Co-ownership of property: Joint Tenants or Tenants in Common?

If you purchase property in NSW with two or more people, you need to consider how you will own the property together and in what proportions. The two options when purchasing property with others are to purchase as either joint tenants or tenants in common.

Joint tenants

If a joint tenant of a property dies, ownership of the property automatically passes to the survivor(s). The interest of the deceased in the property would not be dealt with under the terms of their Will.

Tenants in common

If the owners of the property are tenants in common, they each own a share in the property. Each owner’s share can be whatever proportion the owners have agreed.

If an owner dies, their share of the property would be dealt with under their Will or (if there is no will) under the rules of intestacy: it would not pass automatically to the other owners of the property.

Why choose joint tenants?

Purchasing as joint tenants is the most common option for married couples or couples in a de-facto relationship.

Transferring the interest of a joint tenant in a property to the surviving joint tenant(s) is a lot less costly and much faster than transferring the interest in the property under a Will. If a joint tenant dies, a Notice of Death is must be registered with NSW Land Registry Services to transfer the deceased’s share of the property to the survivor(s). Unlike a tenancy in common, a grant of probate is not required.

Why choose tenants in common?

Purchasing as tenants in common may be appropriate in circumstances such as where one of more of the owners:

  1. want to gift their interest in the property in a particular way in the event of their passing. For example, where the owners are a blended family (i.e. the couple have children from previous relationships);
  2. does not want the whole of the property passing to the other owners if they die. For example, where the owners are friends, a new couple, siblings, parents and children, extended family members, etc.;
  3. wish to record ownership of the property in different proportions. For example, if one owner contributes more of the purchase price than the other owner(s), the parties may wish to record this in the ownership proportions noted on title.

When do I need to decide?

You should decide before exchanging contracts for the purchase as the type of ownership is recorded in the contract for sale. There can also be transfer duty implications if the proportions noted on title are changed between exchange of contracts and settlement.

Can I change the type of ownership after completion?

It is possible to change between tenants in common in equal shares (.i.e. 50/50) and joint tenants after purchasing, by registering on title either:

  1. a Transfer Severing Joint Tenancy, to change from joint tenants to tenants in common in equal shares; or
  2. a Transfer Altering Tenancy, to change from either:-
    1. tenants in common in equal shares to joint tenants; or
    1. joint tenants to tenants in common in equal shares.

If there is a mortgage on the title, the mortgagee would need to formally consent to the registration of a Transfer Altering Tenancy.

Transfers that change the ownership proportions will attract transfer duty, calculated on the market value of the proportion being transferred.

What now?

Whenever purchasing a property with other persons, taking the time to work out how you will be purchasing together, and the impact that it has on your will and estate plan, can save you time and money later.

Contact us for advice on the pros and cons of each option.

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Subdividing your land

Subdividing your land (subdivision) involves the partition of a parcel of land into smaller portions. Once land is subdivided, a ‘title’ is created for each new portion which can be separately sold and transferred.

A subdivision may involve the creation of separate titles for a dual occupancy, the partition of a single lot into two or more, or a residential development for the construction of strata units.

Land is usually subdivided to optimise its permissible use and to generate maximum profit. As it is a significant investment, it’s important for landowners to understand the process and to receive professional advice specific to the land, their circumstances and their investment objectives.

If you are thinking of purchasing land specifically for development, you should carry out due diligence to ensure that:

  1. it is suitable for the intended purpose; and
  2. your proposed use is permitted.

An experienced property and construction lawyer can assist with this process.

The role of council

Local councils administer the subdivision approval and certification processes. Councils will also consider any objections to a proposed subdivision.

During the approval process, the local council may refer plans for assessment to government authorities which may have an interest in the proposal, such as those responsible for services and infrastructure (e.g. water, gas, electricity and roads).

The referral process ensures that an authority’s interests in the land or its assets are addressed when the council considers whether to approve the proposed subdivision.

Regulations and processes

Subdivision of land is governed by legislation, regulations, planning schemes, policies and controls administered by local councils and other state or territory authorities.

Most subdivisions require approval from the local council. Each council has its own requirements for matters such as minimum lot sizes, zoning and engineering standards. In New South Wales, the subdivision process is generally as follows:

  1. the council contemplates the proposed subdivision in light of the objectives for the development, the permitted use of the land and governing laws and regulations;
  2. the landowner retains a licenced surveyor to prepare a plan of subdivision in accordance with the objectives, legislation and regulations;
  3. the landowner lodges a Development Application with the local council. If approval is granted, it will generally be subject to various conditions;
  4. the council issues a Construction Certificate which is the approval for works necessary to complete the subdivision to be carried out;
  5. when the subdivision works are completed and all conditions contained in the Development Application approval have been met, the council issues a Subdivision Certificate, authorising registration of the plan;
  6. the plan of subdivision, the administration sheet and other prescribed information, is lodged with NSW Land Registry Services for registration.

Can my land be subdivided?

One of the first steps in a proposed subdivision is ascertaining what type of development is permitted on the land. This is generally determined by the land’s zoning, which is set out in the local planning scheme. A title search, plan of the land, and zoning certificate provides preliminary information about the land.

The proposed subdivision must also be consistent with local, regional and state planning objectives and policies, and address environmental and other aspects including the provision of open space, access to new lots, and other facilities. The capacity for existing utilities, and services and infrastructure to support the proposed development will also be considered.

A property or construction lawyer, in conjunction with a registered surveyor, will help identify and explain the legal and technical aspects of the proposed development. Your lawyer can also liaise on your behalf with council and other authorities.

The surveyor will prepare a proposed plan of subdivision which may include the creation of various roads, lots, reserves, and / or common property. Plans may include the creation, variation or removal of easements and / or restrictions to meet statutory requirements and to ensure that the proposed development is functional.

What now?

Subdivision of land involves complex legal and technical processes. Draft plans may need to be revised to comply with laws and regulations before works commence.

A property lawyer can help by working with your surveyor, preparing the necessary property documents and explaining legal and titling concepts.

Contact us for more information or if you need help or advice.

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Buying a property in NSW – Cooling Off Rights

Once you have obtained your finance and found a suitable house, you can make an offer to purchase the property. There is usually some haggling before you and the vendor agree on a price.

You must then sign a contract of sale which includes details about that property and the terms and conditions associated with the purchase.

From the point where an offer to purchase has been accepted, one of two things can happen, either:

(a) contracts are exchanged with the real estate agent on the day that your offer is accepted (or soon thereafter). This is an exchange of contracts with a cooling-off period; or

(b) the agent will send a sales advice to your solicitor. In this scenario no contracts are signed or exchanged with the real estate agent.

What is an Exchange of Contracts?

A property is considered sold when contracts are exchanged and the deposit paid (normally 10% of the purchase price). The exchange of contracts takes place when two identical contracts are signed by each of the purchaser and the vendor and are then dated. The purchaser retains the version of the contracts signed by the vendor and vice versa.

When the contracts are exchanged, a contractual relationship comes into effect. Up to that point, the agreement is not legally binding on the purchaser or the vendor and either can change their mind about buying or selling the property.

What is a Cooling Off Period?

Conveyancing legislation in NSW provides that every purchaser of a residential property is entitled to a 5 business day cooling off period. Section 66Q of the Conveyancing Act 1919 defines residential property as:

“(a) land on which are situated (or in the course of construction) not more than two places of residence, and no other improvements, or

(b) vacant land on which the construction of a single place of residence alone is not prohibited by law, or

(c) a lot or lots (including a proposed lot or lots) under the Strata Schemes Development Act 2015, comprising not more than one place of residence alone, whether constructed or in the course of construction, and including any place used or designed for use for a purpose ancillary to the place of residence”.

Vendors often insist on receiving a section 66W certificate at the time of exchange. That means the purchaser waives their right to a cooling off period and cannot back out of the contract without forfeiting the 10% deposit.

If a property was purchased at auction or on the same day as an auction after the property was passed in, the purchaser has no cooling off rights.

The cooling-off period may be reduced or extended by written agreement with the vendor. It is critical to provide the vendor with a written request If you wish to extend, and ensure you have a reply in writing before 5pm on the fifth business day after the exchange date. If you do not have the vendor’s written reply agreeing to an extension before 5pm on the fifth business day, the cooling off period will be deemed to have expired at that time and you will be bound to the terms of the contract.

If the purchaser decides not to proceed, they must provide the vendor with written notice of their decision during the cooling off period. In that case, the purchaser will have to forfeit 0.25% of the purchase price to the vendor but they are entitled to have the balance of the 10% deposit paid on exchange returned to them.

As a purchaser, why should I make a cooling off period a condition of my offer?

It is in the purchaser’s best interests to have a cooling off period at exchange of contracts for the following reasons:

  1. The property comes off the market upon the exchange. Even if another prospective purchaser offers more money to the vendor, the vendor is unable to accept that offer;
  2. The purchaser has extra time to secure finance for the purchase without competition from other purchasers. If the purchaser has conditional approval before exchange, the bank/incoming mortgagee should be able to issue unconditional loan approval during the colling off period;
  3. The purchaser has 5 business days to consider any pest, building or strata inspection reports they order without fear of another purchaser securing the property. If a problem is uncovered, the purchaser can get out of the contract, forfeiting only 0.25% of the purchase price;
  4. A cooling off period allows a purchaser to secure a property risking only 0.25% of the purchase price; and
  5. If the bank does not issue unconditional loan approval during the cooling off period, the vendor may allow at least a small extension to the cooling off period to allow the purchaser a little more time to deal with the bank. However, a vendor can deny the request for an extension, which forces the purchaser to decide whether to proceed with the purchase without final approval of the loan.

Best practice is for a prospective purchaser to obtain a pre-approval from the incoming mortgagee before even starting to inspect properties.

What now?

Once you find a property, contact us to guide you through the negotiation of contract terms and the exchange of contracts.

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Buying off the plan

What is buying “off the plan”?

Buying “off the plan” has advantages for the purchaser and for the developer.

A purchaser can buy a property at today’s prices which may not be completed for some time. This can be a real benefit in times of rising prices. A developer will usually be prepared to sell more cheaply where the “final product” can’t be shown to the purchaser.

Sales “off the plan” mean that purchasers are committed at an agreed price. This goes a long way towards reducing the developer’s commercial risk and is re-assuring to the developer’s financiers.

The off the plan contract

There is no standard contract for purchasing off the plan. It is important to carefully review a contract for an off the plan purchase.

What are you buying?

When you buy an existing property, there is no doubt what you are buying. When you are having a building constructed, there will usually be plans and specifications describing the property in detail.

An off the plan contract rarely has a very detailed description of the property. Usually there is just a copy of the draft strata plan or perhaps a copy of preliminary plans submitted to Council. The contract usually has brief descriptions of the type and standard of finishes to be used in the building. Make sure you are satisfied with the level of detail in the contract. The developer will usually want to retain the right to alter the plans as he thinks it desirable or necessary.

Inclusions

Inclusions will usually be described briefly in the contract but there will almost certainly be a clause giving the developer the right to substitute inclusions of a similar quality if the nominated products are not available.

Variations to the contract

All off the plan contracts give the developer flexibility in completing the development. For example, it may be necessary to make minor changes to the plans because of council or engineering requirements or it may be necessary to grant drainage rights or create a restriction over the whole property to comply with council requirements. There is usually a provision allowing the purchaser to pull out of the purchase if the variation significantly affects the property to their detriment. It is important to review that provision in detail to make sure you have adequate protection.

Time to complete

The contract will give the developer some flexibility regarding the time frame in which the project is to be completed. Usually, the contract provides that the developer must use reasonable or best endeavours to complete the development by a particular date, generally referred to as the ‘Sunset Date’. If the developer cannot complete by the Sunset Date (including any extensions referred to in the contract) then either party may have the right to cancel the contract. In that event, the deposit is refunded to the purchaser. It is vital to look carefully at these provisions to make sure you have adequate protection.

Entitlements of Developer over Common Property

Most off the plan contracts contain provisions designed to give the developer entitlements over the common property for a reasonable time after completion of the sale.

These clauses are often required because the developer wants to conduct selling activities on the common property or may have to do some further work on the development after settlement to comply with some statutory or contractual requirement. The Strata Schemes Management Act prohibits the developer from voting on any matter at any meeting of the Owners Corporation as your proxy or attorney regardless of whether a Contract for Sale of Land (or any ancillary document entered into by you with the developer in accordance with any Contract for Sale of Land) asserts such a right.

Defects

The contract often includes a defects liability clause. Make sure that the developer agrees to remedy any defects which appear after completion.

Finance

There is always a delay between the date of signing the contract and the completion date. Not all lenders will be prepared to give you a formal finance approval with an open ended time frame. In addition, your financial circumstances may change between the date of contract and completion. You must be satisfied that you will be able to obtain any required finance when the time comes for completion.

Transfer Duty

Normally, transfer duty (previously called stamp duty) must be paid within three months of the date of the contract. However, a transfer duty concession applies to off the plan purchases if the property will be your principal place of residence. In that event, that transfer duty can usually be paid 15 months after the date of the contract or the completion date, whichever comes first. If you are purchasing the property (including vacant land) as an investment, the transfer duty must be paid with three months of the date of the contract.

Contact us for assistance if you want to purchase an off the plan property.

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