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.