Got a a pool? Don’t allow it to turn your property into a white elephant!

Q: What’s a white elephant?

A: a possession which its owner can’t dispose of and whose

     cost, particularly that of maintenance, is out of proportion

     to its usefulness.

 

In my previous post on this topic last year, I summarised changes to NSW swimming pool laws that added new obligations on property owners with swimming pools.

 

There are 2 parts: the requirement to register swimming pools; and the requirement to obtain a valid compliance certificate.

 

The registration part is relatively simple in that it can be done online. As for obtaining the compliance certificate, the original deadline of 29 April 2014 was earlier this year changed to 29 April 2015. If you’re a property owner with pool, for various reasons, that date will be approaching faster than you think.

 

From 29 April 2015, all properties with a swimming pool (or spa pool) that’s to be sold or rented to tenants must have a valid compliance certificate or occupation certificate.

 

There is the cost of compliance, of course, but even for the more diligent pool owners the bigger problem is the reported shortage of both available council inspectors and private certifiers.

 

Anecdotal feedback from my clients is consistent with media reports, such as the article I just referred to. It can months, some report up to 6 months, to start and finish the process of obtaining compliance certificate!

 

Why should you care? As it presently stands, aside from the risk of fines, from 29 April 2015, a property owner with a pool without a valid compliance certificate won’t be able to:

• lease their property; or
• to sell, or offer to sell, their property.

If you intend to sell or lease in 2015, don’t let your pool turn your property into a white elephant! Think about applying for your compliance now.

Put and call options in a booming residential property market

The Sydney property market, especially the residential property market, is booming.  How long this will last, I have no idea, but I know it won’t last indefinitely.

I’ve noticed some increasing trends as a result.  One, that’s the topic of this article, is proposed option agreements.

Options agreements are agreements between a property owner and a buyer to enter a contract for the sale of land on a future date if one of the parties (sometimes either) to the agreement wish it.

An increasing trend I’ve seen many of my clients experience, is developers approaching residential landowners, where the land may be attractive for development, proposing to buy the land, sometimes for prices that seems quite flattering to the landowner, but often with certain conditions.

Usually, the residential landowner is inexperienced in these types of approaches and negotiations.

Developers often prefer options to buy land because it suits them.  They can use it to defer paying stamp duty on a speculative property purchase, or to avoid the purchase altogether.  As there is a delay, sometimes months, in a developer to prepare, lodge and eventually obtain development consent, if a property purchase isn’t delayed the developer sees the money spent acquiring the property so early in the process as dead money, or expensive money.  The developer is paying interest on loans and other property ownership expenses during this delay.

An option agreement allows the developer buyer to hold off buying the property until months later and, if it can’t get development consent, to avoid having to buy the property at all.

So, what is an option agreement?  There are usually two types:

Call Options

The party holding the call option is the potential buyer of the land.  A call option over land is the right of a buyer requiring a seller to sell their land to the buyer for a price at an agreed future date.

Put Options

A put option over land is the right of a seller to require a buyer to buy the seller’s land, again at the agreed price.

Sometimes both put and call options are combined in the one agreement, called a put and call option agreement.  Therefore, for example, if the buyer does not to exercise their call option, the seller can exercise the put option to force the buyer to buy the land.

Typically in option agreements:

• the buyer pays the seller a fee, often called an option fee, for the right to exercise the option by some future date, and preventing the seller from selling the property in the meantime to anyone else
• while there are no hard and fast rules, options fees are often equivalent to 1% of the agreed sale price of the land if the option were to proceed to a contract for the sale of land – I’ve see many agreements where the fee is much higher - if the option is exercised, normally the option fee is treated as being a part prepayment of the price
• the option fee is immediately released to the seller, non refundable to the buyer even if the option is not exercised
• parties must exercise their option rights within a time limit.

The examples above are not the only ways an option agreement operates, but it does give a sound general idea of how they work.

Seller Beware!

A landowner may consider there are benefits, including:

• the delay in selling may be suitable, knowing there’s a buyer committed to buy by a certain date
• the option fee immediately belongs to the seller, regardless if the sale occurs
• less stress in the selling process as there’s already a (somewhat) committed buyer and the price is known

Downsides to consider include:

• the seller is locked in!
• until the buyer exercises their option, if there’s no put option available to the seller, the seller can’t make plans, for example to move, to buy another property before the buyer is committed to complete the purchase
• the seller can’t agree to sell to a subsequent buyer who makes a more attractive and/or higher offer
• the market may change dramatically and suddenly – by far one of the worst possible outcomes.  If property prices were to fall, the buyer/developer may never exercise their option, so when the option period expires, the seller may have not only lost an opportunity to sell for a good price in a previously buoyant market, but the property’s value may have also significantly reduced

So, what to do?
My advice, particularly for a seller, is simply to ensure you really understand what option agreements are – they’re not all the same.

 

Know the advantages, disadvantages, as well as the possible consequences.  Realise it may not even suit your circumstances.

 

By far the best advice I can offer if you’re a seller approached by a buyer, a buyer’s agent, or a real estate agent, talking about options or delayed settlements, is don’t agree to anything, and certainly don’t sign anything, before you consult your own solicitor who will advise you and help you protect your interests.

Swimming pool NSW law changes - attention property owners

Recent changes to NSW swimming pool laws impose new  added obligations on property owners with swimming pools.

 

Property owners must, before 29 October 2013, register swimming pools on their property with their local council and obtain certification, or face a fine.  If this applies to you, you can register, now, online on the NSW Swimming Pool Register, here.

 

Will you be selling your property, with a pool?  You will... one day.  Note the following new requirement.

 

From 29 April 2014, contracts for the sale of land on which there’s a swimming pool, must have attached to them:

1.  A copy of either: a valid certificate of compliance; or an occupation certificate less than 3 years old authorising the use of the swimming pool; and
2. Evidence that the swimming pool is registered – this will be a new additional compulsory prescribed document.  While this is a topic for another article, if a compulsory prescribed document is not attached to a contract at the time it’s entered, the buyer has additional rights to get out of the contract, even if the buyer’s cooling-off period has expired.

Is your property an investment property and you’re not selling?  From 29 April 2014, you won’t be able to lease it without first providing a valid compliance certificate.

  

A major reason for the tightening up of swimming pool laws, of course, is to further combat children drownings and near drownings.

There's still a little time but if you're a pool owner, don't be complacent.

Are you a landlord? Does your rental property have a pool? Double check its safety!

A news story yesterday reported on the rescue by their father of his 2 toddlers from a Sydney suburban backyard swimming pool.  Thankfully, that family averted a near tragedy.

 

News reports also stated that the home was a rental property and, importantly, that the pool’s gate lock was faulty, and section of the pool’s fencing was loose.

 

It’s a timely reminder for all home-owners to effect and maintain their pool safety equipment and to always supervise children playing in or near water. 

 

Property owners too have a legal responsibility, and owe a legal duty to their tenants to eliminate defects in their premises.  See the post I wrote almost a year ago for more on this very topic.

 

Have a happy, and safe, holiday!

So, will minority strata owners be forced to sell?

While the officially the opportunity to make submissions and comments for the Review of strata and community scheme laws has now closed, according to the NSW Fair Trading site, comments and submissions are still currently being accepted.

 

One issue raised in the review process concerns the question of whether minority strata owners can be forced to sell to make way for development.  I’ve commented on this before; I believe the issues I highlighted remain pertinent. 

 

Leesha McKenny in her SMH article today encapsulates the issue by asking can you fairly balance the rights of owners who want their ageing apartment building redeveloped with those of an owner refusing to sell? 

 

Information about the Review is on the NSW Fair Trading site, and a good resource, with online comments and links to submissions, can be found on the Open Forum site here.

 

According the NSW government's indicative timetable, drafting of new laws is to occur by about June next year, with a release of an exposure draft bill in about July next year.  Let's wait and see.

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.

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.

Franchisor in trouble again! Or, why you should speak to as many franchisees as you can before buying into one!

Why are they still at it?  Last Tuesday, the Federal Court fined Australian franchisor Allfones $45,000 after finding it guilty of contempt of court by reason of its breach of an undertaking given to the Court in 2008.  Here's the Court's judgment.  Here's the ACCC's press release.

I've previously noted aspects of this saga here and here.

Eventually, and as a consequence, the company's chief executive's contract was terminated and he was escorted out of the company's headquarters, as reported here, earlier this year.

What does it take to send the message once and for all?  If fines totaling $3 million hasn't done it, will a $45,000 fine do?

Back to to the present case, the judge said 3 contempts were serious, and that the conduct engaged in by Allfones' senior personnel, contrary to the undertakings, was deliberate!

With this history, I wonder why would one want to be their franchisee?

I almost always advise prospective new franchisees, as part of their assessment of an intended purchase, to speak to as many as possible of current and past franchisees of the franchise system they're contemplating - the feedback they get is often more telling about the system and support, than the documents and sales spin.

Big retailer franchisees should've known better - fines are a reminder to small businesses too - be aware of your consumer laws obligations

Like many suburban law practices, I have my fair share of small to medium sized business clients.  A subject that regularly comes up are many of the obligations of business owners under various competition and consumer laws.  The ones most referred to are under the Commonwealth's Competition and Consumer Act (previously called the Trade Practices Act).

Many are aware of the extent of these laws.  Take wholesale for instance.  Generally, a supplier of goods to a retailer can't tell a retailer the price the retailer must sell the item for - it's anti-competitive.  That's why on many goods or catalouges you often a phrase "recommended retail price".  Then there are laws about false and misleading advertising, collusion, exclusive dealing, and the list goes on.

Part of a lawyer's role in certain cases is, I feel, not only to provide advice, but also to educate.  Many clients appreciate it and hopefully I've done my bit to help them avoid potential trouble!  

What does surprise me is when bigger players should've known better - usually because they're far more experienced and have the resources to keep their operators and franchisees informed and in line.  This week we learn from a ACCC report that 6 West Australian Harvey Norman franchisees were fined for engaging in a bait-and-switch practice.  It's where one advertises a great deal on a product, you get there, and because they originally held only a very small number of the items, you're told something like "sorry, we've sold out" and then they try to sell you another, often higher priced, item.  In this WA case, it's reported these particular franchisees didn't even stock the advertised products (cameras) in the first place!

Competition laws apply to big AND small businesses.  The penalties are substantial.  If you're unsure how certain practices in your business stack up, I suggest you play it safe and get advice sooner rather than later. 

Quality practice, better service...

Alvaro Edwards Solicitors is a quality endorsed legal practice. But don't just take our word for it!

SAI Global just completed its second Triennial Recertification Audit of Alvaro Edwards Solicitors' quality management system.  I'm proud to announce that with the support of all management and staff, we have again achieved quality standards recertification to Legal Best Practice ISO 9001/LAW 9000 - a certified standard we first attained in 2005 and continuously maintained since.  Our licence number is LAW20005; Alvaro Edwards Solicitors is one of the earliest law firms to achieve this standard in NSW.

The recent audit report states:

The firm continues to maintain and regularly update the quality management system and supporting procedures to reflect preferred best practice in the provision of quality services to its clients.

The quality system benefits the way we run our business but importantly, it translates into a commitment to better serving our clients.

The process is an ongoing one, and our journey doesn't end with the recent audit.  I'm always conscious of the need to continually improving our processes and serving our clients.

The SAI Global certification process provides an outside independent auditing and certification structure for quality systems to ensure compliance with international quality standards.

Forcing strata owners to sell

There has been discussion in some circles for a while now about forcing minority owners of strata property to sell their units if, for example, three quarters of the owners in the particular strata plan want to do so. Here's an article by Paul Bibby in yesterday's Sydney Morning Herald that gives a good summary of the issue and at least the point of view of developers.

The example cited in the article is fairly typical "...one of the 16 owners - an 80-year-old woman who is refusing to leave because she has convinced herself that she'll die if she does - is refusing to sell, everyone is stuck there while the whole block gradually falls to the ground...".

Most of the points of view I've seen so far are from the perspective of developers and majority owners. I can quite understand their views; I know of an owner of a small shop in a small commercial strata complex. who just cannot sell his small strata shop to a very willing developer. There's about 7 or 8 owners. The site's old, the individual shops are tired looking though still all trading, but its crying out for development (read "bulldozed"!). There have been a number of approaches by developers in recent years but all proposals stalled due to the refusal of one shop owner who's very happy with his business and how things are.

Whilst at first glance the proposals appear reasonable, I haven't yet seen arguments from the minority point of view.

Take the example cited about the elderly woman. She has her home, presumably she fully owns it and is happy to remain there, and she has some fears if she's forced to move. No doubt she's also built up a network of friends, services and care professionals she relies upon in her day to day living. Perhaps she's not happy with offers made too. Why should she be forced to yield to the other owners and developers? If forced to sell, even if she gets a fair price, what's to say she can afford to purchase or move into another comparable property. The Property Council proposes measures to safeguard the rights of owners like her, but what about her right to stay put?

I guess another way of asking this is, how is the position of the unyielding strata owner different from the position of a home owner who refuses to sell their house on a suburban block to a major developer notwithstanding pressure from all their neighbours? As far as I'm aware, except in the case of a compulsory property acquisition by a public authority, there's no way to force a law abiding property owner to sell their property to a developer.

I'm not advocating no change, but it's only fair that all views are considered and fairly considered and dealt with.

It may not affect many of us but if the proposals succeed, what's to stop developers sometime in future moving legislate for the forced sale of your home or farm?

Sellers and Their Agents

Once a decision is made to sell real estate property, in my experience I find that almost all my seller clients have already consulted and signed up with their preferred real estate agent.

There are still occasions however where I'm asked by clients to review or explain their agency agreement before they sign up.

In these cases, over the years, apart from explaining the nature and effect of what are usually "exclusive" agency agreements, I've found that the advice I consistently emphasise includes asking my clients to consider:

• The exclusive agency period. It can be varied!
  
• The commission rate. Its usually negotiable.
• Make sure that the seller is a aware of ALL the potential costs
• Will the agent provide an "early release" guarantee?

More on these points below.

Exclusive agency period. In my view these should never exceed 90 days, but ideally ought to be no more than 60 days. I've been told by clients many times that when they've tried to reduce this period, the agent often protests that they need a decent time-frame to enable their marketing to work. Fair point, but I've also been advised by real estate agents that 60 days, even 30 days in some cases, is more than adequate to not only mount an effective campaign, but also to demonstrate to a seller the agent's genuine commitment.

Under an exclusive agency agreement, a seller is tied to their agent for at least that agency period. This means the seller can't really sack that agent in that time. Generally, that agent is entitled to commission if the property is sold during the agency period, regardless of whether the agent introduced the eventual buyer. If a seller is unhappy with that agent and attempts to "sack" that first agent and appoints another agent, the seller is under a serious risk of having to pay a full commission to two agents!

A shorter agency period gives a seller some flexibility. If they're unhappy with the agent's performance, at least it's a shorter wait to the end of the agency period after which another agent can be considered.

On the other hand, no matter what the length of the agency period, there's nothing stopping a seller entering a new agreement or agency period if they're happy with their agent's performance.

The commission rate - it's actually negotiable! I've commented on this previously. Speak to a number of agents before deciding who to engage. If anything, at least a seller can compare commission rates as well as other factors.

Check for other charges not so prominently disclosed. Make sure that the seller is a aware of ALL the potential costs. As well as commission, to determine whether it's inclusive of GST, and if other charges are additional, such as advertising costs. I've found most agency agreements don't include additional advertising costs but some do; it's something to factor in when making an informed decision.

Is an early release guarantee available? There are agents who subscribe to the Jenman system. One of its features is that no matter how long the agency agreement period, the seller has the right to cancel the agency agreement at any time.

A client of mine recently cancelled a 90 day agency agreement only days after making that agreement. Due to an inadvertent, and what would normally be considered a relatively very minor, error by one the agent's staff, the seller cancelled his agency agreement. The agent rectified the concern immediately, apologised of course, and asked the seller to take at least a day to reconsider. The next day, the seller confirmed his decision. To the agent's credit, the agent in this case honoured his guarantee and released the seller from the agreement, and lost an opportunity to earn quite a handsome commission. Ouch! That must've hurt! But full credit that agent - I'd suggest very few agents in that position would've agreed to such a release.

So, another consideration I'll now be consciously drawing to my clients' attention to if I'm asked to advise on agency agreements, is that they take into account whether a potential agent will provide a similar guarantee.

Our Quality Journey

Visitors to my Alvaro Edwards Solicitors site will notice the Quality Endorsed Practice logo on almost every page. See this page on Quality Endorsed Legal Practice for more information on what this means and how it also benefits my clients.

This post, however, is to proudly announce that SAI Global just completed its annual audit of my practice and again, recommend the continuation of our Legal Best Practice certification under the ISO9001/LAW9000 standard!

Repeating what I've stated previously, this is another incentive for my team's continuing commitment to providing quality management systems for the provision of legal services to my clients.

Displaying a Statement of Ethics

Just the other day I was in a meeting attended by various businesses people. Someone raised the subject of codes of ethics for various industries and professions. From that came a question to those present as to whether we followed such a code that applied to our respective industries and professions. All replied yes. The next question was whether such code was displayed at our places of business. Almost all present, including me, replied yes. For years I have been proudly displaying a Statement of Ethics in my office reception, where its visible to visitors.

The conversation then moved to whether these codes were on our respective websites. Well, until then it hadn't even crossed my mind, but I immediately realised there wasn't one my website. I've now rectified that by adding a page reproducing my profession's Statement of Ethics to which, as the preamble on the linked web page states, I aspire to achieve and maintain.