Archive for category: Leverage Review

Real Estate agents often look bad due to the Vendors they represent. This story is one of greed and one where the agent lost out.

In Curtis Road Kellyville, a Vendor/Developer subdivided land into 15 lots. He sold this land in mid 2013 to a number of mum and dad purchasers. The mums and dads sold their properties so that they could build on the land as soon as they settled on the purchased subdivided property.

The contact of sale had the standard sunset clause. Each party was permitted to rescind the contract if the developer was unable to register the subdivision by 30th of June 2014. The developer was required to use his best endeavours to have the properties registered prior to the sunset clause.

The Vendor/Developer did not obtain registration by the sunset date. Although the DA was approved in 2011, the section 96 amendment was lodged in January 2013 and all works had been completed by 2013, the 30th of June was not met. Ironically, after the enhanced valued in the Hills District in October, November and December 2013, the Vendor/Developer conveniently took 6 months to have the property ready for registration.

On 2nd July 2014, the Vendor/Developer rescinded all contracts except for 2. Based on early estimates, the property value has increased by $80 000 – $100 000. The windfall for the Vendor/Developer is in the vicinity of $1.5 million. The property has returned to the market through Castlehaven Real Estate within 2 weeks of the rescission.

Many of the mum and dad investors may be completely shut out of the market. Those people sold before the increased values in late 2013, and will not have the resources to purchase anywhere else in the market place. One of the consultants put it in a nutshell when he said that “the developer has acted completely immorally”

There are 3 issues here;
1. What can the purchasers do?
2. What’s going to happen to the first agent’s commission?
3. What will the second agents, Castlehaven, have to do when selling the properties?

There is no doubt that, this will create a legal mess. Once the property is registered, all purchasers will lodge a caveat on the property. The vendor has an opportunity to lapse that caveat by giving the purchasers 3 weeks’ notice that the caveat will lapse. The purchasers will then have an opportunity to appear before the Supreme Court to seek specific performance of the contract.

A case called Hall vs. Foster (2012) considered a similar situation. In that case, the vendor was unable to obtain his windfall by rescinding the contract. The court ordered the developer to pay all the increased value to the purchasers.

Purchasers are now joining together to conduct a class action against the developer to either:
• Obtain specific performance of the contract: or
• Cause damaged to be paid by the developer

The first agent is entitled to the commission if their agency agreement has been correctly drafted. The agency agreement should state that “The agent is entitled to commission upon settlement or upon the termination of the contracts of sale.” If this type of clause had been inserted into the agency agreement, the agent is still entitled to the commission.

Finally, what does Castlehaven have to do? The fact that any consequential sale may be held up based on a court action, must be considered a material fact. Material fact is set out in Hinton vs. Commissioner of Fair Trading (2005) defining material fact means something that is “significant or relevant.” The upshot of the Hinton case was that section 52 of the Property, Stock and Business Agents Act 2002 requires an agent to disclose anything with a significant relevance to the perspective purchaser. Castlehaven will therefore be required to disclose to all perspective purchasers to possible delays and the possibility of the sale not being achieved.

The Vendor/Developer’s action will and has caused problems for the purchasers, the first agent and the second agent. Presently, it appears that all those parties have acted appropriately and will continue to act appropriately. Agents need to be papered in relation to their agency agreements and their disclosure so they do not face business, legal or personal risk.

This article was written by Bailey Compton, Principal Solicitor & Director at Leverage Group.

To get in touch with Bailey, please email info@leveragegroup.com.au or call 1300 438 538

The following questions about visitor parking spaces have been received into the site. Leanne Habib, Premium Strata provides the following response.

Question: Some residents in our building use the visitor parking spaces as an additional parking spot. Is it possible to increase levies for these few residents and not all lot owners?

My inquiry is in relation to a small-sized strata plan in NSW with most lots being owner-occupied.

There are 5 visitor parking spaces on common property which is mostly occupied by the residents – both owners (who are also strata committee members) & tenants.

One owner (a strata committee members) feels this isn’t right as their visitors and other residents do not get to use the visitor parking spaces as, by the time they are home from work, all visitor spots are taken by other residents.

Please note that all lots have their own individual parking, but due to having multiple vehicles they utilise visitor parking spaces if empty.

The concerned owner has complained to our Strata manager and put a proposal to the strata committee. Regarding the proposal, most members responded that they would rather use the visitor parking spaces to park their vehicles inside their building at night after work, rather than park on the street and leave the visitor parking spaces empty as, during weekdays, visitors to the building are minimal.

However, this one owner feels that in doing so they are being unfair to other residents and their visitors. They recommend an increase in levies for those residents who want to use the visitor parking spaces.

As levies are paid according to unit entitlements, is it possible to increase levies for a few and not all? This owner keeps insisting that it is not fair that they all are paying the same levies and other residents get to use common property more. They recommend that they pay less levies compared to others or they pay some sort of parking fee for using visitor parking spaces.
Most committee members are against this idea of a parking fee and would also prefer not to pass a by-law for ‘exclusive use’ of visitor parking spaces as the spots are being used as and when available by all residents.

Please advise if such an arrangement can be made where those residents who frequently use visitor parking spaces pay some additional amount to their strata levy.

Answer: First you need to ascertain from the development consent for the building exactly how many visitor parking spaces are required by law.

Before answering the question on whether such an arrangement would be legal, you would need to ascertain from the development consent for the building (available from Council) exactly how many visitor parking spaces are required by law.

Visitor car parks are to be used for bona fide purposes, therefore, charging residents for a contrary use would not be recommended.

The scheme could, however, apply to modify the council conditions and, subject to consent, convert some of the spaces to common property parking spaces and then licence, lease or otherwise charge fees for use (or give exclusive use which they are resisting) (rather than increasing levies).

Subject to council consent, you could also apply to convert them to individual lot property and sell off any extra spaces for valuable consideration (to be paid to the owners corporation). This will require a subdivision of the strata plan.

This post appears in Strata News #205.

This article has been republished with permission from the author and first appeared on the LookUpStrata website.

I’ve discovered a recent conundrum with the lending market for self-employed persons. We all know that the lending market has dried up, which is strangling the property industry. McDonald Jones Homes has indicated that they have had no sales in the past month, purely based on lending.

At one time in history, people started businesses to create wealth. There is a saying that, “no one gets rich by working for another.” This does not ring true when you look at executives in the banks and many of the blue chip companies around Australia. Even Australia Post’s CEO was on a salary $5.6 million. Yes, you can get rich by working for another!

The lenders have now determined to demonise self-employed persons. Meaning many create such a high bar for self-employed persons that it is better to just rent. Moreover, if you are self-employed and need to apply for a low doc loan, you will pay a premium for being lent some money. It is confounding that a lender is willing to accept three payslips from an employee to approve a loan but may not lend to the employer at all.

I recently saw some people pooling their money to purchase a unit. One of the buyers was the boss of one of the others. The vendor had no problems with the payslips issued by the employer to assess the person’s ability to repay the loan. Interestingly enough, the company who issued that payslips was not considered on the same basis. In fact, they were required to pay a higher rate and their income was not accepted.

The brokers and institutions involved indicated that a business can go broke at any time. I laughed, if the business went broke, the payslips be useless. Talk about ticking boxes! Provided you fit into a box you get a loan. It’s not about the banks protection, it’s about the customer’s complying with some guideline put out by APRA or ASIC.

Some people might say that is only small businesses that can fail. Well, your job can be very quickly extinguished. A pay slip does not indicate that you are a high performer and does not look behind it to see if your performance reviews are indicating that you stand to lose the job. Additionally, working for big organisations doesn’t help. Ask people who are working for the banks how they now feel about their job security. I once worked for the government and since 1983, Australia has made smaller and smaller governments, so employment is not secure there either.

Things like payment history, payment of rent and longevity in business, are just a few common sense principles which banks could apply when giving out a loan. Those who are striving for success in their own businesses can’t receive the fruits of their labour. Those employees who benefit from that success can achieve their outcome.

It’s a weird world and it is just too hard to fathom.

This article was written by Bailey Compton, Principal Solicitor & Director at Leverage Group.

To get in touch with Bailey, please email info@leveragegroup.com.au

In my job of acting as an owner’s representative, I was requested by a number of owners to come along and represent them at an owner’s corporation meeting. I must admit, I thought that my owners were overreacting and that it was purely a neighbourhood dispute. I couldn’t have been further from the truth.

This owner’s corporation was about as dysfunctional as I’ve ever seen one. In fact, I believe it is absolutely dangerous because there is a powder keg which has been lit and may explode. I actually had to spend time with my clients, indicating that they needed to cool down because the police will be involved at some stage.

It was clear to me that the strata committee controlled the owner’s corporation. They were well versed in managing the proxies of others and scaring those who oppose them away from attending meetings. I initially thought it was a control game but after attending the meeting, there may be some greater issues at play which I am yet to identify.

The strata manager himself probably aided and abetted the strata committee. As another strata manager pointed out to me today, “we must go where the numbers are, so we can keep our job”. This means that, the strata manager will decide where the numbers are and avoid his or her duty of care to the owner’s corporation.

Let’s look at one example. There were two motions placed on the agenda which were obviously not written correctly under the Act. The chairman allowed them to be placed on the agenda and then used his powers as chairman to strike those motions down as being unlawful. To accept the motion knowing you are going to strike it down later is obviously going to cause some dissention within the ranks.

A strata manager also struck some motions down as being illegal. When questioned about the law, he didn’t know what laws had been violated, but still struck them out.

The strata managers are there to represent all owners and not one group of owners in an owner’s corporation. By turning a blind eye to behaviour which is wrong, the strata managers themselves can actually be held liable for any damages which are suffered by others. Instead of the naughty strata committee being the ones who are held liable, a professional who has the insurance, is the one who will become liable.

Where strata schemes exist where the bias has been taken one way or the other, you need to find a strata manager who is versed in the arts of mediation and negotiation. It is not necessarily about being impartial, because none of us really are, it is about finding mechanisms and means of assisting the parties to reach decisions even though they hate each other. Too many strata managers take the viewpoint that we just need to be done and get out of there and let the parties fight their own battles. That is both negligent and quite frankly, dangerous.

A Justice of the Criminal Court of Appeals once told a story which reminds me about dealing with neighbourhood disputes. The story goes like this:

“In a Sydney suburb, two neighbours were in disputation over three wooden pylons. One day, the seven year old daughter of one of the neighbours, playing with a ball in the backyard, found it went through the fence and followed it. In following the ball through the fence,  she trampled upon all the plants of the next door neighbour. The next door neighbour came out of the house and yelled at the little girl who ran home crying. The two owners of the houses came to the fence and had a screaming match. Sometime after they returned to their kitchen’s seething until their husbands returned home. Their husbands both were sent to war on the front porches. They were having an argument when one of them went inside to grab a gun and returned to the porch saying that he meant to shoot it over his head. Unfortunately, he shot the man in the chest and killed him outright. One daddy dead and the other one in jail for life. All for 3 pylons.’

We can forget the fighting, we are not fighting for sheep stations or for issues of real principle. Little things can grow to quite a disastrous level. Both lot owners, belligerent parties and strata managers need to think quite clearly when disputes are becoming heightened.

This article was written by Bailey Compton, Principal Solicitor & Director at Leverage Group.

To get in touch with Bailey, please email info@leveragegroup.com.au