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Rental Property
Investment Why buying a 2 bedroom home unit or townhouse is a smart move Tony Cordato Property Lawyer discusses with Felicity Heffernan Mortgage Broker Why is a 2 bedroom home unit or townhouse a smart buy, as opposed to a 1 bedroom unit or studio? We look at loan availability, sale ability, benefits of having a spare room. What you need to know about strata title. We look at owning the airspace but not the walls, strata levies, scope for decoration and renovation, structural work. The different loan availability for low rise, medium rise and high rise strata buildings. Felicity's 10 tips for buying a strata unit:
Use these 10 filters when buying an investment property With more than 9 million residential properties in Australia to choose from, how does a property investor find the best property to invest in? The answer is simple - make a list of filters to use to
guide you to the best property for you.
Luke and I have put together this 13 minute video in which we discuss these filters. Titled:: Buying Investment Property #1 Tony Cordato discusses property investment strategies with Luke Moroney For the transcript of the video click here Mould in rental houses: How serious is it for landlords and tenants? Black Mould (pictured under a microscope) can cause serious respiratory difficulties, asthma and dermatitis in people. It is definitely a health hazard. Landlords have a legal duty to provide premises fit to live in. This applies not only at the handover, but also during a tenancy. For landlords, mould in rental house is a wealth hazard! The law is: if mould appears, the tenant should notify the landlord to treat the mould because it may make the premises unfit for habitation. And the landlord should take steps to treat the mould and its source as soon as possible. These are some actual case studies on mould affected properties from NCAT (the NSW Tenancy Tribunal) which illustrate the consequences of mould infestation:
For more details and more case studies, click on this link Mould in rental properties - tenant's rights and landlord's responsibilities
Is it possible to acquire possessory title to an abandoned house? Abandoned houses are not difficult to spot - the long grass, peeling paint, torn curtains, gates off hinges, leaning fences and overflowing letterbox are giveaways. It could be a deceased estate, or a house awaiting demolition or major renovation, it could be the owner has been away for a long time, or it could be that a long term tenant has died. There's always a story. One story concerns a house in Erskineville, in inner-city Sydney. The neighbour had noticed a terrible smell coming from the house, but it was not until a year later that she reported it to the Police. Her neighbour's decomposed body was found wedged between the stove and the sink. A real estate agent tracked down the owner's family and sold the house, putting paid to any claim for possessory title. In most cases, someone is keeping an eye on the house. Someone is paying the Council rates and water rates. Someone is collecting the mail. Someone mows the lawn once in a while. If you are interested in purchasing, you ask the neighbours or the Council for contact details. Or tape a note on the front door. You could carry out a title search. Occasionally, the occupier dies and nobody takes an interest. These houses are suitable for possessory title claims. A recent example was in the NSW Supreme Court case of McFarland v Gertos where the Court awarded possessory title to a person who took possession of an abandoned house at 6 Malleny Street, Ashbury (pictured today in restored condition). The house is in a quiet suburban street, next to Canterbury Racecourse in Sydney. In that case, Mr Bill Gertos took possession and persuaded the court that his adverse possession was Open, not secret; peaceful, not by force; and adverse, not by consent of the true owner; and it was continuous for 12 years. He took possession in 1998, cleaned out the rubbish, made it habitable, rented it out and paid the rates. He spent more than $100,000 renovating the house in 2015. It was not until 2017 that the deceased's family took an interest in the house. But it was too late: their father/grandfather's title was extinguished in 2010 (12 years after 1998). As a result, the title is now in Bill Gertos' name to a house worth $1.7 million. But is it unjust enrichment? The family did not claim compensation for the value of the house net of what Mr Gertos spent in renovations in this case, presumably because it did not occur to their legal team to make a claim for unjust enrichment. To read my detailed case note click on Finders Keepers – Obtaining possessory title to real estate in NSW
Interstate landlords cannot
use the NSW tenancy tribunal to evict tenants
You may think that this is a purely academic question,
but it's not the case if you are a Queensland resident who
owns a residential rental property in NSW, according to the
court. But NCAT is not a court - it is a tribunal which sits
outside of the formal court structure. This decision could have ramifications for interstate landlords throughout Australia. But for now, interstate landlords who own property in Queensland are protected by a decision of the Supreme Court of Queensland. For more details, click on my case note: From now on, interstate landlords and their tenants cannot use the NSW Tenancy Tribunal (NCAT) What happens to an off the plan purchase if the building is not completed before the sunset date? 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, Sydney. 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.
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. 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 price. 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 estate? 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 property. 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 action. 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 Lands Registry. 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 court. 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 investors. 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 register. For more details on the new rules, click Is the new NSW Government policy a win-win for short-term (Airbnb style) holiday letting?
The Chapter on Real Estate Law in Australia from the International Real Estate Law Review 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 and Singapore. All authors answer a common set of questions in our chapters, which are:
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 - Australia Chapter
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 alternative? 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 its profits. 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):
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 changer How to 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 answered. 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 says. “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 worldwide. “These are big figures,” Cordato notes. This video covers six topics:
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
Help the NSW Govt decide on how to deal with Airbnb style short stay letting!The NSW 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.After a 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.The NSW Government puts forward four options:
This will not be a quick process. In the meantime, the fast growing industry will continue to grow in a legal grey area.For more information on the NSW Government Policy click: What policy would you recommend to the NSW Govt for short stay traveller accommodation?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 June. 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.
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 Here Is Airbnb the answer to boosting cash flow for property owners? 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. How liable are you if a visitor slips or trips when entering your property? VERY LIABLE accor a Victorian Supreme Court decision
of Scott v Wanklyn.
Click for more on aged visitors and uneven access
The property buyers guide to Contract
Deposits 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 is paid? Click here for
The property buyers guide to Contract
Deposits.
The
property buyers guide to Cooling Off 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 Off.
Without liability insurance, home
owners are exposed to million dollar law suits 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
Buying an off-the-plan apartment in Sydney
Buying and renting pet
friendly home units
Why missing a credit card payment
makes it harder to qualify for a property loan.
How do you tell if you are carrying on
a rental property business?
Mortgage Brokers – What duty of care
do they owe to residential property investors?
The Investor’s Guide to buying
property - In whose name do you buy your next property
How
not to structure an investment property purchase - Part I
Access to investment losses
Buying and Selling with
delayed settlement contracts
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