Do property joint ventures need to be in writing?
Property developers don't beat around the bush. So when
John Cappello phoned John Scrivener to ask for his share of
the joint venture profits, Scrivener told him “You’ve got
nothing in writing … Good luck if you want to try and get
anything in court”.
The property development was the amalgamation of three 5
acre parcels of land at Rouse Hills, Sydney, for a medium
density subdivision (see image). Put & Call Options were
obtained, a Development Consent was granted, and the site
was sold at a large profit.
But while the property development was a great success,
the relationship between the partners was not. This was
because after securing the site, and contributing to an
option fee, John Cappello had taken a backseat role as a
silent partner, allowing John Scrivener to pursue the
development project in his name. This led to John Scrivener
thinking it was all his project.
The property joint venture made a $9 million profit. So
it was well worth John Cappello taking his claim to the NSW
Supreme Court, in a trial which lasted 7 days and cost
hundreds a thousands of dollars in legal fees.
John Cappello's weakness was that there was no joint
venture agreement in writing. There was no Joint Venture
Agreement, no Joint Venture Company, not even a Heads of
Agreement to document the joint venture.
The evidence was an unsatisfactory mixture of emails and
recollections of conversations at meetings, in phone calls,
at a cafe and over lunch, many years before.
The good news for John Cappello is that the NSW Supreme
Court awarded him a one half share of the joint venture
profit treating his relationship with John Scrivener as a
For my case note click
Do joint venture partners need to put their property venture
into writing? (a case study)
Why is strata title better than
Everyone has heard of strata title because it is the
property title used for apartments and townhouses.
But this was not
always the case. Before strata title there was company
Company title is found in many blocks of apartments in
places in Sydney like Darling Point, Double Bay, Kirribilli
and even the Blues Point Tower. Almost all were built before
1961 when strata title took over as the favourite title for
Company title is experiencing a revival. It is used in
duplexes, in cases where the Local Council allows a duplex
to be built but does not allow it to be strata titled.
This is how company title works: the property is
purchased in the name of a limited liability company. The
duplex is built. Then, instead of selling each dwelling in
the duplex with a strata title, the owners of the company
(the shareholders) sell their shares. The shares are not
ordinary shares, they are special shares because some shares
give the right to occupy one duplex, while other shares give
the right to occupy the other duplex.
Lenders will lend against company title shares, but not
as much as they lend on strata title. Valuers value company
title properties at 10% to 15% less than comparable strata
title apartments. This makes company title apartments good
value for buyers who pay cash or have good cash deposits.
What are the downsides to company title? The main
downside is that if there is a dispute between the owners, a
liquidator and administrator need to be appointed to handle
the dispute. By way of contrast, a strata title dispute is
handled by the Tribunal – NCAT, making it much cheaper and
To find out more click on
Why strata title is superior to
Stamp duty on property options
Property options are used to acquire properties for
purposes such as:
- Property Subdivisions of acreage
- Small scale townhouse developments
- High rise apartments or offices
- Flipping properties
The stamp duty regime is favourable provided you steer
clear of put and call options.
- On grant of call option or put and call option - no
duty is payable
- On exercise of option - duty is payable on the
Contract on the full price
- On nomination of someone else to exercise the option
- the nominee pays duty on the fee paid, and if a put
and call option, the nominator pays duty on the full
- On assignment of the option - the assignee pays duty
on the fee paid, and if a put and call option, the
assignor pays duty on the full price.
- On lapsing of the option (i.e. it is not exercised)
- no duty is payable
Note: this is the situation in NSW. Other states have
similar, although not always the same, regimes.
For more details click on my article
When is stamp duty payable on property
options in NSW?
Is the deposit all you lose if you
walk away from an off the plan contract?
Buying off the plan means paying a deposit of 10% of the
price to buy a home unit, townhouse or block of land and
then waiting until the building is built or the land is
subdivided. The wait can be anywhere from a few months to 2
or 3 years.
During that time, the off the plan purchaser has the
peace of mind of a fixed price and the opportunity to save
up a little more or the price before they need to settle the
But life does not always go smoothly. Divorce, ill health
and unemployment are the three most common disruptions. It's
not only life, it could be that property values fall below
the contract price.
What then are the consequences of walking away from an
off the plan contract? Is your deposit all you lose? Or are
you exposed to more losses?
The answer is that you are exposed if the vendor's loss
on resale exceeds the amount of the deposit. For instance,
if the purchase price is $500,000 and the deposit is
$50,000, if the vendor resells for $425,000, then the loss
on resale is $25,000. The vendor is also entitled to recover
the costs of the default and the costs of the resale.
And don't think that you are protected if you buy in the
name of a company! There will be a personal guarantee clause
in the contract which makes the company director personally
liable for the loss.
This result was illustrated in a recent decision of
Justice Darke in the NSW Supreme Court, in which he ordered
that a purchaser who walked away from a contract to purchase
a property in which the value had fallen 20% to pay $458,500
to the vendor as compensation for the breach of contract.
For more click on my case note
Purchaser walks away from property purchase contract; pays
vendor $458,500 for loss on resale
What happens to an off the plan
purchase if the building is not completed before the sunset
Let's start by making it clear that a sunset date is not
a romantic meeting. A sunset date is a date that a property
developer inserts into off the plan sale contract by which
they expect the building to be completed and the strata plan
to be registered.
Until 2 November 2015, there were no restrictions on
vendors or purchasers terminating the sale contract if the
building was not completed by the sunset date. But in a
rising property market, some property developers were
delaying completion and were using the sunset clause to
terminate then re-sell at a profit.
In response, the NSW Government introduced a Sunset
Clause Law which requires the vendor in the contract to
obtain permission from the NSW Supreme Court to rescind the
contract. Permission is granted if the court is satisfied
that it is just and equitable in all the circumstances to be
able to rescind.
In only the second case which has been decided under the
Sunset Clause Law, the Court has decided to refuse
permission to the property developer to rescind nine off the
sale contracts in an apartment development in Surry Hills,
The court refused because the purchasers would lose the
benefit of an average increase in value of $200,000 above
the Contract Price and lose the 'lifestyle' choice of moving
in. This was so, even though the property developer was not
wholly to blame for the delay in completing the building
because its builder went into administration.
For more details, click on my case note
Sunset Clause Law bites property
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?
The news is all bad for
Timbercorp investors lost their investments when
Timbercorp collapsed in April 2009.
But the investors did not lose their liability to repay
their loans with Timbercorp Finance. The loans remained due
and payable with interest.
For a while, KordaMentha who were appointed receivers of
Timbercorp Finance took no recovery action, as they waited
for an investor class action to be concluded.
Then, when the class action failed, they took recovery
action, but were stayed pending a High Court Appeal which
found that the investors could still defend the recovery
But now, the Supreme Court of Victoria has shut the door
on those defences, and the investors will have no choice but
to pay up or go bankrupt.
For my case note, click
Timbercorp investors have failed in their ‘no loan’ defences
to loan recovery claims
Good news at last for Great
Southern Plantations Investors - Bendigo Bank loan recovery
claims can be beaten!
Not a lot has gone right for investors in the 43
Agricultural Investment Schemes promoted by the Great
Southern Plantations Group between 1998 and 2008.
They invested in timber, beef cattle, wine grapes, almond
and olive projects. Yes, their investment was tax driven -
the money invested was tax deductible immediately. But it
was also an investment - they expected to receive their
money back and good profits on their investment over the 10
to 12 year term of the project.
Many investors used borrowed money to fund their investment.
They took out a loan from Great Southern Finance (another
group company), which then on-sold their loan to the Bendigo
and Adelaide Bank.
Click for more
a caveat good security for an investor in a property
Investors can make good profits by investing in a property
A common situation is a land owner who owns land which is
ripe for subdivision. But they are missing one vital
ingredient - the money - to obtain the approvals and to
carry out the site work.
Click for more
How property developers can profit
from using vendor finance.
Is there some way we can use Vendor Finance by which we can
ensure sales and that both the Vendor and Buyer are happy?
Two Property Developers hit the wall –
after clutching at straws to forestall possession orders on
Property developers are known to use ingenious arguments to
forestall possession orders sought by their lenders, after
the lender calls up the loan.
Click for more
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.
Click for more