a verbal agreement to sell real estate legally binding?
The short answer is that it can be, but ever since 1677
it has become a lot harder.
What happened in 1677? The English Parliament passed the
Statute of Frauds, which made verbal agreements for
the sale of land legally unenforceable because they
encourage fraud. The Statute of Frauds came to Australia and
is the current law in every state and territory in
Australia, 341 years after it first became law.
As a result, the Courts will not enforce an agreement which
is partly verbal and partly in
writing, or an incomplete written agreement for
the sale of land, such as a receipt for payment
of deposit or a real estate agents sales advice.
This is because the written agreement does
not contain all of the terms of an agreement for
sale of land, and does not contain the
But there is an exception: it is still possible to
enforce a verbal agreement for the sale of real estate if
there is part performance by the buyer.
What is part performance? Part performance is when a
buyer pays some or all of the price, or moves into
possession, spends money on improvements, and is led to
believe by the seller that for all intents and purposes they
are buying the property!
The Court of Equity will not sit idly by and allow the
seller to dishonour an agreement which does not comply with
the Statute of Frauds, because it would result in another
fraud - a fraud on the buyer.
Therefore, if a buyer demonstrates part performance, the
Court will enforce that agreement and order that the title
to the property be transferred, subject to payment of the
As you can imagine, the rules applying to part
performance are complex. Recently, the High Court of
Australia settled upon a set of rules.
For my case note on that decision click
When is part performance available to
enforce verbal or incomplete written agreements to sell real
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?
New NSW policy
welcomes short stay rentals (Airbnb style)
On 5 June 2018, the New South Wales Government announced
a new policy for hosts for short-term Airbnb style holiday
letting. The new policy will affect both owner-occupiers and
The key is a new cap of 180 days in any one year on
short-term lettings for an investment property, meaning a
property that is not owner-occupied. The cap does not apply
to owner-occupiers who rent a spare room or rooms.
Owner-occupiers - who rent 'rooms' in houses and home
units anywhere in NSW - There is no cap on the number of
days in a year that rooms can be let for short-term
lettings. This applies to owners who let part of the house
for short-term lettings, and live in another part. If
breakfast is served, a B & B Licence might be needed from
the Local Council.
Investors - who rent 'whole' houses and home units
outside of Sydney - There is no cap on the number of
days in a year that the whole house or home unit can be let
for short-term lettings.
Investors - who rent 'whole' houses and home units in
Greater Sydney - there is a cap of 180 days in any one
year for short-term lettings. The boundary line for the
Greater Sydney Region is yet to be drawn.
Investors - who rent home units in Sydney - If the
Owners Corporation passes a 75% majority resolution (a
special resolution) then it can ban short-term lettings by
investors of 'entire' home units in the building. This
cannot affect owner-occupiers who let rooms. It is not clear
whether existing bans will be allowed to continue, or
whether a new resolution will be needed.
For all short-term lettings, there will be a new
mandatory Code of Conduct that hosts and guest must follow,
accompanied by a two-strike policy, whereby hosts or guests
who commit two serious breaches of the code within two years
will be banned for five years and listed on an exclusion
For more details on the new rules, click
Is the new NSW
Government policy a win-win for short-term (Airbnb style)
The Chapter on Real
Estate Law in Australia from the International Real Estate
The law applying to Real Estate around the world is both
similar and different.
Law Business Research invited me to join its expert panel
to contribute the chapter on Australia to the international
Real Estate Law Review which covers 35 countries from around
the world including the United States, Indonesia, Hong Kong
All authors answer a common set of questions in our
chapters, which are:
INTRODUCTION TO THE LEGAL
OVERVIEW OF REAL ESTATE ACTIVITY
STRUCTURING THE INVESTMENT
REAL ESTATE OWNERSHIP
LEASES OF BUSINESS PREMISES
DEVELOPMENTS IN PRACTICE
OUTLOOK AND CONCLUSIONS
The Australian Chapter I have written is an excellent
birds-eye view of real estate law in Australia. It is
particularly useful for interstate and overseas investors.
Click on this a link - The Real Estate Law Review -
Is it a good idea to switch from a
family trust to a company to save tax?
With family trusts under threat as a tax shelter, are
companies looking like an attractive tax effective
The tax effectiveness of a family trust is that profits
are distributed to members of the family, as you choose,
every year. This means diverting the profit distributions
away from high income earners to low income earners (such as
adult children) to take advantage of the tax free threshold
of $18,200, and the 19 per cent tax bracket up to $37,000,
so as to avoid distributions to high income earners who have
tax brackets of 37 per cent from $87,000 up to $180,000 and
45 per cent above.
The threat (currently the federal opposition policy) is
for family trust distributions to be taxed at a rate of 30
per cent. For example: if the low income earner is earning
wages (from casual or part-time work) of $15,000 pa, then
that is tax free because it is earned income. But on every
dollar of trust distribution which tops up income up to
$37,000, the tax rate is proposed to be 30 per cent. Trust
distributions which top up income above $37,000 will be
taxed according to the tax bracket, which is 32.5 per cent.
Company profits are kept by the company - they do not
need to be fully distributed each year - unlike profits from
a family trust which must be distributed. After paying
company tax, the profits do not need to be paid out as
dividends. Therefore, if the shareholders are high income
earners, they can avoid receiving income which is taxable in
a high tax bracket.
The icing on the cake is the recent company tax rate
cuts, which for a company with an annual income of less than
$25 million, means a tax rate of 27.5 per cent instead of 30
per cent. This means that small company can retain more of
But the 27.5 per cent tax rate is available only if 20
per cent or more of the company's income is from business
activities. That is, pure investment income does not
qualify, such as rent, interest, dividends, capital gains
and trust distributions
Conclusion: If a flat tax rate of 27.5 per cent is
attractive, then it's a good idea to switch to using a
company for a new active investment or business.
For more information, click on
Real estate investment companies must
pass the 80% passive income test to qualify for the company
tax rate cut
Court rules that Airbnb style
holiday letting is unlawful in a strata building
The "Pinnacle" is an exclusive residential condominium on
Grace Bay Beach in the Turks and Caicos Islands.
The developer aimed to attract buyers looking for an
exclusive place to live, not the holidaymakers along the
beach. So the developer included a strata by-law which
banned owners from renting out their apartment for less than
one (1) month.
This ban was ignored by the owners of apartment 102, who
rented to holidaymakers, usually with one week stays. The
body corporate sued the owners for breaching the strata
by-law. The owners countered by arguing that the strata
by-law was invalid because the Strata Law did not permit any
restriction on a strata owner’s right to rent out their
apartment. The Strata Law is the same in Turks and Caicos as
it is in Australia.
The case was fiercely fought, all the way to Judicial
Committee of the Privy Council in London, which was also
Australia's final court of appeal until 1986.
In the last year or two, the topic of Airbnb style
holiday lettings in strata apartments has been hugely
controversial in Australia. NSW Fair Trading has advised and
the NSW Civil and Administrative Tribunal has ruled that a
strata by-law cannot restrict the rights of an owner to rent
out their apartment in any way.
The Privy Council rejected this strict interpretation. It
ruled on 21 December 2017 that it was possible that the
owner’s rights be restricted, if the restrictions were
reasonable. In this case, the strata by-law was a reasonable
restriction on the right to lease because it was aimed at
preserving the residential use of the building. It was
reasonable to draw the line at 30 days to distinguish a
residential use from a holiday letting use. Therefore the
strata by-law was valid.
The ruling is a game changer. This is the new game plan
(in my view):
- The NSW Fair Trading advisory and the Tribunal
ruling can be ignored as they are both wrong to reject
any restriction on the right to lease.
- If a strata scheme wants to restrict Airbnb style
holiday lettings, it passes a strata by-law with a one
(1) month minimum stay requirement, just like in the
- If an owner is unhappy with the strata by-law
restriction, they can apply to the Local Council or
Planning Authority for an approval or permit to use
their apartment or villa as a serviced apartment or as a
bed and breakfast establishment. If an approval or
permit is granted, it will override the strata by-law.
- If the strata scheme does not pass a strata by-law,
then the owner can continue with their Airbnb style
For a detailed analysis read my case note:
Can a strata by-law restrict Airbnb
style holiday lettings? A new legal decision is a game
handle Airbnb-style letting in NSW – all you need know
Airbnb is growing fast in Australia and almost half the
properties involved are located in New South Wales. Many
would-be hosts are wondering about the legal, tax and
insurance implications – and their questions have now been
The answers are given in a new video released by
Sydney-based specialist travel and tourism lawyer, Anthony
Cordato. The video, which is covers six topics, has been
placed on YouTube.
“Airbnb-style short-term letting for
apartments, for holiday houses and for spare rooms is
growing rapidly in popularity for home owners, investors,
and of course leisure and business travellers,” Cordato
“The regulatory environment is playing catch-up in
NSW, and while it is, the legal framework is a grey area.”
New South Wales is a hotspot for Airbnb. There are 30,000
properties in NSW, 70,000 in Australia and 2 million
“These are big figures,” Cordato notes.
video covers six topics:
- What Planning Approvals are required for short-term
- What restrictions are there for strata titles
- How does Airbnb work?
- Loans using Airbnb income
Filmed at a property investment seminar, the video
includes interesting and relevant questions and comments
from the audience.
If you are thinking of venturing
into the world of Airbnb, or similar letting platforms,
this is essential viewing.
Written by Peter Needham,
chief travel writer, eGlobal Travel Media
Government is under pressure from traditional holiday
apartment operators, from strata residents, from Airbnb and
Stayz, and from property owners who all have a different
view about how short-term letting should and should not be
regulated in NSW.
Parliamentary Committee failed to come up with a politically
acceptable compromise, it has issued an Options Paper. It
has asked the stakeholders, the general public and the
industry to let it know what it should do.
Government puts forward four options:
Regulation: where the industry / operators adhere to a
Code of Conduct, which includes complaints management,
education and ongoing monitoring and reporting.
Special Rules for Strata Properties: where owners
corporations cannot ban short-term letting, but are
allowed to make by-laws to make owners liable for
breaches by their tenants, to streamline enforcement, to
levy extra and to strengthen the powers of the Tribunal.
Regulation through the Planning System: The Government
would like to lay down clear planning guidelines for
Local Councils, as it sees them as the best gatekeepers.
Registration or Licensing: This is seen a lighter touch
than regulation through the Planning System.
not be a quick process. In the meantime, the fast growing
industry will continue to grow in a legal grey area.
Property investors lose two tax breaks
in Budget 2017
The Federal Budget 2017 has cut two long standing tax
deductions that residential property investors enjoy.
The first is the tax deduction for travel expenses, which
has been cut out: Property Investors like to visit their
rental property to inspect it between tenancies, to carry
out maintenance and repairs and collect rentals. The petrol,
the airfares, the accommodation, and other travel expenses
will no longer be tax deductible for travel after 30
Tip Visit your rental property before 30 June.
The second is the tax depreciation for plant and
equipment, which has been cut down:
There is no longer any depreciation if the plant or
equipment is in a property purchased after 7:30 pm (AEST) on
9 May 2017 (the time when Budget 2017 was handed down). In a
new house or off-the-plan apartment, this could be worth up
to $2,000 per annum.
What does this apply to? According to the Budget Papers:
Plant and equipment items (usually mechanical fixtures or
those which can be ‘easily’ removed from a property) such as
dishwashers and ceiling fans. We will need to wait for
the full list, but it is likely to include: stoves, range
hoods, hot water systems, clothes dryers, air conditioning
units and solar panels.
The plant and equipment will not be depreciable if it
is already in the property when it is purchased. It will
be depreciable if purchased by the property investor.
Tip Buy plant and equipment separately, (not as part
of a property purchase contract).
For more information click on the current law and a full
extract on the new law from the Budget Papers
Federal Budget 2017 – Residential
Property Investors lose depreciation and travel deductions
Does Airbnb give Boutique
Hotels and B&Bs a competitive edge?
Traditional hotel chains and large resorts have long
dominated the accommodation industry because of their strong
brand marketing and distribution channels.
But as with so many other industries, the internet is
disrupting the traveller accommodation industry. Through
internet booking platform operators such as Airbnb, Stayz,
eDreams and Bookings.com, the internet is providing small
accommodation providers with easy and cheap access to a
global market for travellers, whether it is for business or
There are four services which Airbnb provides, which give
Boutique Hotels and Bed & Breakfasts a competitive edge over
traditional hotels and resorts, and which allows them to
by-pass the traditional travel agents (brick & mortar or
online) in making bookings:
- Bookings Management
- Payments Platform
- Property Damage & Injuries cover
These services are increasing lodging occupancy and pricing
power for small accommodation providers.
For more information about
how Airbnb is empowering Boutique Hotels and B&Bs to build
their business, Click
Is Airbnb the answer to boosting cash flow for property
If an owner has a spare room in their home, or
has a granny flat, or an investment apartment near a
business centre, or a holiday house, then
they can boost their cash flow by renting it
out as short-term stays to business and holiday travellers.
This is how it works: The owner sets the rent higher than
the long-term rent because it is a short-term letting. For
instance, the Airbnb rent might be $65 per day (plus a
cleaning charge) for the room, which is higher than the
weekly rent of $245 per week ($35 per day) for the same
room. This suits the guest because the rent is cheaper than
the daily tariff charged by a hotel.
Airbnb is therefore effective way to boost cash flow from a
property, whether it is a spare room, a granny flat or a
whole house or apartment.
liable are you if a visitor slips or trips when entering
VERY LIABLE according a Victorian Supreme Court decision
of Scott v Wanklyn.
Of course, liability is not automatic. The property
owner/tenant must be at fault (i.e. negligent) in some way.
Click for more on aged visitors and uneven access
The property buyers guide to Contract
A Deposit is paid and the Contract is signed – these are
the fundamentals of entering into a legally binding purchase
contract. There are many questions:
Why is a 10% deposit required for a property purchase
contract? Is it possible to pay less than a 10% deposit?
What ways are there to fund the deposit? Are there creative
ways to fund a deposit? What happens to the deposit after it
Click here for
The property buyers guide to Contract
property buyers guide to Cooling Off
Cooling off periods apply by law to all
contracts for the sale of residential property, with the
exception of sales at action or where a solicitor or
conveyancer has provided a 66W Certificate.
How do you use a cooling off period to give you the
breathing space you need to obtain unconditional loan
approval, pest and building inspections, etc?
Click here for
The property buyers guide to Cooling
Without liability insurance, home
owners are exposed to million dollar law suits
Personal injury law suits represent the single
largest threat to a home owner's and landlord's assets.
Compensation awards can exceed $1 million for head
injuries or spinal cord injuries caused by falling from a
ladder, slipping on stairs, and tripping over.
For this reason, it is essential for home owners and
landlords to have Liability insurance cover as part of their
Home Insurance / Landlord's Insurance policy.
The importance of having Liability insurance cover was
recently highlighted in a decision of the Supreme Court of
Tasmania. The court ordered the home owner (i.e. their
insurer) to pay their roofer over $1.1 million in
compensation for his severe head injuries because they owed
him a duty of care for his safety while working on the roof.
Without Liability insurance, such an award would have
been devastating for the home owner. They would have been
forced to sell their home to pay the award, and face
bankruptcy for the shortfall.
For more information, click -
Roofer falls off ladder set up by home
owner; Court orders home owner to pay $1.1m
Landlord’s Guide to Renting
This Renting Guide is a reference for
landlords to use to make more informed decisions. It is not
a DIY (Do It Yourself) guide for landlords.
Buying an off-the-plan apartment in Sydney
Why aren't the prices of off-the-plan
apartments falling, like the prices of mobile phones have
fallen, when so many are under construction in Sydney?
Buying and renting pet
friendly home units
Home unit owners are either strongly pro pets or anti
pets. The strata by-laws in a block of home units /
apartments will reflect the views of the majority of owners.
Why missing a credit card payment
makes it harder to qualify for a property loan.
Pay a credit card or home loan more than 14 days late
after the due date, and the missed payment will be recorded
as a black mark against your name on your personal credit
How do you tell if you are carrying on
a rental property business?
Are property partners investors or business partners? The
ATO reviews the position of partners carrying on a rental
Mortgage Brokers – What duty of care
do they owe to residential property investors?
Mortgage Brokers / Finance Brokers are not often targets
in loan enforcement proceedings.
The Investor’s Guide to buying
property - In whose name do you buy your next property
Do you buy investment property in a
personal name, or use a property investment structure such
as a company, a family trust or a self-managed super fund?
not to structure an investment property purchase - Part I
Access to investment losses
The holy grail for tax and estate planners is to
structure investment property purchases to have access to
investment losses to reduce the taxpayer’s personal tax
and yet to protect the investment property inside a
Buying and Selling with
delayed settlement contracts
How does Deposit Builder work for buying and selling a