Where there’s a will... So, where’s your will?

I’m referring to testamentary wills, not willpower.  A will is a legal document where the will maker (the “testator”) sets out what is to happen to his or her property after they die.  For example, who is get the money, the property, the assets. 

It used to be that a will had to be made precisely following certain requirements.  While in my view it’s a safer bet to have you will formally and professionally made for you, the law has caught up with alternate and more modern ways a will can be made.  I’ve briefly referred to this here.

But what happens to you will after it’s made?  Most, though not all, will makers who've made their will using a solicitor, have their solicitor store their original will on their behalf.  Most solicitors don’t charge for this service.  Some store the original of their will in a bank safety deposit box, although I’ve seen a steep decline in this, and I understand most banks now charge for this service.  And others keep them at home, sometimes in a safe, but often just “with their other papers”.

I just want to focus on the importance of ensuring you simply know where your will is, and to confirm that from time to time.

A client couple recently explained their wills, made at the same time over 10 years’ ago, was stored at their then solicitors’ office.  They had photocopies.  On their behalf and at their request, I asked for those wills to be sent to me.  I only received one!  In a follow up inquiry to the sender’s office, they insisted they only eve had the one copy and have no record of ever having the other. 

My clients were puzzled, as like many married couples, they made their wills at the same time, signed them at the same solicitors’ office at the same time, and were given the photocopies they now have.  This anomaly was quickly fixed by making a new will to replace the missing one.

This situation could’ve been worse had the missing will been required following the death of the will maker.

This clients’ experience got me thinking.  I suggest that if you have a will (and every adult should have one) not only do you keep a record of where the original is, but to regularly audit it to check that it’s there.  Whether it be in your office, bottom drawer (not ideal!), bank, trustee or solicitor’s office, check that it’s there.  I’d suggest every 2 years is probably reasonably regular.  I wouldn’t mind if my clients were to check and confirm that I still hold their wills.  Every two years is also the same period I suggest to most of my will clients is a good time to review their wills to ensure their wills still contain their intentions.

Oh, by the way.  I also suggest you should always let your executors know (of course, you’ve already let them know that you’ve so appointed them, haven’t you) how they can retrieve your will when that time comes.

Friends in business, should be friends "in deed"...

Mark Bouris, executive chairman of a wealth-management company and small business adviser, but probably more recently widely known as the host of last year's TV’s Celebrity Apprentice Australia also writes articles in the small business section of the Sydney Morning Herald (well, I don’t really know if he actually writes it or whether he instructs another writer to do it for him, but that’s besides the point!).  Today he gives some advice to someone looking at starting a business together with a friend.

Mark gives sound advice about starting or running a business with a friend.  These include the need to (this list isn’t exhaustive):

• separate business from pleasure;
• create a plan and sticking to it;
• not letting personal relationships get in the way of professional goals.

He also makes another important point that I particularly emphasise when I’m advising friends who consult me when they’re starting a business venture: 

 

      put it in writing!

 

As Mark says, Contracts and agreements made between friends can be awkward but they are vital.  It may be awkward but the best time to negotiate and agree on the required documents, normally a deed, is right at the beginning while you’re still friends!  It could apply to partnership agreements, shareholder agreements, and  trust deeds.

People and friends don’t start business on the basis they expect to have a falling out.  If something should go wrong, even if the friendship is stretched or falters, at least there’s a roadmap, or a set of pre-agreed rules on how to best deal with the issue, or even end the business relationship.

A quick example.  If two people enter into a business partnership, if there’s no express agreement stating otherwise, in NSW that business relationship is governed by the Partnership Act.

Under that Act, in the absence of a prior agreement, a partner can dissolve the partnership by just giving formal Notice to the other partner(s) and the dissolution of the partnership is effective from the date that Notice is communicated. 

This is quite serious; think about it.  You’re in a partnership business, you’re handed a Notice and it’s over.  No lead in time, no time to work-out any buyout or secure finance, maybe no time to secure the firm’s bank accounts.  There’s great potential for arguments as who’s to get what plant and equipment, or who gets to “keep” which customers or clients.

I’ve seen this happen far too often.  It creates havoc, stress and ultimately costs that could’ve otherwise been avoided.

A typical formal partnership agreement, on the other hand provides a for minimum notice period, be it 3, 6 or even 12 months.  In other words, there’s a sound exit strategy already in place.

Of course friends can go into business together; they should however treat it as such and remember that business is business.

Quality Practice, certification continues...

Alvaro Edwards Solicitors is and has been a quality endorsed legal practice since April 2005.  The firm is one of the earliest NSW law firms (licence number LAW20005) to achieve this standard.

An outside independent auditing and certification structure for quality systems is required to ensure compliance with international quality standards.  Auditing, consulting and accreditation of ISO standards are provided by independant organisations such as SAI Global.

Today, SAI Global completed its 2012 surveillance audit of Alvaro Edwards Solicitors' quality management systems. 

I'm proud to announce we have again maintained our quality standards certification to Legal Best Practice ISO 9001/LAW 9000.  This can’t happen without the support of all management and staff. 

Comments in the report include:

The firm continues to maintain the quality management system to meet the requirements of the business and LAW9000.  There were no nonconformances raised during this audit...   The firm’s approach to continual improvement is well established... Continual improvement continues to be a focus of the firm...

Why does Alvaro Edwards Solicitors bother with this quality system process?  Simple.  It benefits the way we run our business, which imprtantly translates into a commitment to better serving our clients.

Westmead pips Liverpool to top first home owner grants list

According to the NSW Office of State Revenue (OSR), Liverpool has consistently been at or near the top, on a yearly basis by postcode, in receiving the most first home benefits in NSW in terms of total grants and total value of grants.  I’ve previously commented on this here in 2009, and here in 2010.

According to the latest figures though, Westmead tops that list for the most recent 12 month period to 31 March 2012.  During that period there were 776 first home grants received in the Westmead area (Liverpool 733), totalling over $5.8m.  The first Home Plus benefits for Westmead are respectively 701 by number (2 less than Liverpool) and $9m by value (Liverpool, $8m).

The OSR’s pdf summary sheet is here. 

Liverpool, however, easily tops the “all-time” NSW list for 1 July 2000 to 31 March 2012, in both total number of grants and by value of first home benefits.  Interestingly, Westmead comes in at second place.  The OSR’s figures for these are in this pdf summary here.

NSW OSR releases video summarising available first home buyers' benefits

Just a little while ago, I started preparing, and checking, for a post I expected to publish on this blog within about a week from now.

The subject was about what benefits, including firt home owner's benefits, are presently still available for home and land buyers in NSW.

I've just learnt that my work's been cut out for me!

The NSW Office of State Revenue has just released a YouTube video it describes as providing a "summary of the first home benefits available from the NSW Government".

Rather than me ramble on, have a look at the "video".  Well... it's more of a slide show with lots of text really but hey, if you're an intending first home buyer, the real vaue is in the content, not the presentation.

There are some other limited concessions available for property buyers, but more on those later.

Signing a contract outside of your solicitor's office? Be wary of last minute added clauses

In NSW, real estate agents are authorised by law to exchange contracts for the sale of residential property.  That authority is not unlimited however.

The law provides, paraphrased,  that a real estate agent may, presumably after a buyer has been found and a sale negotiated between the buyer and seller:

• complete parts only of a proposed contract (usually one that’s already been prepared by the seller’s solicitor or conveyancer) by inserting details of the buyer’s name and address, the name and address of the solicitor/conveyancer acting for the buyer, the price, and the date;
• insert in or delete from a contract description of any furnishings or chattels to included in the sale; and
• as stated, and providing they’re authorised by the seller or their solicitor/conveyancer “participate in the exchange or making of contracts”.

Despite these clear and limited provisions, it isn’t uncommon to find agents that regularly do more, sometimes much more, than this. 

It’s also not uncommon for contracts ending up in court litigating the meaning of clauses apparently quickly drafted and added very late to contracts; though well intended, ended up being difficult to understand or to make workable.

Regardless of their outcome, court cases are expensive and stressful.  If you find yourself in a situation negotiating the buying or selling of a property and clauses being drafted and added to a land sale contract by anyone other than through negotiations via the parties’ lawyers, think about what’s stated above.  You need to be aware of the risks.  If in doubt, it may be easier to just not sign, and to consult your lawyer.

First time property investor? Beware; ensure the premises are safe!

Buying a residential property is a popular investment strategy for many Australians.  In my experience it continues to be a first time venture for the many buyers I meet.

Properties range from old to brand new, from “studio” or “bachelor” units to multi-bedroom houses.  No matter.  If you’ve bought, or are just about to buy, your first residential investment property, even if you’re a landlord already, take care!

Your managing agent and your accountant can advise you on the business side of things, but as a landlord, the law imposes duties on landlords that they must still take reasonable care concerning the dangers that might exist on premises they rent out, even hidden ones that aren’t readily apparent on inspection.

For example, is there safety glass installed where it’s required  that meets current standards?  Is there any defective electrical wiring?

Real court cases emphasise the need for landlords to carry out detailed inspections before properties are rented out – it’s usually not enough to just leave it to the agent.

It’s also not enough to claim that a tenant accepted the property “as is”, or that you just bought the property and “didn’t know” of a defect. 

The High Court stated the landlord is in the best position to control the state in which premises are let and therefore owed a duty to tenants to eliminate defects in the premises before tenants move in.  So, inspections are necessary before the new tenants move in.  Ensure full records are kept showing that obligations have been met regarding these inspections.

Here’s a curly one.  You just bought an investment property and your first tenant is the seller of that property, certainly not an unusual occurrence.  Who’s responsible if a short while later your new tenant has an accident falling through the glass front door suffering severe injuries because the door was fitted with the wrong glass?  You don’t want find out then that perhaps your insurance policy doesn’t cover you!

This case emphasises the necessity of landlords carrying out detailed inspections before premises are let.

With judgments of in the order of $1.2m and over $840,000 in these types of cases, don’t chance it!  They highlight the necessity of landlords to carry out proper inspections before properties are rented out.   If in doubt, have a chat with your lawyer.

Business franchising can be good, but is it all good?

As a method of getting a foothold into starting, owning and running a business, business format franchising is a well regarded and popular method.  Indeed, on a per capita basis, Australia is said to be the “franchise capital of the world”, even more so than the USA.

There are plenty of good-news stories and guides about the advantages of business format franchising.  A timely article in today’s Sydney Morning Herald, however, highlights what many consider an often neglected downside, for franchisees, in many franchising systems.  Even after allowing for any rights to renew for additional terms, most franchise agreements have a final end date, be it 5, 10 years or even 20 years from the start date, for example.

 

Once the franchise term is at an end, typically there is no right for the franchisee to obtain a new agreement from the franchisor.  Or as the article puts it, if you’re at the end of your franchising contract, the franchisor can do whatever it wants.

Unlike typical non-franchise businesses, towards the end of the franchise contract, the franchisee can find themselves with no rights, no asset... you have nothing at all; there’s no goodwill, there’s nothing.  You pick up your kit bag and go home. 

Metaphorically, and possibly quite literally, once you lock the doors for the last time, the keys are just simply handed back to the franchisor.  No reward, no payment and no return for the goodwill that was probably built up over years of hard work.

On the other hand, if one has an independant, non-connected and successful small business enterprise, the owner usually has a valuable asset to sell; the years’ worth of built up goodwill adding value and hopefully providing a decent return when the business is sold.

It’s not all bad.  If you’re thinking about starting or buying a franchise business, it's vitally important you just need to be aware of these sort of issues.  As always, make an informed decision after obtaining professional advice, particularly from your accountant and your solicitor.

Buying and “cooling off” – know this

Well first, why have this? It mostly results from attempts to reduce the practice of gazumping in real estate transactions.  More on this practice in a previous post. 

If you’re a buyer, there is information here that may be useful to you but always seek the advice of your own solicitor or conveyancer when looking at your own particular circumstances.

The law requires sellers of residential property to have a copy of the proposed contract available for inspection by any purchaser (link to relevant NSW law here).  The proposed contract here means the full proposed contract will all relevant documents, not a “draft” that’s still waiting for compulsory attachments yet to arrive.

Take a situation where, typically through a real estate agent, a buyer has negotiated a purchase of a house, the seller agrees to price and perhaps other terms.  The buyer hasn’t yet consulted their solicitor, they’ve heard something about pest and building inspections, and the bank loan still has to be organised.

Say you’re the buyer and you’re keen on the house – dare I say, you love it!   Understandably you’re also worried about signing a contract with these other things still to attend to.  Importantly, you’re also worried about losing the chance, especially because you’ve worked out that the sales agent, and other in his/her office are keen to sell to anyone else, even though you’ve done a deal while you’re off doing the other important things.

Where a buyer signs the contract with a real estate agent and the agent does the exchange of contracts, by law the buyer has a minimum 5 clear business days cooling off period – so weekends and public holidays are excluded.  If contracts are exchanged on a Tuesday afternoon, the cooling off period expires at 5.00pm on the following Tuesday; if the agent exchanged on a Sunday, the cooling off period expires at 5.00pm on the following Friday.

Now the buyer is meant to do what they have to do, for example consult their solicitor, arrange pest and building inspections, and ensure they obtain their unconditional loan approval for the funds they’ve applied to borrow.

The buyer is entitled to pull out of, or rescind, the contract for any reason whatsoever anytime during the cooling off period.  There is a relatively small cost; if the buyer exercises their right to withdraw from the contract, they forfeit 0.25% of the agreed sale price – typically this amount has already been paid to the agent at the time of signing.  The seller however, can’t rescind for any reason, even if they receive a better offer – see the same earlier post.

These days, many lenders are taking somewhat longer to approve loans.  If the 5 day cooling off period is too short and the buyer needs more time, before the cooling off period ends, the buyer can request and extension to the cooling off period.  To ensure problems are minimised, this is probably best done by the buyer well before the expiry time, and through your solicitor.

The cooling off gives buyers some peace of mind and a period of time to attend to and finalise matters relating to contract, secure in the knowledge sellers can’t change their mind or accept other offers, and goes some way in minimising gazumping.

Beware too.  Once the cooling off period comes and goes, unless the buyer has rescinded before the expiry time, the contract becomes binding and unconditional.

Are there any disadvantages?  Yes, there are some.  The first one is the cost of rescinding.  There are legal, inspections and other like fees the buyer incurs.  In addition, the buyer forfeits the 0.25% of the price to the seller.  On a $600,000 price, that’s $1,500 – it’s form of compensation to the seller.

Another disadvantage is that while terms of the contract can still be negotiated during the cooling off period between the parties’ solicitors, the bargaining advantage remains with the seller.  They know they have a keen buyer – the buyer has already committed a part deposit and incurred expenses. 

With this knowledge, sellers are generally less inclined to negotiate away terms compared to if the negotiations were taking place before contracts are exchanged and the seller wants to encourage a buyer to commit.  In my experience, I have found that there are now many more contracts drafted for sellers with numerous additional generic clauses to cover many contingencies in favour of the seller, sometimes even taking away or changing already very reasonable clauses in the “standard” contract.

Selling through a real estate agent? Talk to other agents first!

Most people who sell real estate do so using the services of a real estate agent.  For many of us, the buying and selling of real estate property is something that we do very few times; for that and other reasons, the process can be daunting.

This post is not another on “how to sell your house” or “… how to sell without an agent…” article; you find plenty of those elsewhere. 

I’m still consulted by seller clients who choose an agent at random and then don’t even consider speaking to more than one!

If you’re a seller, my advice simply is: speak to more than one agent!  At least two, preferably a few more.

Some years ago a client couple retained an agent to sell their home, agreeing to the agent’s commission of 6%!!  I asked why they hadn’t at least contacted another agent, if only to compare charges.  Their reply was that “…but he was so nice to us”!  At that time, other agents in that area were typically charging commission of around 2.5%.

More recently another seller client was quoted a commission charge of 4.1% plus GST!!  Unlike the other one, this client did talk to other agents and in the end, the first agent reduced his commission to 2.2% inclusive of GST.  The typical agents’ charge in this seller’s area is between 2 to 2.5% inclusive of GST.

Think about it.  On a $500,000 sale, the commission difference, coming straight out of the sellers’ pocket can be around $11,000 or more!

Obviously these are not common cases.  If you’re inexperienced or unsure, the best advice is that you first speak to your professional advisers.  As an absolute minimum, talk to more than just one agent, shop around, compare charges and sale methods, ask questions.  It’s only a small precaution when we’re talking of figures like $11,000.