Selling an Investment Property: Know Your Legal Obligations

Maddalena Romano — Mon, 27 Feb 2017 14:54:24 +0000

While property has the capacity to generate an income for the investor, there may come a time when you, the investor, wish to cash the investment in and move on. What happens then, if the property you wish to sell is currently tenanted? More specifically, what are your legal obligations to the tenant in these circumstances?
Section 71A of the Residential Tenancies Act 1995 (SA) requires that the owner of the property advise the tenants by way of a written notice that they intend to sell the investment property. Furthermore, they must advise of this intention no later than 14 days after entering into a sales agreement. It follows then, that the property would not be able to be advertised for sale until after this period had lapsed.
In relation to terminating the tenancy, if the event that the lease is for a fixed term, the owner must wait out the fixed term period as specified in the lease agreement. Even though the lease has an end date, the property owner must still give the tenant at least 28 days written notice prior to that date. If notice is not given the agreement will continue as a periodic tenancy
If the lease is periodic, the general expectation is that the owners give the tenants 90 days written notice to end the periodic agreement, unless it falls under one of the following exceptions.
• The property is to be lived in by the owner;
• The owner has planned to undertake major renovations;
• Demolition of the property is planned; or
• The property has been sold and the contract stipulates that it must be vacant at settlement.
In the case that an exception to the general rule can be identified, then the property owners may give the tenants 60 days written notice to end the periodic lease. Therefore, once the property owner signs the contract for sale they may issue a written notice for 60 days.
The appropriate form of written notice is the Form 3 Notice of Termination which is provided by the Australian Business and Consumer Services.
In any event, the property owner should ensure that all requirements of the written notice as set out under Section 91 of the Residential Tenancies Act 1995 (SA) are adhered to. For example, it must be in writing, be signed and state the name of the premises subject to the tenancy.
Confused? Uncertain as to what your legal responsibilities are? It is prudent to seek advice from a solicitor in the event you wish to sell an investment property occupied by tenants. A solicitor is best equipped to provide you with appropriate advice offering you the peace and mind that you are meeting your legal obligations. For advice on property law or tenancy agreements please contact Maddalena Romano or the team at Welden & Coluccio Lawyers.

Mum & Dad Banks Beware

Greg Welden — Wed, 08 Feb 2017 09:10:07 +0000

Each morning I like to watch a few minutes of Sunrise. At least I do, until I realise that the kids are no-where close to being ready for school (and the grumbling ensues). At any rate, yesterday morning, I happened to catch a report about the rise of ‘Mum and Dad Banks’. This is the term that has been coined to describe a situation when parents provide money or security to assist their children to jump onto the property ladder. . . although usually not at the bottom (as most of us did, and perhaps where they should).

The story continued, suggesting that a whopping 52 percent of all first home buyers in this country required some sort of financial assistance from their parents in order to secure their first foothold on the property ladder.

While the story was primarily focussed upon housing unaffordability throughout Australia with ‘Family Pledges’ as being a realistic solution to this problem, I was thinking ‘Oh no! Please don’t go there.’

Let me state, from the outset, that Family Pledging is a risky strategy.

So what exactly is a ‘Family Pledge’?

Essentially it is a guarantee. It is a guarantee that you (the parent), should your offspring fail to meet their financial obligations or find themselves in a situation where they are unable to make their loan repayments, will undertake to pay the debt.

In most cases, Family Pledges evolve like this. Son or daughter finds the perfect property (often expensive and close to the CBD). They approach the bank presenting their meagre savings and are swiftly declined. The initial ‘No’ is soon replaced by a ‘Yes’ along with the provision that a family member (usually Mum and Dad), put up their home as a security for the loan.

In recent times, especially as house prices have risen, this has evolved to be an effective strategy used by banks. After all, they know how hard it is for parents to say no to their kids.

The nature of these pledges, I mean ‘guarantees’, is that the bank will demand that parents go and seek their own independent legal advice on the guarantee document they are about to sign.

Why?

Well, they know that there is a lot at stake if things go wrong and they are seeking to absolve themselves of all liability if it does. Make no mistake the stakes are indeed high, the kind of situation that has Mum and Dad losing the very roof over their own heads.

While I’d like to say that we have parents beating down our doors asking for legal advice on such documents, the reality is it doesn’t happen. Lawyers seldom, if ever, provide advice on these kinds of documents. You see, parents want to help their kids. More pertinently, and assuming that they believe their kids are financially responsible, they seem to believe that the main (and only) risk is that their kids will be remiss in their repayments. Unfortunately, there is no ‘peace of mind’ to be found in this belief. You see, even the most financially astute person can fall victim to relationship breakdown. Yes, should your child and his partner separate, chances are they will not be able to afford the loan repayments and you will be called upon to pay off the huge interest that has accrued. I mean, let’s face it, if they could they would not have needed you to go guarantor in the first place.

The bank knows that very few people will seek advice on such a document and will never even consider such a scenario or countless others (job loss, illness) all which have the potential to leave you in a precarious situation.

The bank always wins.

Always.

Consider this. If your son has a $100,000 loan with the bank and has it paid down to $30,000 but THEN defaults on his payments, the bank may want YOU to repay the $20,000 credit card AND the $25,000 personal loan he has with the bank also. It is all in the fine print.

An old gambler’s truth is that you should only gamble what you can afford to lose. Can you afford to lose your family home? Your retirement fund?

I thought not.

All contracts, loans, guarantees and other important documents should always be examined by a lawyer. Visit Jason Coluccio or myself, for this and any other property related issues so that if you do decide to sign, it is with eyes wide open to all the potential risks.