts are in addition to the child’s share of the residue of the estate.  The effect is that those children who did not benefit during the lifetime of their parents, will receive more from the estate.

Using the example above, ultimately, Matthew, Stuart and Catherine would each $250,000 in addition to their share of the residue of the estate.

The Willmaker will need to consider whether inflation is to be considered with respect to the value of the specific gifts.

At Perspective Law, we would be pleased to assist you with all your estate planning needs. Please contact our office on 07 3839 7555 for all your queries, or alternatively you can email Elizabeth Ulrick at elizabeth.ulrick@perspectivelaw.com, or any other member of our estate planning team today.

Seller Beware – Queensland Floods and what this could mean for your Sale

Queensland has been subject to several catastrophic weather events in the past, the most recent of which being the 2022 floods. As we start to rebuild from the havoc wreaked by this event, with the memories of 2011 still fresh in our minds, it is prudent to consider the impact of such devastating events on our contractual relationships. Picture this: you are about to settle on your beautiful new home. Settlement under the contract was due to be completed on 11 March 2022. During the floods that devastated much of the Southeast Queensland, your prospective new house was inundated with water. You are devastated. The Seller is devastated. But the looming question remains – who is responsible, and what can you do?

The Contract

Under common law, and expressly stipulated in the REIQ contracts, the property is at the risk of the Buyer from the date the contract is formed (or the next business day). This means that, providing the contract is valid, the Buyer may be compelled to complete the contract (and potentially rely on any insurance) in the event of loss or damage to the property after the contract date. It is for this reason, and the problems that arise as a result, that we recommend our clients obtain insurance from the date the contract is signed. Whilst the seller is obliged to treat the property with reasonable care until settlement, this type of weather event would be outside that consideration, and there is nothing that compels the Seller to maintain the insurance after the contract is formed.

Statutory Rights from the Property Law Act

All is not lost however, should the hypothetical above be your reality. In Queensland (and Queensland alone, although Victoria does have something vaguely similar) there is statutory provision at section 64 of the Property Law Act that allows a Buyer to rescind the contract in certain circumstances where damage has caused your residential property to become uninhabitable. However, there are several elements that need to be established before rescission can occur pursuant to this provision.

In order to rely on section 64 for relief, the contract for sale must be for a “dwelling house” which includes units in a Community Titles Scheme (your lot must be damaged, not the common property) but currently excludes commercial transactions. The dwelling must be ‘destroyed or damaged’ which means there must be physical evidence rather than a transient impediment to occupation. An event such as a fire, or the Brisbane river running through your living room may not need a thorough investigation. However, water ingress or rising damp from flooding can result in far less obvious physical manifestations (but may still be just as harmful to the property).

Another element that needs to be proved, is the damage must render the dwelling house unfit for occupation, when reasonably considered. This may result from only part of the property being damaged (such as the bathroom). But the damage must render the property unusable in the present condition. Temporary damage such as loss of lights or temporary power outage is unlikely to be sufficient to warrant notice by the Buyer under section 64. Critically, in this writers opinion, the fact that the damage may be rectified by the Seller prior to Settlement does not preclude the Buyer from being able to rescind the contract if, otherwise the Buyer is able to rely on this section. This is huge, and where the Queensland position varies from that of a similar statutory relief in Victoria. Essentially what this means is, if at the time the notice is issued (which must be done prior to the actual settlement date or possession date) the unit is proved to be unfit for habitation, irrespective of whether the seller is willing and/or able to rectify the damage (potentially, even if that can damage can be fixed prior to Settlement) the Buyer may issue a notice in writing to the Seller and effectively rescind the contract. Remember how we said the Seller is not obliged to maintain insurance on the property after the contract date? Should the Buyer effectively rescind the contract at this point (this point being, when Brisbane river is flowing freely through the living room) the Seller then becomes responsible for the property (and the damage). In Victoria, the only other State that has a statutory right akin to our section 64, if the Seller can (and does) rectify the issue prior to the settlement date, the provision can not be relied upon. A seemingly more equitable arrangement in our opinion.

The takeaway: always have a solicitor review your contract prior to signing. Whilst you may not always be able to change the position (section 64, can not be contracted out of), it is crucial that both Sellers and Buyers are aware of the risks they are signing up for.

At Perspective Law, we would love the opportunity to assist you with all your review needs. So, get in touch with Tony Crilly at tony.crilly@perspectivelaw.com or Katherine Blood at Katherine.blood@perspectivelaw.com or Stuart Wardrobe at stuart.wardrobe@perspectivelaw.com before you sign your next contract.

2022 Smoke Alarm Rules – A Summary

As of 1 January 2022, all homes or units that are being sold, or leased will require interconnected smoke alarms that are connected to the dwelling’s electrical supply.

All parties involved in a residential transaction should be aware of the following practical changes going forward.

Property Sale – REIQ Contract for Houses

The REIQ Contract for Residential Properties, updated on 20 January 2022, includes new provisions in line with the smoke alarm rules. Clause 7.8 of the Standard Terms of Contract requires any residential houses to comply with the new smoke alarm rules by the Settlement Date.

The Seller

As the Seller, the party must declare whether compliant smoke alarms are installed in the property as part of the Contract. False or misleading declaration under the Contract (or the Queensland Titles Form 24) may lead to penalties under the Fire and Emergency Services Act 1990.

However, under the Standard Terms of the REIQ Contract, the Seller has no further obligation under the Contract to provide evidence or records that compliant smoke alarms have been installed.

The Buyer

It is the responsibility of the Buyer to verify whether the smoke alarms are compliant with the updated rules.  If the property was found to not have complied with the new smoke alarm rules, the Buyer can request an adjustment of 0.15% of the Purchase Price. This is the only remedy that the Buyer can seek, and they cannot use the findings to request further discounts or to terminate the Contract.

While the remedies available to the Buyer are minor, ensuring that compliant smoke alarms are installed would be an important part of a property inspection and due diligence. This is especially important if the intent of the Buyer is to rent out the property after purchase.

Residential Tenancies

Unlikely the sale of a property, an owner seeking to rent out their residential property is not required to provide specific notices to tenants regarding smoke alarms. The latest General Tenancy Agreement (as of June 2021) contains no provisions related to smoke alarms. Nevertheless, a lessor must comply with Smoke Alarm rules, including the additional requirement to clean and test the smoke alarms within 30 days before the start of a new (or renewed) tenancy.

The tenant in the residential tenancy will be required to clean and test the smoke alarms every 12 months and must inform the landlord if the smoke alarm needs replacement.

If you have any questions about how the latest smoke alarm rules may affect your transaction, please feel free to contact Jake Cho at Jake.Cho@Perspectivelaw.com or Perspective Law on 07 3839 7555.