Queensland REIQ Contracts – Never Simple

Now a “Who’s Who” in the contract clause “zoo” would be incomplete without a quick coverage of the other big addition to most residential sale contracts. The “peas” to the finance conditions metaphorical “carrots” if you will. Of course, I am referring to the Building and Pest condition, or Clause 4. Similar to the Finance condition, the contract being subject to the results of Building and Pest inspections is dependent on the inspection dates being completed in the reference schedule. Clause 4.1 requires the buyer to obtain a written report from a building inspector (and pest inspector, although often they are in the same report) on terms satisfactory to the Buyer. The Buyer is required again to act reasonably, but subject to this requirement, may terminate the contract should the report be unsatisfactory. A few points to note on this. Unlike some other contract forms (read: the ADL sale contract) the REIQ sale contract does not require the provision of the report in order to activate any purported termination by the Buyer. However, it should be noted that if the seller actively requests the report, it is required to be provided to them.

The second noteworthy issue with the Building and Pest clause that deserves mention, and indeed, another point of difference between these two contracts is their approach to white ants. With ADL contracts, the risk of white ants is insufficient to terminate the contract. The REIQ version however is silent on this point, the suggestion being that a buyer acting reasonably, may be able to terminate on the same grounds. Another issue that often arises is the Building Approvals, or rather, the lack of building approvals. It is important to note that as a general rule, finding out that a property contains unapproved structures (for example, a shed without the appropriate council approvals) will not be grounds to terminate under the Building and Pest condition. Whilst I have seen some exception to this where a very diligent building inspector (already, you can see the rare terrain we are navigating here) has raised this in their building report, this is often not the case. Even raised under the report, grounds for termination as a result of the note is tenuous at best. The better option to avoid disappointment, and potentially costly litigation, would be to include a separate condition making the contract subject to an inspection of the council records (otherwise known as a “due diligence” clause).

Notwithstanding the above distinctions, it is clear that a recurrent thread bleeds through both the Finance and the Building and Pest clause, and that is the overarching requirement to act reasonably or in good faith. Neither of these clauses should be used as a veritable ‘wild card’ to escape your contractual obligations.

Finally, in the new age where Electronic Conveyancing or PEXA is fast becoming the platform of choice for effecting settlements (every solicitor’s dream), one cannot look past the clause that makes it all possible, Clause 11 or the Electronic Settlement Clause. As I promised brevity at the start (and am fast approaching a word length that really blows that promise out of the water) I will refer you to my learned colleague’s detailed article on PEXA that you can read on our Blog. But for now, I will say this. PEXA has a host of amazing benefits not the least of which include:

  1. No need to sign paper documents including a Transfer;
  2. Faster access to your funds,
  3. Instantaneous (or veritably instantaneous) lodgment of documents;
  4. Minimal paperwork;
  5. No bank cheques (my personal favourite); and
  6. All completed online (in a post-COVID world, a true blessing).

In an increasingly uncertain time, it is important to insert some stability in your life where you can. How can this be achieved you ask? First and foremost, ensuring you are using a contract that provides for Electronic Conveyancing platforms. In the REIQ sale contract, that is covered in Clause 11. However, as with everything in Law, this is not the end of the story. Clause 11 provides that reliance can only be activated, by agreement between all parties: that is, buyers, sellers and both banks, where required. This means that in order to take advantage of this great platform, you need to ensure agreement can be guaranteed. To achieve this end, I recommend including a special condition that mandates the operation of clause 11. Of course, this is only recommended where you know your solicitor and bank can comply with such a requirement.

The second point worth noting in relation to Clause 11 is the waiver at 11.5 which allows a party to withdraw from the Electronic Settlement with 5 Business days notice to the other party. Obviously, this can be incredibly inconvenient and costly, especially close to settlement. To avoid this last-minute change (and cost) I recommend including in your special condition, a clause to remove the application of this provision from the contract.

At Perspective Law, we understand the importance of contract review prior to signing. This will give you the opportunity to discuss anything that might be of concern at the property. The standard contract clauses are incredibly beneficial, especially to the buyer. But as I hope this article has shown, Law is a fickle mistress. What may work well for one situation, may not be suitable for you. Perspective Law takes a horses-for-courses approach. We tailor the solutions to suit your problems and approach each matter as if it where our own. If you need any assistance regarding REIQ contracts, feel free to email us at Katherine.blood@perspectivelaw.com.

PEXA: 101 And Why It Matters To Me

You may have heard of the term “PEXA” hovering in recent news or in the Australian Financial Review, specifically as the PEXA Group Ltd went public in an IPO on 1 July 2021. So, what exactly is PEXA, how does it work, and why does it matter to you where you are looking to sign a contract to buy or sell a property?

The What…

The PEXA Group Ltd provides the service of the same name, which stands for Property Exchange Australia, and was developed to serve as an electronic platform for a property transaction in Australia.

The first transaction via PEXA was in November 2014 and while it took time for property lawyers and conveyancers to learn the new process,  in 2021 most firms and banks in Australia now use PEXA as the preferred method for property transactions.

In NSW, the usage of PEXA has been mandatory for all property transactions since 2019, and it is expected that the rest of Australia will grow more into e-settlements in the future.

The Why…

  1. Convenience – transactions online have obvious conveniences over the traditional settlement requiring hand signed papers, cheques and postage. The parties are no longer required to meet in person on the settlement date to exchange documents and therefore the transaction is much less susceptible to delays for unexpected events (such as lockdowns or indoor restrictions in this current pandemic).

Electronic payments on the day of the settlement, also means that the settlement funds will clear faster, compared to depositing bank cheques which may take up to 3 business days to clear.

  1. Accuracy – In PEXA, all parties are in one electronic platform, including the buyer, the seller, incoming and outgoing banks, where all parties can see visually the progress of the transaction and the next steps. In our experience, this availability of information and transaction status, decreases the risk of errors or miscommunication between parties and potential delays. All communications are through the platform, so messages through phone calls or emails do not get missed and parties are all given live information immediately.
  1. Costs – while PEXA has fees associated with its service ($117.92 for Transfers as of 1 July 2021), in our view, this fee easily offsets the usual costs associated with traditional settlements including, fees for settlement agents, postage and administrative work, associated with preparing cheques and paper documents.

The How…

In states where PEXA is not mandatory (including Queensland), a property transaction can only occur via PEXA if all parties in association with the transaction agree to use and are registered to use PEXA (or has an agent that is registered). If your lawyer appointed for your property transaction is registered with PEXA, they will first confirm with you whether you are agreeable to proceed with an electronic transaction.

If having your property transaction proceed via PEXA is necessary because of a remote location of a party, you should request your lawyer or the  estate agent insert into the Contract,  a special condition requiring that PEXA must be used. This will ensure that all parties can only engage firms that can use the platform.

Perspective Law is one of the earliest users of PEXA in Queensland and we have highly experienced lawyers that will be able to assist you in your property transactions. If you would like to enquire about a potential property contract or have any questions about PEXA, please do not hesitate to contact our office on (07) 3839 7555.

Binding Death Benefit Nominations: What happens to your superannuation after death?

If you have a valid will, you may assume that when you die your superannuation will automatically form part of the estate. However, this is not the case. Where you have not made a Binding Death Benefit Nomination, the superfund trustee has the power to decide who receives your retirement savings. This will be the case even where you have a self-managed superfund.

Unlike the executors of your will, the trustee is under no obligation to take your wishes into account, meaning your entitlements may not be distributed to your intended beneficiaries. For this reason, it is important that you nominate a beneficiary to ensure your superannuation is distributed in accordance with your wishes.

Requirements for a Valid Binding Death Benefit Nomination

When you create a Binding Death Benefit Nomination, you don’t have the power to nominate just anyone as a beneficiary. In order to be valid, you must only nominate someone who is considered your ‘dependant’. In the context of superannuation, a dependant can include your spouse or de facto partner, your children, any person who is financially dependent on you, a person with whom you have an interdependent relationship, or as is often preferable, your legal personal representative. Failure to comply with this requirement could render your nomination invalid.

Once you have determined who should receive your superannuation, you will need to ensure your nomination is signed in the presence of two witnesses over 18 years of age. These witnesses will be required to each complete and sign a witness declaration. It is common for people to assume that they can have their beneficiaries witness the nomination, but this is not the case. To preserve the validity of your nomination, it is essential that witnesses be entirely independent.

Importantly, a Binding Death Benefit Nomination will not become immediately valid after it is signed. It will only take effect once received by your superfund’s trustee. You must make your nomination in writing, clearly setting out the proportion of benefit to be paid to each person nominated. In most cases, your superfund will have a standard form where you can your nomination.

Provided your Binding Death Benefit Nomination satisfies these requirements, it will generally be binding for three years or until you change, update, or revoke it. The trustee will be bound to follow the instructions contained within your nomination even if your circumstances have changed. For example, if you have separated from your spouse or de facto partner but are not yet divorced, your ex-partner may still be entitled to the benefit. A divorce, however, will nullify your nomination. For this reason, it is essential that you regularly reassess your nomination to ensure the protection of your superannuation.

Taxation of Superannuation Death Benefits

It is important to make the distinction between the definitions of a ‘dependant’ within tax law and superannuation law. There are a number of similarities between the definition of dependency within these contexts. For example, your spouse or de facto partner, any children under 18 years old, and persons in an interdependency relationship are all considered dependants under both superannuation and tax law. However, while children over 18 years old will always be considered dependants in the context of superannuation, this is not necessarily the case for tax law.

Tax law provides that your dependants may pay a lower tax rate for superannuation death benefits compared to non-dependants. Many people presume that this means that nominating a legal personal representative as beneficiary will negatively impact dependants seeking taxation benefits. However, tax law adopts what is called the ‘look through’ approach.  In determining the amount of tax payable by your beneficiaries, the ‘look through’ approach considers whether the final recipient of your superannuation disbursement is a dependant according to tax law. Therefore, even where a legal personal representative is nominated as your sole beneficiary, your dependants will still be eligible to receive taxation benefits.

Perspective Law specialises in establishing clear and comprehensive estate plans individualised to the needs of our clients. If you are interested in nominating our firm as your legal personal representative or wish to ensure your assets and superannuation are adequately protected, please call Tony today on 3839 7555 or email Tony.Crilly@Perspectivelaw.com.

More Changes -Six member SMSFs

As we have come to expect, the federal Government has enacted further changes to self managed super funds. From 1 July 2021 self-managed super funds (SMSF) are able to have up to six members.  Previously a maximum of four members were allowed.  The majority of funds have either one or two members, usually established for the benefit of spouses.

The increase in members may suit larger families and can decrease the administrative costs of operating more than one SMSF.  However, there are certain matters to consider if you are intending on expanding your SMSF. 

  1. SMSF Structure

Members are required to be represented at the trustee level, either by individual trustees or a corporate trustee. For funds with more than one member:

  • Each member must be an individual trustee; or
  • Each member must be a director of the corporate trustee.

It is important to note that State and Territory Legislation governs the number of trustees that a trust can have. The Legislation should be checked prior to making any change if you currently have individual trustees.  It is likely that a corporate trustee will be required and this is strongly recommended.

The company constitution may stipulate rules regarding meetings of directors and voting rights and these need to be carefully considered.  It is possible for the voting rights of members to be based on their member balance as opposed to each director having one vote.  This is critical when considering th emanagement of the super fund in the context of a death benefit to be paid to the estate of a member or a nominated dependent.

The increase in members can reduce efficiencies in decision making and the management of the fund if the members do not agree on investment or other matters for the fund.

  1. Dispute resolution

Steps can be put in place to reduce the difficulties with decision making and to assist in dispute resolution.  This may include tailoring the deed or other documents, including:

  • Providing members with exit rights that do not jeopardise investments;
  • A co-ownership agreement to deal with assets that are difficult to divide;
  • Modifying the constitution for the trustee company regarding decision-making, such as restricted issues, voting rights according to member balances or where a unanimous decision is required.

It is essential that advice be obtained to ensure that adding specific provisions to the trust deed does not cause the SMSF to cease being a regulated fund.

  1. Investment

How superannuation is invested can be key.  Having additional members to the fund can provide additional investing power.  The intergenerational transfer of assets can also be tax-effective.

It is important that all members agree on the long-term goal for the fund.  Younger members may seek longer investments or have different interests.  They may be more prepared to invest with a higher risk level.  These differences can cause issues when investing.

  1. Paying Benefits

The control of the SMSF after one member dies and the release of their death benefits needs to be carefully considered.  If the remaining trustees have control over the payment of death benefits then there is a risk that they could pay the benefits according to their own wishes.  

Ensuring you have a valid death benefit nomination in place is even more important in a fund with multiple members to ensure that your superannuation is paid in accordance with your wishes. Alternatively you can establish a reversionary pension depending on your dependents. 

It is possible to have your legal personal representative automatically become a director of the corporate trustee on your death.  You should review your trust deed to ensure it provides for this and that the process cannot be hindered by any remaining members of the fund.

  1. Conclusion

If you are considering increasing the number of members in your SMSF you will need to review your current SMSF Trust Deed to see what it allows.  SMSFs with several members can provide greater opportunities for investment.  However, it is important that all members understand the purpose of the fund and are able to work well together.  Steps should be put in place to minimise disputes, particularly to cover members who wish to leave the fund. If we can assist you with your SMSF, including establishing the fund or updating the terms of your trust deed, please contact Tony Crilly at Tony.Crilly@Perspectivelaw.com.

Insurers – Claims for Business Interruption and Coronavirus

We all hate to pay for the premiums, but insurance policies are a necessary element for managing business risk. We have taken a look at the regime regarding insurance and the effect on policies during Covid and found a surprising result.

The unprecedented impact of the global pandemic has been detrimental to thousands of businesses across Australia. In the face of Government regulations, businesses have been forced to close temporarily causing them significant financial and emotional burden. Despite holding business interruption insurance, many insurers have led policyholders to believe that losses as the result of COVID-19 will not be protected by their coverage. However, a recent unanimous decision of the NSW Court of Appeal favouring policyholders indicates that insurance companies may still be liable to pay these claims.

The Insurance Council of Australia (ICA) has commenced two test cases to be heard by the Court in order to seek clarity regarding the interpretation of Business Interruption Insurance policies in the context of the pandemic. The first case heard by the NSW Court of Appeal contemplated whether exclusion clauses for claims related to ‘quarantinable diseases’ under the Quarantine Act 1908 will extend to exclude losses caused by COVID-19.

The Quarantine Act 1908 is no longer in force, but it has since been replaced by the Biosecurity Act 2015. COVID-19 has been defined as a ‘listed human disease’ under this new legislation. Though this concept is arguably similar to that of a ‘quarantinable disease’ under the Quarantine Act 1908, the Court held that the clear wording of the policies meant the exclusion could not extend to an application of the Biosecurity Act 2015.

On 25 June 2021, the High Court denied insurers’ application to appeal this decision. Consequently, businesses who have experienced disruption due to COVID-19 are afforded substantial protection. Insurers who have failed to update their policies after the repeal of the Quarantine Act 1908 will likely be compelled to pay businesses who faced loss due to the pandemic.

While the decision in this first test case favours the interest of businesses, there is still ambiguity concerning the interpretation of policies in the context of COVID-19. However, these ambiguities will inevitably be clarified during the second test case. This case, which will likely commence trial in August, will consider the meaning of wordings related to the definition of disease, proximity of an outbreak to a business, and prevention of access to premises due to a government mandate. Until the court provides such guidance, insurance companies should be hesitant denying claims arising due to the impacts of COVID-19.

If you believe your insurer has incorrectly denied your business interruption insurance claim, or if you want to find out whether you may be protected for COVID-19 related loss, email us at info@perspectivelaw.com to talk about how we can help.  

Executors – Know Your Duties!

One of the most important pieces of advice that a person should receive if appointed to act as executor in a Will, is that the duties of an executor in administering a deceased estate are onerous.

The duties of an executor are set out in the legislation, case law and the deceased’s Will or other testamentary document.

This blog will highlight some of the principal duties of an executor and provide practical examples to illustrate how these duties are performed in reality. It is not intended to be a comprehensive summary of the duties and should you wish to find out more information about these, please do not hesitate to contact us.

This is arguably the most important duty of an executor. An executor must collect and get in the personal and non-personal assets of a deceased person.

  1. Get in the Assets of the Deceased

Some obvious examples of personal assets include real property, motor vehicles, household possessions and bank accounts. Non-personal assets are sometimes more complicated, such as debts owing, interest in a partnership, shares and superannuation (if there is a valid nomination in favour of the estate).

Likened with this duty, is the duty of an executor to manage and preserve assets or income earning investments of the estate for the benefit of those entitled them. 

For example, executors must maintain a policy of insurance over estate property and in cases where the deceased held an interest in rental properties, continue to collect rent. In more complex scenarios, the Court has recognised this duty extends to commencing legal proceedings to collect in estate property.

If a solicitor is assisting with the estate administration, the solicitor’s account will usually be used to collect estate monies.

  1. Duty to Account

An executor can be called upon by the Court to exhibit a full inventory of the estate and render an estate account if required.

Whether or not a demand has been made, an executor has a duty to account to the beneficiaries of an estate. This can be done informally, if no demand has been made. There is no format for accounting in an informal way. However, an executor must provide the beneficiaries with an itemised list of the following:

  • assets transferred;
  • assets realised and still held;
  • funds received from all sources;
  • payments for estate liabilities, distributions and money retained; and
  • provision for liabilities not yet paid – attention must be taken to ensure sufficient funds are withheld to pay all tax assessments.

If a formal account is demanded, further details are required, in addition to original supporting documents of the estate administration. These include receipts, statements and invoices. It is therefore imperative that an executor maintain accurate and detailed records during the estate administration.

  1. Fiduciary Duties

It is important for an executor to understand that they are in a position of trust and therefore, owe fiduciary duties to beneficiaries of an estate. 

An executor must not place themselves in a position of conflict between their duties to the estate and their personal interest.  For example, there is a conflict if an executor entered into a transaction for the sale of estate property to a related party (i.e. his or her spouse) for less than market value.

Another key fiduciary duty is to not obtain any unauthorised benefit from the fiduciary relationship, often referred to as the “no-profit rule”.  

An executor also has a fiduciary duty to exercise the powers and perform the duties of an executor in good faith, in the interests of the beneficiaries and to use reasonable care in doing so.

Other duties of an executor including paying the debts of the deceased, paying legacies given by the Will (and interest where applicable) and distributing the estate according to law.

As mentioned above, there are duties that we have not discussed here, and if you would like information on those, please do not hesitate to contact us on 07 3839 7555.

Company Loans and Record keeping – Where can it go wrong?

For many business owners, tax time is fraught with complexity and additional time spent searching for documents to give to the accountant.

But what if we have not prepared our records for the company in the movement of cash out of the company accounts? Will there be deemed dividends that bites us on the backside giving rise to large tax assessments payable when we least expect it.

Below is a short summary of some key points regarding internal loans and Division 7A ITAA 1936.

The practice of using dividends to make minimum yearly repayments on Division 7A loans, or to fully repay loans, has been common since the introduction of Division 7A of Part III of the ITAA 1936 (Div. 7A) on 4 December 1997. Division 7A is intended to prevent the tax-free use of company profits by shareholders and their associates. For tax purposes declared dividends can still be franked so the dividend strategy is commonly used to prevent unfranked dividends arising.

A journal entry cannot create or constitute a transaction in its own right, it can only record a transaction that has already occurred. If the records are not carefully maintained at the right time there is serious risk the ATO will overturn the entry and further tax will become payable. The intention of a taxpayer is irrelevant.

The law is very black and white, and the courts do not accept ‘backdated’ documentation.

You must be extremely careful when it comes to complying with rules governing the payment of a dividend by journal entry, to ensure on a complying Div. 7A loan.

What are the rules?

Under s. 109 E of the ITAA 1936, an unfranked “deemed dividend” arises to a shareholder (or associate of a shareholder) of a private company if they fail to make a minimum yearly payment by 30 June each year for a complying Div. 7A loan. Preferably a cash payment is made to the company, but often the company’s profits are used to pay a dividend by journal instead to demonstrate this obligation owed by the shareholder or associate.

Can there be a set off between parties to the loans?

A journal can only constitute a payment where the principle of “mutual set-off” applies. This requires two parties who mutually owe each other an obligation recording an agreement to set-off their respective debts due against each other. The liabilities are either fully or partly discharged and this allows the actual movement of cash to become unnecessary. The ATO provides guidance, in context of FBT in the miscellaneous tax ruling MT 2050.

The journal entry will only be effective if the shareholder’s obligation to the company to make the minimum yearly payment is set-off against an obligation owed by the company to the shareholder to pay the dividend. This dividend strategy is not available where the money is owed by an associate of a shareholder.

If the company owes no obligation to the shareholder — because no dividend was validly declared by 30 June to create the company’s indebtedness to the shareholder — the payment of the minimum yearly repayment by journal is ineffective.

Corporations Act 2001

What else do we need to worry about in record keeping for this journal entry?

The circumstances in which a dividend may be paid by a company are set out in section 254 T of the Corporations Act 2001 (Cth) and are also restricted by the company’s formal constitution. (which really should be signed by the Directors). The decision to declare and pay a dividend is recorded in a minute of meeting or a signed resolution (this must be filed in the corporate register within one month of the meeting or decision (see section 251 A of the Corporations Act).

Assuming the dividend is declared on 30 June (and not any earlier), the directors’ minute or resolution needs to be filed in the corporate register by 31 July following the end of the income year in which the dividend is declared.

What does the tax law say?

A company that makes a distribution which is able to be franked for tax purposes is required to give the shareholder a “distribution statement” (see section 202-75 of the ITAA 1997).

The distribution statement must be provided no later than:

  • if the company is a public company — the day on which the distribution is paid;
  • if the company is a private company — before the end of four months after the end of the income year in which the distribution is made, or a later time allowed by the Commissioner.

As Div. 7A applies only to private companies, the company must give a distribution statement to the shareholder within four months of year end, that is, by 31 October in that year.

What really happens in practice in the real world?

Consider the implications for doing anything that is contrary to the provisions in the tax law as breaches may carry significant penalties. Perhaps the amount of the dividend is unknown on 30 June, so the document can’t be prepared by that date. However, the dividend being set-off against the minimum yearly repayment is in respect of a loan made in a previous income year, so the amount of the minimum yearly repayment will be known in advance.

Since the High Court decision in Commissioner of Taxation v Bamford; Bamford v Commissioner of Taxation [2010] HCA 10,   making trustee resolutions by 30 June has become critical. The declaration of dividends is just as important in terms of record keeping.

All business owners should know their position within reasonable accuracy leading up to the 30 June deadline. Ask you accountant now whether declarations, resolutions or mutual set off should be recorded in writing, by Deed or signed and by what date, to ensure that the rules are complied with. Give us a call on 07 3839 7555 if we can assist with Div. 7 A Loans or Deed of Offset of loans between entities or email me at Tony.Crilly@perspectivelaw.com

Duties of a trustee – what must they do?

Most people of heard of a Family Discretionary Trust or an Estate Trust known as a Testamentary Trust. But what of the obligations of the people appointed to manage the trust? Can there be risks of a claim if you fail to get it right? Indeed there are risks in failing to act on qualified advice in a reasonable time and acting prudently taking account of the people the trust was set up for in the first place.

A trustee is a person formally appointed usually by a Deed to manage property on behalf of a class of people called the “beneficiaries”.  This role comes with obligations and duties that the trustee owes to the beneficiaries.  The fundamental duty of a trustee is to adhere to the terms of the trust deed and they must act in the beneficiaries’ best interests at all times.  The key duties that a trustee owes are as follows:

1. Duty to preserve

Trustees hold trust property on behalf of the beneficiaries.  The property must be in their name as trustee so that it is in their control.  In cases of multiple trustees, the title of the property needs to be held in all names. 

The trustees have a duty to preserve that property.  Assets need to be adequately insured otherwise the trustee may be responsible for the replacement value of the property if it is stolen or damaged.  If monies are lent there needs to be adequate security.  Any debts should be paid promptly.  Assets should be maintained and repaired as needed.

Assets should be invested to preserve capital and earn income.

2. Duty to invest

Trustees have a duty to maximise the trust property, including investing the trust fund.  The trustee must exercise reasonable care and diligence and act the way an ordinary prudent businessperson would when managing their own affairs.

The trust deed itself will usually authorise a range of investments, otherwise, the authorised investments are governed by statute.  When considering the possible investments a trustee should consider:

  • The purpose of the trust;
  • The risks associated with certain investments;
  • The benefits of diversification;
  • Securing the best income return while ensuring the capital is maintained;
  • The needs of the beneficiaries.

3. Duty to account and provide information

Trustees have a duty to keep proper accounts.  The accounts should show the incoming and outgoing funds and be supported by receipts, invoices and any other documentation.  The accounts need to be up-to-date and accurate and any errors corrected as soon as they are found.  Generally trustees engage an agent to prepare the accounts and tax returns for the trust.

Beneficiaries have a right to request a copy of the accounts and they must be provided.  The trustee is entitled to be reimbursed for the reasonable costs of producing those accounts.  The trustees are also obliged to provide beneficiaries with full details of the trust fund, including particulars of the investment.

However, trustees are not obligated to provide their reasoning when they exercise discretion.  They do not need to provide minutes or any other notes.

4. Duty to act impartially

Trustees must act in the beneficiaries’ best interests, including present and future beneficiaries.  The interests of the beneficiaries must be balanced impartially when the trustee distributes income and capital.  A trustee cannot favour the interests of one beneficiary over the others.  When exercising their powers, a trustee must ensure that they act in good faith.

5. Duty to act personally

A trustee must act personally and cannot have someone make the decision for them, however, the trustee is able to obtain assistance, such as employing an accountant.  The trustee needs to be cautious of beneficiaries dictating how they are to exercise their decision to ensure they are making the decisions personally.     

There are circumstances where statute authorises the trustee to appoint a delegate, such as if they are incapacitated or absent from the jurisdiction.

6. Duty of undivided loyalty

The trustee has a duty of undivided loyalty to the beneficiaries.  They must avoid conflicts between the interests of the beneficiaries and their own interests.  If a conflict does arise then it is important that the beneficiaries are immediately informed.  The beneficiaries can give informed consent to the conflict if they agree to.

Trustees also cannot profit from the trust and cannot deal with trust property for their own benefit.  A trustee is able to receive remuneration for their role if allowed by the trust deed, as ordered by the Court or with the agreement of the beneficiaries.

7. Duty to act jointly

If there is more than one trustee appointed they must act unanimously unless otherwise stated in the trust deed.  This can cause difficulties where the trustees cannot agree.  Clauses should be inserted into the trust deed or the Will to minimise this risk arising, such as:

  • Stating that decisions can be made by way of majority;
  • Appointing an ‘umpire’ who can make a decision that is binding on all trustees or allowing one trustee to be able to make the decision;
  • Dispute resolution or arbitration clauses.

If you require further information regarding Estate Planning, please call us today on (07) 3839 7555.

Changes to Contracts – What will it cost you?

In the excitement of signing a contract for a new property, what happens if you later realise you need to make a change to the terms of the contract and it has already been signed? What will it cost you to make this change?

Why Amend a Contract?

Before a contract can be amended, you need to agree with the other parties’ reasons as to why the amendment is being made. Reasons being:

  • To fix an error, such as a spelling mistake;
  • To delete a term that the parties agree is no longer relevant;
  • To insert a detail which was omitted from the contract; or
  • Amend the purchase price of the property.

Considerations before Amending

It is essential that before any amendments are made to a contract that proper consideration is given to the suggested amendments, and the possible consequences of these changes in relation to the payment of transfer duty.

The Queensland Office of State Revenue (OSR) has released a series of rulings which determine the way in which transfer duty is assessed on varied agreements, and it is essential that you are aware of the potential consequences. Generally speaking, duty will be assessed on the amount stated in the contract, and a written agreement signed by the parties to the contract will be required if duty is to be assessed on a lower amount.

It is also important to consider that any incentives you insert into a contact, such as rental concessions or the inclusion of furniture for a separate fee, may be considered to be an additional part of the purchase price when assessing duty and duty may be assessed on a higher value.

Sometimes due to the nature of the amendment required it is not possible to amend the contract and it is necessary to end the existing contract and enter into a new one. This may be the case where an incorrect entity has been named on the contract, for example naming an individual as the purchaser rather than the trustee of a trust. In these circumstances it is necessary to enter into a deed of rescission, effectively cancelling the existing contract, and entering into a new contract.

Be aware that if the cancellation and entering into of the new agreement is deemed to be a resale agreement, duty will be payable on both contracts. A resale agreement occurs if the cancellation of the original contract results in you, or a related party, receives a financial benefit from the cancellation other than:

  • A release from the cancelled agreement; or
  • An interest in the property to the extent that the value of this interest does not represent a profit due to the resale agreement.

It is essential that you seek advice as to the proper process to ensure that you comply with the transfer duty requirements and do not become liable to pay more duty than what you have budgeted for.

Amending before signing

Whenever possible, it is best to review the contract and have any changes made to the contract before it is distributed for execution.

Sometimes this is not possible, such as when you are meet at the property to sign the contract and notice an error or change you wish to make to the printed contract. In these circumstances you can amend the contract by hand and initial the changes. These changes must then be initialed by the other parties to become binding. This is also a way which negotiations in price can be carried out when you make an offer by way of signed contract, with the parties hand amending a purchase price until a consensus is reached.

Amending after signing

Despite everyone’s best efforts, the reality is that sometimes errors remain unnoticed until the contract is fully signed, or event after the signing of the contract can necessitate changes. Depending on the nature of the amendment required, there are different methods which can be used to amend the contract.

In the case of minor amendments, such as a spelling error or missing words, the usual process is that the parties agree to amend the contract to correct these details. This is done by exchange of letters by the solicitors acting in the transaction, who then hand amend the contract.

One of the most common changes made to a contract is an adjustment to the purchase price in the event of an unsatisfactory building and pest inspection. Although you can request that a seller undertakes repairs to the property, another alternative is to request a variation to the purchase price so that you may undertake these works yourself.

For small variations to the purchase price, it is usual that by exchange of letter the parties agree to reduce the price by way of adjustment at settlement. In these situations, the contract is not physically amended, and the change is only reflected at settlement.

If there is a substantial variation to the contract, it is best to prepare a Deed of Variation detailing the change which is then signed by the parties. This deed is then read in conjunction with the contract, which when read together contain the agreement between the parties. If there is a substantial variation to the purchase price, it is best to prepare a Deed of Variation, as this will be required when calculating the transfer duty payable.

Take Aways

Although ideal to have a contract in perfect order before signing, this is not always possible. In the case that changes are required, there are several options open to you, but exactly how you amend the contract will depend on the substance of the amendments.

If you require further information regarding purchasing or selling property, please call us today on (07) 3839 7555.

Blockchain Technology and Commercial Contracts – A New Way Forward

Blockchain and Commercial Contracts

Many of our clients are familiar with the blockchain platform for property settlements called PEXA. This was created by the banks to ensure a cheaper more efficient way of having the existing mortgagee release their mortgage security and at the same time receive funds directly from the incoming lender as provider of the funds. Participating solicitors and the Department of Natural Resources Queensland are members and this allows for a seamless transaction through from signing the contract of Sale electronically, to lodging the Transfer documents online. The Office of State Revenue Queensland is not yet fully integrated but they allow a unique transaction number to be used in the workspace.

This is far more efficient, has security protocols that are rigorous and allows for a more efficient transaction for all parties.

Now we are looking at the next stage of blockchain technology and legal contracts. The future is here with the announcement this week of a new Digital Platform for settling Commercial contracts and exchange of payment.

A new platform called “Lygon” has started being used and utilised successfully to effect settlement of a Commercial agreement.

The move makes the first step to complete an alternative payment method in a commercial contract and represents a watershed moment for Australia’s legal profession.

The distributed ledger technology is just beginning and this will help to rapidly modernise and improve legal processes. Instead of wet signatures on paper documents exchanged in physical form, parties can now look to exchange funds for the on-line steps completed as part of a platform based system for commercial agreements.

Payment guarantees in commercial contracts have always been paper based which inevitably caused delays risks and inefficiency. The new “Lygon” platform, with the support of major banks and IBM blockchain technology will help parties to commercial contracts enjoy greater efficiency and security over guarantees.

The CEO of Lygon stated the usage of the platform offers major advantages to lawyers.

In February this year, Lygon created the first digital bank guarantee in the world, and it was also the first time blockchain had been used in the Australian banking sector in a live, real-world application for commercial contracts.

This is an exciting move forward in the use of blockchain and commercial agreements and it is clear we have only just begun exploring how widely it can be used by the legal services profession.

It is important to note that the engagement of the banking institutions to enable issue of a bank guarantee for fulfillment of commercial contract terms, is an exciting innovation and one we will watch closely.

It makes sense in the time of Bitcoin that we adapt and create new ways of commercial dealings that can be wholly conducted on line, without paper based documents and the old fashioned ways of wet sealed documents exchanged in hard copy.

Ask us how we use PEXA for all our property transactions and how it works to create efficiency and security, contact us today at tony.crilly@perspectivelaw.com or 07 3839 7555