Willmakers often want to set a date for which a minor or young beneficiary receives a gift from their estate. The most common is to suggest that their child receives their estate at 21 or 25 years of age. This is, however, not enforceable and the child can demand the whole of the provision at 18 years of age from the estate, unless provisions are written correctly.
In planning for minor or vulnerable beneficiaries, even a simple will (that is a will without a testamentary trust) needs to consider that a beneficiary who has entitlement to an asset (such as the residue of an estate) is entitled to take the provision upon reaching the age of minority – unless a condition prevents the vesting of the estate.
Conditions may include an obligation to survive by a certain date, with the provision that if the child does not survive until such date than an alternate beneficiary takes. Another condition may be that the child must reach a certain age and obtain a degree or level of training, with a failure of meeting such condition being sufficient to prevent the vesting of the estate (there are limitations in this regard). Alternatively, the provision can be made for the child out of a testamentary trust, with the child being one of many alternate beneficiaries until a date selected by a trustee.
We recommend that any provision to a minor or young person contain conditions. There have been many cases called to answer the rights of a person of legal age (18) calling upon the vesting of a provision from an estate. Proper legal advice can ensure your wishes are considered and upheld – with the obvious benefit being a savings of the estate until the beneficiary is of more suitable age and/or circumstances to inherit.
Nautilus Law Group’s Succession Law Team are trained in conditional planning and can assist you in achieving your wishes for your beneficiaries. We welcome you to contact Caitlin Bampton, on Caitlin@nautiluslaw.com.au or by telephoning at (07) 5574 3560, to arrange a no-obligation consultation with a member of our team.
“SMSF BLUEPRINT” LAUNCH – A WELCOME RESOURCE FOR SUPERANNUATION TRUSTEE PLANNING AND STRATEGY
During the last year, it has been my pleasure to assist Julie Dolan, of SMSF Blueprint, with ideas and concepts desperately needed by our clients who utilise self-managed superannuation funds (SMSFs) in their investment portfolios.I am pleased to see the launch of SMSF Blueprint in the industry, and have offered to share the platform with our clients to assist in the dissemination of what we believe to be a sound tool for our clients. The firm receives no remuneration whatsoever, but I believe strongly in the platform and its usefulness to our clients – so wanted to share this resource with you.
Whilst Julie is a consultant with the Firm, I find her educational platform to be an astounding educational benefit and compliment to the offering of our team generally.
I, along with Julie, have advised many trustees across Australia this year in respect to SMSF compliance, and this educational platform was established by Julie and her partners to address what appears to be an industry wide confusion as to trustee obligations and strategies. I have been consulted on a number of non-compliant SMSFs in the last year, and I am concerned about the expanding enforcement powers of the ATO generally (not to suggest that I disagree with the enforcement process, and its purpose in the marketplace).
Breaches of the rules and regulations can be a very costly exercise – as demonstrated by a recent case in which a 62 year old trustee was handed down an 80 hour community service order after failing to lodge multiple years’ tax returns.
Along with its existing compliance powers, the ATO introduced its new penalty regime effective from 1 July 2014. Penalties of up to $10,200 per trustee for certain breaches of the rules and regulations can be handed down by the ATO. These penalties are payable by the trustee and cannot be reimbursed from the fund.
I am a subscriber to SMSF Blueprint, and find the content to be brilliant and easy to use. I ca use it with clients for demonstration purposes, and general education. However, it is a platform that you can subscribe to for ongoing compliance and training purposes. Plus, Julie and her team offer strategic ideas in respect to planning ideas. The platform changes constantly, with new content on legislation and forward planning ideas.
I am recommending the platform for all of my clients, and making it a mandatory subscription for my new SMSF clients because the risks of not complying are too great. It is such an easy and convenient platform, you can watch the videos anytime and anywhere. It is like having a financial advisor at your fingertips – and certainly gives you the fuel for informed discussions with your financial advisor and accountant. I personally think the platform saves clients’ money, because they can do research and investigate ideas on their own – and then go to the specialists for advice on the suitability and implementation process on those ideas that they find worthwhile considering.
Of course, I am always here to help you in your SMSF planning – but I believe clients should be informed, and the SMSF Blueprint platform is a minimal cost for a vast resource to SMSF trustees.
If you would like to speak to Julie, please feel free to give her a call on 040 445 5001, or email her. Definitely have a look at SMSF Blueprint, if you are considering or managing a SMSF – I think you will be quite pleased at the platform.
For your convenience, you can click here to view the link that I use to link through to SMSF Blueprint.
Katrina Brown BA ATIA SSA TEP
A Call for Transparency in Body Corporate Levy Recovery
As Body Corporate Lawyers, we have the privilege of working with bodies corporate across Queensland – from small schemes, to large commercial schemes. We must, in good conscience, put it out to our fellow practitioners and the industry generally – that transparency must be improved in the production of records to owners – especially, when the owners are subject to possible levy recovery proceedings.
We know that at least two of our legal competitors, have published papers to body corporate managers that suggest a single ledger combining unpaid contributions, interest and recovery costs can be produced. We submit the difficulty with this proposal, in that the notice can be confusing for owners to understand and not reflective of an actual liability.
An example of the confusion arises over the question of what constitutes “reasonable recovery costs”. The decision of Westpac Banking Corporation v The Body Corporate for The Wave CTS 3627  QCA 73 has been advocated as a decision upholding a recovery by a body corporate of legal costs on a “dollar for dollar” basis. In fact, the Court concluded:
“The advantage given to the body corporate…of being able to recover recovery costs as a debt is qualified by the express statement that it applies only to costs reasonably incurred by the body corporate in recovering the amount of the unpaid contribution and penalty.” (emphasis added, see paragraph 60)
We remind the industry that Wave was based on the question of whether a mortgagee, which takes possession, can be held liable for costs incurred in the recovery against an owner. The Court did not vary the previous decisions that the amounts charged, and the actual conduct undertaken, must be reasonable – accordingly, a singular ledger suggesting an owner as “non-financial” without a finding as to reasonableness (or agreement) of recovery costs – can (and we suggest will) give rise to a legal liability against managers and committees who refuse an owner the right to participate, charge penalty interest and refuse discounts (because, in fact, recovery costs are not liquidated, even though costs are defined as a debt).
We have also been provided with a statement issued by another law firm, advising body corporate managers not to distribute ledgers to owners, where the recovery costs have been recorded on the singular ledger. The only way an owner can understand the claim is to see the ledger, but this law firm refuses to produce the ledgers to owners – causing an escalation of costs sought as “recoverable” against owners. This is simply vulgar and unethical, in our opinion.
We ask the industry, how is it that an owner can consider the “reasonableness” of recovery costs – if they are not permitted the opportunity to view the costs from the outset? Why is that the costs are only disclosed (noting here, we produce our invoices immediately upon an owner seeking copies) when substantial costs are incurred? Why is not standard practice for the costs and ledgers to be produced to owners on request? Is this not “reasonable”?
Furthermore, we put it to the industry, how is it that “indemnity” costs can be recoverable, when costs between firms vary? Are we all permitted to raise our legal fees to the highest of us, and then we stand united as to the bar for what is “reasonable” in the industry? Who sets what is “reasonable” in the industry? Which one of us sets the “reasonable” indemnity rate? Is it Nautilus? Is it SPG? Is it Hynes? Is it MBA? Is it Success Law? Is it OMB?
Which one of us sets that “reasonable” industry rate? It is sufficient for us merely to have a cost service agreement that says our associates charge $350, an hour – or should there be a quantification of what is being done? Is it appropriate for a senior lawyer, charging $450 an hour, to contact a client with an update – when that same update could be performed by a $110 per hour law clerk? Is it “reasonable” that the owner is charged $45 for a 1 unit call, versus $11 for the same 1 unit call?
Is it reasonable for mercantile agents to charge at lawyers rates, merely because the mercantile agents obtain a sign off by a Committee? Who decides if that is reasonable? I suggest the owner might think differently to a hostile Committee, who might not even care – if they are told the costs will be recoverable “dollar for dollar”.
How can anyone, with a commercial and ethical mind, think that litigation for $3,000, should result in legal costs in excess of $150,000? Yet, it is happening – and we have seen it (not from us, but from a competitor). The premise, of course, being that the body corporate should not be out of pocket – but at what stage is this industry of ours going to take a logical look at itself? How often could commercial strategies have been adopted, to prevent the escalation of costs from $1,000 to $150,000+? If a commercial party tried to withhold evidence, the commercial party would be penalised. Yet, a number of these ridiculous cases are premised on a lack of transparency – whether it’s a refusal to produce records for an owner’s inspection, or a refusal to produce invoices for an owner’s inspection – or simply, a refusal of the lawyer to try and listen to the owner, and find a solution which is commercially reasonable.
And what of 2.5% interest per month? That is 30% per annum (simple interest). Is this a windfall, when indemnity costs (set at who knows what standard) are recovered? If the managers charge for issuing late notices, and then charges for producing its records and secretarial duties – and these costs are all claimed in the proceeding against the owner, then what is the 30% used for? We have seen the 30% interest fall in excess of $200,000 in some large developments in which the owners are developers – what is that interest going to? Most certainly, in smaller debts, the 30% interest is necessary to settle the costs of dealing with committee issues, finance and alike. However, when we are talking substantial amounts of interest, for example upwards of $40,000, is this not intended, in part, to compensate for costs incurred…so how is it that anyone in our industry would not consider raising the use of interest as a potential negotiation tool (having regard to the costs incurred and ensuring interest is withheld to cover such costs) when dealing with committees to assist in settling matters earlier? Certainly, there is no legislative or court decisions which would suggest the offset is a requirement, but is this not what we do when we deal with our commercial clients? We try to balance the scales of justice, to deliver an outcome benefiting the whole.
But who really wins, even if a scheme recovers its indemnity costs and interest? Is no one concerned about the damage to the industry this practice could effect in the long term? Where will banks and finance institutions stand on lending to acquire body corporate properties? Will they start to set higher interest rates, to address the risks of lending (because if they end up taking possession, their liability for the bodies corporate lawyers recovering $12K, may exceed $350,000!)? If they increase interest rates, does anyone think that will be a good outcome for property values in bodies corporate? If there is less interest in the body corporate market, does anyone not see a problem in the long run for our industry?
And what of the situation when the legal fees charged by a law firm exceed the value of a property? We are reviewing a case in which the legal fees charged on what started as a $3,000 debt are now in excess of $180,000! The property is valued at $220,000! Is it not the lawyer’s duty to advise the owners that even if they win – there may be a substantial shortfall which can only be raised by a special levy charged to all owners (because not all costs charged are recoverable – as we are seeing in cost assessments and legal proceedings)? And what happens if that $3,000 debt was actually calculated incorrectly – and the court finds against the body corporate? In the present case (with $180,000+ in legal costs) – that means every owner is going to wear a percentage of that failed litigation – even the owner who was sued, and won! How can any of us see this as fair to the industry to which we serve?
We have had our fair share of extraordinarily difficult debtors who have incurred recovery costs of $20-$30K in protracted litigation. We appreciate this can and does happen. There are some owners who, no matter what you do, are habitual and defiant debtors, vendetta driven debtors and/or irrational debtors.
Our thought is this:
- The industry must make transparency a priority! If an owner asks for a document, produce it! Do not go to lawyers to avoid production, simply produce it. If an owner wants an invoice, produce it. If the cost is “reasonably incurred” – what’s the problem? Why hide anything?
- The industry must question legal practices and rates. Lawyers and mercantile agencies need to be held accountable for spending. The legal and mercantile industry in the body corporate arena must be held to commercial standards, and not “anything goes” standards. It reflects poorly on our entire industry – although only a handful of firms and agencies are abusing the situation.
- The industry need to be problem solvers, not instigators. If there is an easier solution, try it first. If that does not work, then go the distance. But at least try the easier solution. For example, if you have judgment – go back and try and negotiate again – don’t simply go to bankruptcy! Find out if the owner can raise additional finance, or consider whether superannuation access can be acquired through hardship. However, the debtor is someone’s parent, sibling or best friend; therefore, start the process by affording each debtor the disclosure and respect you would want provided your family or friend to be granted, if they were in a similar situation. If the debtor nonetheless refuses to act reasonably, then costs necessarily follow.
KATRINA ELIZABETH BROWN BA ATIA TIA SSA
NAUTILUS LAW GROUP
Suite 7, 128 Bundall Road
Bundall Queensland 4217
(07) 5574 3560
Due diligence searches are an important factor when purchasing a commercial or residential property, and ensuring you are considering all important information is key to determining that the investment is sound and whether to proceed with the transaction.
As body corporate solicitors, we strongly urge all potential buyers of strata property to consider a thorough search of the historical minutes, financials and general communications available in the strata records to ascertain how the body corporate is functioning and to appreciate what expenses are anticipated. A search of the strata agenda, minutes, resolutions and other records available on a Body Corporate Records Inspection can demonstrate how well the property functions generally (for example, is the property governed by a dysfunctional committee and/or are there owners who make resolving Strata matters difficulty and/or are there expenses unmet (such as a roof repair that has been considered, but not addressed requiring a special levy). In addition to the “standard searches,” we strongly urge clients to conduct a Body Corporate Records Inspection to find the “skeleton in the closet.”
What is a Body Corporate Records Inspection?
A Body Corporate Records Inspection is a physical inspection of all records held by the relevant body corporate. Depending on the size and age of the body corporate, the records are anywhere from the size of a binder folder, to the size of several archive boxes. While the amount of information to be reviewed can be slightly overwhelming, it is important to examine all relevant records.
What do you look at in a Body Corporate Records Inspection?
As a general rule of thumb, we suggest reviewing all body corporate records from the previous 3 years.
There are, however, key documents that we would suggest reviewing:-
Recent accounts statements for the administrative and sinking funds will indicate the current balance of each fund. Bear in mind that the administrative fund pays for ongoing, day-to-day expenses (this can include gardening, general maintenance, insurance, body corporate manger’s fees), whereas the sinking fund pays for capital expenses (such as painting).
It is important to ensure there are sufficient funds coming into and maintained in the administrative account to fund ongoing expenses (there should be numerous transactions on this account), and to check the balance of the sinking fund (which, in most cases, rises steadily – if the account is decreasing, there may be large capital improvements that have been made for you to investigate).
Review and compare the balance sheet and budget for the current and prior financial years – look at whether there are any significant changes to the budget or balance sheet that are unexplained, and to ensure that levies charged throughout the financial year are sufficient to cover the budget for that year.
The body corporate may have commissioned reports for specific inspections of the complex – such as fire inspections, general building and pest inspections, or structural reports. Review these reports in detail to check for any concerns raised or recommendations made by the report writer, and check the body corporate records as to whether these have been addressed.
Make a copy of the body corporate insurance (if you are obtaining finance, you will generally need to provide this to your lender). Review the insurance to ensure it covers all crucial elements, and check whether the building is insured for the recommended amount.
Review the By-Laws for any changes and to ensure you have received the most current copy. Remember that the owner and tenant of the complex must ensure that these By-Laws are complied with at all times.
Although this covers a broad range of information to review, it is crucial that the correspondence is thoroughly reviewed – it might only be one line in an email that is enough to raise a “red flag” of a potential issue.
Unfortunately, there is no cheap or easy way to do the records inspection – however, while combing through several years of information about the body corporate can be time consuming, it is certainly a worthwhile exercise.
Residential Case Study: Jane’s purchase of Unit 3 University Drive
Jane signed a Contract for the purchase of Unit 3 University Drive – a unit on the second floor of a two story building (which is around 15 years old), in which there are eight units. The Contract contained a specific provision that she was permitted 14 days to conduct a body corporate records inspection, and had the right to terminate if the results were not satisfactory. When Jane initially provided her instructions, she advised she didn’t think the records inspection was necessary – the building looked stable, the unit was just intended to be an investment property, and the cost of the inspection was too high (at a few hundred dollars). Despite her solicitor warning of the potential issues that could be uncovered in a body corporate records inspection, Jane confirmed she didn’t want to pay for the inspection and to only conduct standard searches.
Her lawyer telephoned Jane on the date the condition was due to confirm she was prepared to let the date pass with no action, and did not require the search to be conducted – during the telephone call, Jane had a change of heart and requested that the inspection be conducted and results advised immediately (please try to avoid doing this to your solicitor – while we appreciate that you may change your mind, short notice of a change of your instructions may result in insufficient time to conduct the search – it is best to give your solicitor as much notice as possible). The lawyer was able to arrange an inspection of the records, and attended at the body corporate’s office to inspect same that afternoon. The person inspecting the records initially went through 3 years’ worth of records (as we suggest above) but, due to the size of the body corporate and age of the building, decided to inspect records back to 4 years instead.
A one line email 2 days before the 4 year mark was to the effect of one owner of a unit complaining that the structural issues with the building of their earlier email (dating back approximately one year prior) had not been resolved. This caused concern with the inspector, who then reviewed older reports and correspondence, which indicated that there was structural cracking in the building at two places, that could only be fixed by costly repairs (in the sum of approximately $40,000).
This outcome was reported to Jane, who, on the basis that the issue was unresolved (and assumed to have worsened due to inaction over the prior 4 years), elected to terminate the contract.
Commercial Case Study: John’s purchase of Unit 1 Industrial Estate
John signed a Contract for the purchase of a commercial unit from which he was going to run a manufacturing workshop. His contract contained a 14 day due diligence clause and he gave his solicitor immediate instructions to conduct a records inspection.
Upon inspection of the records, correspondence indicated complaints from unit owners of cracking in the foundation of the central carpark of the complex. Further investigation into the reports obtained by the body corporate revealed that the cracking was caused by the foundation of the building “slipping”, and indicated that action would eventually need to be taken, but was not yet critical. The body corporate had resolved that no action was to be taken at present, but was aware that the cost to repair the damage caused and to prevent further “slipping” was in the vicinity of $100,000.
Further investigation into the balance of the sinking fund indicated that the body corporate held approximately $300,000.
On the basis that the body corporate held a sufficient sum in the sinking fund so as to fund the repairs in the future, John did not object to the outcome of the records inspection and satisfied the condition.
What happens if I find a problem when I conduct an inspection?
If your lawyer reviews the contract for the purchase of a unit or apartment before you have sign it, they will most likely recommend that either a “due diligence” or “body corporate records inspection” clause be inserted. These types of clauses allow the buyer to inspect the records and, if an issue is revealed through the course of such investigations, will give rise to rights under the contract (such as to terminate). If you are alerted to an issue with a records inspection, we recommend you contact your lawyer as soon as possible to discuss appropriate action and to obtain advice as to your options. Once you have been fully informed of these matters, you can provided instructions on how you wish to proceed.
If you are considering purchasing a property that is part of a body corporate or have any questions about body corporate records inspections, please contact our Property Team on 07 5574 3560. Thank you, Katrina Brown, Senior Lawyer.
As Body Corporate Lawyers, we’ve heard every excuse imaginable.
Our top 10 favourites are:
- “I didn’t pay my levies because no one respects me.” (Sorry – respect has nothing to do with your legal obligations.)
- “When I bought the unit 20 years ago the levies were $150 a quarter and now they are $500 a quarter – I’m being robbed!” (Sorry – it’s called inflation.)
- “I didn’t approve the budget. I’m only paying what I think is fair and the other owners can pay the rest.” (Sorry – majority wins in strata living.)
- “What do you mean I haven’t paid my levies?? I paid them once two years ago!!” (Sorry – levies keep falling due – it’s not a once off expense.)
- “The Body Corporate doesn’t cut my grass, so I’m not paying my levies.” (Sorry – the Body Corporate isn’t responsible for cutting your grass.)
- “The gardener assaulted me – the weed whipper stirred up the grass and I was hit by the flying grass when I walked to my car. I want compensation, I have gone to the police and I am not paying my levies until I get justice.” (Sorry – but weed whipper incidents do not constitute an offset for levy liability.)
- “The letting agent has not paid my rent, so if I am not getting paid – neither is the Body Corporate!” (Sorry – the Body Corporate isn’t your letting agent or tenant, you can’t offset one against the other.)
- “I gave my time to the Body Corporate and they didn’t pay me, so I am deducting the value of my time against my levies.” (Sorry – but trimming your bushes does not offset your levies.)
- “My spouse and I are going through a divorce – they live there, they have to pay it!” (Sorry – but you both own the property, you are both liable to the Body Corporate.)
- “What are levies?” (Seriously?)
Owners must appreciate that it is their legislative duty to pay levies as and when they fall due. Disputes in respect to the amounts of validly raised levies need to be made at an AGM/EGM level – and not as a separate vendetta by non-payment. Additionally, an owner is not at liberty to offset from levies, any alleged or real claims the owner may have against the body corporate (such as a claim for payment of damages caused by the body corporate to an owner’s exclusive use area, consequential to a repair made to common property). Careful consideration has to be made to arguments by owners as to the responsibilities of the body corporate in relation to maintenance matters, and this is dependent on the scheme type (for example, an owner cannot impose maintenance costs on the body corporate in respect to the owner’s lot – but equally, a body corporate cannot impose a levy in respect to maintenance costs in respect to lot except in a strictly narrow set of circumstances). Importantly, owners have to appreciate the body corporate is not a charity, bank or financier – and has absolutely no obligation to grant payment plans, abstain from raising levies and/or otherwise provide financial assistance to owners.
At Nautilus Law Group, we work zealously for our bodies corporate to recover unpaid levies in a timely and cost effective manner. Sometimes, the most effective method of achieving the recovery is spending the time to educate owners. By no means is it the bodies corporate responsibility to have to “educate” its owners; however, transparency and education achieve results. When, transparency and education do not work, then the legal system must intervene.
If you have questions about body corporate levy recovery, please do not hesitate to contact our Team to discuss your matter on (07) 5574 3560 – or – by emailing our Team at Info@nautiluslaw.com.au. We look forward to speaking with you. Katrina Brown, Senior Lawyer.