If you change real estate
agents, will you pay double commission?
You have spent $4,000 in marketing costs and still, after
90 days, your real estate agent cannot find a buyer willing
to pay the price you want for your property.
Apart from spending another $4,000 on new marketing
costs, do you run the risk of paying double commission if
you change agents?
Specifically, are you legally liable to pay sales
commission to the first agent as well as to the new agent if
you sell the property to a buyer who inspected the property
through the first agent?
Most sales agency agreements provide that the real estate
agent is entitled to the remuneration if the agent is the
effective cause of the sale, which is to say, if a
person has been 'effectively introduced to the
Principal or the Property by the Licensee during the Agency
Period … and that person … enters into a contract to
purchase the property...'
Not long ago, I received an email from a real estate
agent whose agency agreement had been terminated because
they had not achieved a high enough offer for a prestige
property in Hunters Hill. The email contained this demand:
If the property is sold to a purchaser in the list below, we
require our commission of $80,000 to be paid. The list
contained 138 names!
Fortunately, the name of the buyer who purchased the
property through the new real estate agent was not on that
list, so a legal dispute was avoided.
But what if the buyer's name had been on that list? A
recent decision of the NSW Court of Appeal has shed light on
what a real estate agent must do to earn their commission.
The Court said that it was not enough for the buyer's
name to be on a list of people who had enquired about or had
inspected the property, such as in an open house (see
More is required: The first real estate agent must have
passed on an offer from the prospective buyer to the seller,
and must have continued to assist in the negotiations (as
In the Court case, the first agent made a fatal error.
They did pass on an offer, and conducted price negotiations.
But then they made a fatal error - they went overseas on a
holiday over Christmas and New Year, and were uncontactable
for a few weeks. The buyer approached a second real estate
agent to who completed the negotiations. Note: both agency
agreements were non-exclusive agencies.
The Court rejected the first agent's claim for
For more information, click on my article
Property seller narrowly avoids paying two sales commissions
on one property
Real Estate Agents Commission
Is a signed Agency Agreement always necessary?
According to a recent decision in the Supreme Court of New
South Wales, the answer is "Not always".
For more, click on this link
What can a landlord do with
items left behind by a former tenant?
Evicting a tenant for non-payment of rent is sometimes to
win only half the battle. The other half is to dispose of
what they have left behind in the property, without
attracting legal liability for wrongful disposal.
With Residential Leases, the landlord’s rights to dispose
of goods or rubbish left behind after a residential tenant
vacates are: the landlord must give a disposal notice, then
wait 14 days before disposing of the goods, and account for
the proceeds of sale. A landlord can dispose by sale, or by
donation to a charity, or leaving it out on the street for a
This does not apply to perishable items which can be
disposed of straight away or to personal documents which
must be kept for 90 days and then returned to the issuer.
With Commercial leases, the landlord’s rights to dispose
of goods left behind by a tenant are governed by a covenant
in the lease. If there is no covenant in the lease, or if
the landlord desires greater certainty, they can obtain a
court order for disposal under the Uncollected Goods Act
Obtaining a court order for disposal of tenant’s goods is
a relatively simple and inexpensive procedure. It has the
advantage that it is made with the authority of the Court,
it is not simply the enforcement of a covenant in a lease. A
court order will confer good legal title on a purchaser and
will give directions for payment of the proceeds of sale.
Recently, we obtained a court order to dispose of 2,800
200 litre / 44 gallon drums full of Activated Carbon which
had been left behind in a warehouse by a defaulting tenant
For more information, click on
How does a landlord
legally dispose of goods left behind by a former tenant?
Spotlight on 'Subject to'
conditions in Commercial Lease Proposals
Leasing a commercial property is a 3 stage process:
- Appointing a managing agent to find a tenant
- Negotiating and then signing a Lease Proposal with
- Negotiating and then signing Lease Documentation and
receiving the requirements
A Lease Proposal (Heads of Agreement) contains a summary
of the agreed terms. It is not the final Lease, and so it
contains 'subject to' conditions, such as:
- availability of the Premises
- landlord's board / lender's approval
- satisfactory legal documentation being entered into
by the parties
From time to time, the question arises: When is the
tenant legally bound under the lease? The answer is: When
the 'subject to' conditions have been satisfied.
In a recent NSW Supreme Court decision, a tenant argued
that it could walk away from the lease even after returning
the signed lease, a bank guarantee for the security bond and
a certificate of currency for insurance to the landlord's
solicitor because the landlord had not signed the lease. At
stake was $735,000 in unpaid rent.
The Court agreed with the tenant that the 'subject to'
condition of 'satisfactory legal documentation being entered
into by the parties' was ambiguous because it did not
specify how the documentation was to be entered into.
After one day in Court and 18 months after the tenant had
walked away from the lease, the Supreme Court interpreted
the 'subject to' condition in favour of the landlord, and
the tenant was ordered to pay the back rent.
The 'moral' is that the 'subject to' conditions need to
be clearly drafted, so as to avoid legal disputes. In this
case, instead of 'satisfactory documentation being entered
into', it would have been clearer if it had read
'documentation satisfactory to the landlord being received
by the landlord'.
To read my case note,
click on Take care with the 'subject to' conditions in a
Commercial Lease Proposal
What happens when a purchaser
caveats the property they are buying?
Property vendors are anxious to know what happens when a
purchaser registers a Caveat over the property they are
selling under a Contract for Sale.
They ask: Will the Caveat derail the sale and what
should I do? This is a guide.
First: Why has the purchaser registered a Caveat? If it
is because they have released the deposit to the vendor or
if settlement is deferred beyond the standard time, then it
is perfectly justifiable for a purchaser to register a
Caveat, provided they have been granted a 'caveatable
interest' in the Contract for Sale.
Second: How does the Caveat affect the vendor? Anyone
searching the title will see the Caveat - if they are a
lender, they will not lend more money to the vendor; if they
are another purchaser, they will not enter into a Contract
of Sale with the vendor; unless the Caveat is removed. So a
Caveat restricts the vendor in refinancing or re-selling the
Third: Is there a dispute with the purchaser? If there is
no dispute, then the purchaser is using the Caveat to
legitimately protect their interests, and will come to
settlement with a Withdrawal of Caveat. But if there is a
dispute, the purchaser is using the Caveat as a bargaining
chip against the vendor. If so, the vendor needs to take
Fourth: What action can a vendor take to remove the
caveat? The process is called lapsing the caveat. The vendor
serves a lapsing notice which gives the purchaser 21 days
(in NSW) (14 days in Qld) to apply to the Supreme Court to
maintain the Caveat on the title. If the purchaser does
nothing, the Caveat will be removed from the title by the
Fifth: What happens if the purchaser goes to Court? For a
vendor, the most significant part is that the purchaser must
'proffer an undertaking as to damages' which means that they
accept responsibility to compensate the vendor for all
losses, if the court agrees to maintain the caveat on the
title until the dispute with the vendor is determined by the
In a recent case before the Supreme Court of NSW, the
purchaser applied to maintain their caveat. But when the
moment came, they refused to accept responsibility for
losses the vendor might suffer. As a result, the Court
ordered the Caveat be removed and the purchaser pay the
vendor's legal costs of going to court.
For my case note click
Will a purchaser's caveat stand
without an undertaking as to damages?
An investment loan is not repayable without proof of the
When Michael Howard invested in the Great Southern 2006
Organic Olives Income Project he took up the loan offer from
the finance arm of Great Southern to fund the total cost of
$24,490. In turn, Great Southern Finance nominated ABL
Nominees, a company associated with the Bendigo and Adelaide
Bank to be the lender.
For three years Michael Howard paid interest on the loan
to Great Southern Finance. Not long afterwards the project
was wound up because it had run out of money to cultivate
the olive trees. He never received one dollar in return from
Seven years later, Michael Howard was served with a
Statement of Claim from the Bendigo Bank to recover the
loan, which by then had grown to $66,569.32 with interest.
He decided to fight the claim.
Last week, he succeeded in defeating the claim, not
because the project failed, but because the Bendigo Bank was
unable to prove that a loan advance had been made. It had a
paper trail - a loan deed and associated documents. But did
not have a money trail to show that the money had been
transferred to Great Southern to pay for the investment.
So in a roundabout way, justice was done. Michael Howard
was not forced to pay the investment loan for a failed
project. And the Bendigo Bank was ordered to pay his legal
This decision has significance far beyond Michael Howard.
He was one of 22,000 investors in Great Southern Projects
who used the finance arm to fund their investment, and one
of several thousand investors who dispute their loan.
Michael Howard's victory shines a light which may help
these investors. For my case note
click on No evidence of a loan advance
sinks the Bendigo Bank's loan recovery action against a
Great Southern investor.
Don't sign a personal
guarantee to a lease unless you absolutely need to!
When a businessperson negotiates a lease of a shop, their
focus is on the rent, the rent free period, the term, the
options to renew, the security bond and the permitted use.
The personal guarantee for the rent is an afterthought,
unless giving one means a 1 month security bond is
negotiated instead of 3 months security bond without one.
The fact that giving a director's guarantee removes the
asset protection of leasing in a company name is rarely
Fast forward, and for whatever reason, the business is going
bad because it cannot make enough sales. The tenant falls
behind on their rent. The landlord terminates the lease.
What was once an afterthought becomes the major source of
financial stress as the landlord pursues the director's
personal guarantee: for rent up to the lease termination,
then for rent lost until the shop is re-rented, and finally
for make good expenses. Legally, there are few defences to
claims made by landlords under personal guarantees.
Two recent decisions by the NSW Court of Appeal demonstrate
how financially ruinous a personal guarantee can be:
- The directors of the ex-tenant - Panetta Fruits at
Westfield Miranda were ordered to pay $3,674,555.53
under their personal guarantees, which was equivalent to
over 3 years rent.
- The director of the ex-tenant - Circa Newsagency at
CircaRetail Bella Vista was ordered to pay $602,178.35
which was equivalent to several years rent.
What options does a tenant have when the landlord demands a
personal guarantee? The best option is to offer more
security bond - 3 months is common - instead of a personal
guarantee. The second best option is to limit the personal
guarantee to say 3 or 6 months. The third option is to walk
away from the lease.
For my detailed comments on the two Court of Appeal
click Two retail tenancy failures expose directors who gave
their personal guarantees to the landlord to ruinous losses
New sunset clauses law
protects purchasers by overriding vendor rights to end an
off the plan Contract
The new sunset clauses law in NSW is proving useful to
property purchasers in a rising market by allowing them to
override the vendor’s use of the sunset clause, and to
enforce an off the plan contract.
Click for full details
If you are moving out of a shop or
office, do you repaint or leave it as is?
If you own or rent a shop, office, warehouse or factory, the
‘make good’ covenant in the lease usually requires the
tenant to repaint the inside. The question is, can the
landlord recover what the cost of repainting would be,
without actually doing the repainting?
For more click -
If you are moving out of a shop or
office, do you repaint or leave it as is?
When buying commercial property, you need to know if the
price inclusive or exclusive of GST
If you buy a meal, groceries, petrol, and so forth, GST
of 10% is included in the price. In fact, the prices
of consumer items must include GST, by law.
With real estate it's different. This is a quick guide:
- Second-hand residential property sales -
houses, apartments, villas - no GST is payable
- New residential property sales - off the plan
or newly completed - GST is payable by the vendor, and
it is included in the price
- Commercial property sales - shops,
warehouses, offices - normally, no GST is payable if
sold subject to lease, but GST is payable by the
purchaser if sold vacant
- Land sales - farms, vacant land, acreage -
GST may or may not be payable by the purchaser depending
on whether used for farming, whether sold in the course
of an enterprise, or whether the vendor is or needs to
be registered for GST
As you can see, when buying commercial real estate,
knowing whether the price is treated as GST inclusive or GST
exclusive is essential.
Otherwise, as purchaser you may receive a nasty surprise
and need to find another 10% on top of the price to pay the
GST. This cash outlay for the GST will need to be carried
until the next BAS statement is lodged, and a credit is
claimed. Also, to add insult to injury, extra stamp duty is
payable on the GST.
The GST treatment needs to be properly covered in the
Contract for Sale.
If not, a dispute may arise which goes to Supreme Court
to decide whether the price was inclusive or exclusive of
GST. To see what happened in a recent case, click my article
Watch out for the GST hazard when
buying commercial property
Off the plan
purchasers can breathe easy - the new sunset clauses law has
Property Developers will need to be a bit smarter if they
are thinking of using sunset clauses to terminate a sale
Keep an eye on the sunset date if you
are buying off the plan
What happens at the sunset date?
Is the landlord responsible for unsafe
One of the beautiful things about being a commercial
landlord is that you hand over the premises to the tenant
‘as is’. There is no obligation on a commercial landlord to
make the premises ‘fit for purpose’
Why landlords and tenants face special
risks when leasing strata shops, offices and industrial
This article covers four commercial leasing issues for
strata shops, offices and industrial premises-
Building repairs; Tenant signage and fit-out; Strata Levies; Tenant use and trading
Director Guarantees in Commercial Leases – What damages are
What financial exposure does a director undertake by
providing a personal guarantee the performance of a
commercial property lease?
Bankers must get on with the job of
selling a property security as mortgagee in possession … or
face the consequences
Bankers have always assumed that they have all the time
in the world to sell a property under a power of sale,
without liability for loss because of delay. This assumption
is no longer correct.
Does the bankruptcy of a personal trustee or appointor of a
discretionary trust expose the trust assets?
The trustee in bankruptcy cannot seize the family trust
assets for the benefit of creditors.
Joint Ventures for Real
Estate Investment and Development
If two people combine their knowledge and their money in
a property venture, they will often achieve more as partners
than they would achieve on their own.