Do You Have Capacity For A Will?

Preparing a Will requires careful thought on the part of the person or persons for whom the Will is being prepared but it also demands great care and skill by the lawyer who is preparing the Will.

With people generally now living much longer and being prone to deteriorating mental health careful consideration must be given to whether or not the person for whom the Will is being prepared has the required level of mental capacity to make a legally valid Will (referred to as testamentary capacity). This is not only an increasingly important issue for lawyers, but it is also an equally important issue for accountants, financial planners, family doctors and other advisors.   

One must appreciate that the assessment of a person’s testamentary capacity is a legal test rather than a medical test. The opinion of a treating or reviewing medical practitioner is certainly relevant, but it is not determinative of itself.  An assessment of a person’s testamentary capacity may include obtaining an appropriate doctor’s opinion, but it very likely will also require evidence from other sources including people who know or have known the person concerned and who can inform the Court (if necessary) about  the day to day activities and responses of the person concerned.

Not infrequently, testamentary capacity can be a borderline issue. This may leave the person for whom a Will is being prepared or has been prepared vulnerable to those who may seek to exert influence over the Will maker and what they put into their Will.  Where the Court is called upon to determine a person’s testamentary capacity it will try and look at the full picture (sometimes with the benefit of hindsight) which often involves hearing from a wide range of witnesses.

For family members, as well as financial, medical or other advisors, this means making sure that at the time that the Will is executed there are comprehensive written records of the Will maker’s testamentary capacity – the Will maker should be engaged in conversation and if possible detailed written notes kept of responses to questions and the reactions to events that are happening around them at the time. It may also be valuable to take video of the person concerned at or about the time that they execute their Will to support the conclusion that they then have the necessary testamentary capacity.

These simple precautions can assist to prevent a Will later being declared invalid by the Court because the Court is not positively satisfied that the person making the Will had the required level of testamentary capacity.

The consequence of a Will being declared invalid by the Court can be significant and expensive. This may be especially so where there is a sizable Estate at hand and/or where there are potential vulnerable beneficiaries who may miss out on receiving a benefit from the Estate of the deceased.  The intended testamentary wishes of the person making the Will may be lost and their Estate distribute in a manner which is far less satisfactory and possibly even contrary to their expressed testamentary wishes.

Therefore, anyone who provides professional advice to others must carefully consider the mental capacity of the person being advised to properly understand the advice provided, appreciate the consequences of following that advice and be capable of providing coherent and reliable instructions to the advisor. In the case of a person who is making a Will, it is the required level of testamentary capacity of that person that is crucial. It is, of course, equally  important to ensure that the Will together with all other estate planning documents are regularly reviewed and updated so as to ensure that the person’s Estate will be distributed in accordance with their current testamentary wishes.

PLEASE CONTACT

For more information or to discuss any particular concerns contact Les Buchbinder at [email protected].

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Some Super Changes

Here we go again….!

Several significant changes to the superannuation rules became effective from 1 July 2017.Do you really need to know about them?  Yes, you do!

Not only will the changes impact on your plans for your superannuation and retirement, but they will very likely also impact on your estate planning objectives and arrangements.

Ok, So What Has Changed?

In summary, the new rules after 30 June 2017 in relation to pensions include the following:

1. A person cannot start a pension with an account balance supporting a pension of over $1.6m (or continue such a pension after 30 June 2017).

2. This limit is called a person’s “transfer balance cap”.

3. When a person starts a pension after 30 June 2017, they will have a “transfer balance account”. This will track key events in relation to the person’s pension, to see if the person exceeds their transfer balance cap (either on starting the pension or at a date on starting an additional pension).

4. If someone exceeds their transfer balance cap, they will need to take action to rectify the problem (that is, by commuting part of their pension).

5. If the person does not take action, the Commissioner of Taxation can force the fund to rectify the problem (by issuing a “commutation authority”).

6. The rectification action that can be taken will involve commuting some or all of the pension to a lump sum.

7. Except in relation to pensions resulting from the death of a member, such a commutation can generally be retained in the superannuation system.

What Does This Mean For Me?

What this means in practical terms is that where the death benefit exceeds the recipient’s transfer balance cap (currently set at $1.6 m), then any excess must be cashed out as a lump sum. This will impact in particular on those wishing to keep benefits in superannuation by reverting or paying a pension to their dependants upon their death.

How Will This Affect My Estate Planning Decisions?

There are a number of ways in which these changes may impact on estate planning decisions. For example:

1. It will be necessary to review and possibly update death benefit nominations and Wills;

2. It may be necessary to review and update Self Managed Superannuation Fund Deeds to bring them up to date with the new legislation and to allow estate planning objectives to be achieved. For example, often older Deeds do not allow for non lapsing Binding Death Benefit Nominations;

3. Where members of a superannuation fund have balances exceeding the transfer balance cap, they may need to consider setting up a  Self Managed Superannuation Fund for their pension interest and retaining their remaining accumulation interest in their existing fund. However, care will need to be taken as this could trigger tax issues and accordingly appropriate tax advice should be sought to determine the tax implications of each strategy. A good estate planning strategy can sometimes be a disaster from a tax planning perspective; and

4. Where a death benefit is required to be paid as a lump sum this may force the sale of non-liquid assets where there are insufficient liquid assets to satisfy the lump sum. In such a situation a strategy needs to be developed to prevent this occurring.

These are examples of some of the impacts the new superannuation rules will have on estate planning strategies, but in individual circumstances there are likely to be other impacts as well.

Conclusion

Estate planning is not a set-and-forget process. Rather it is an ongoing evolving process, which must necessarily respond to changes in individual personal, financial and other circumstances, as well as to changes in the law.

The changes to the superannuation rules will have far reaching effects for those who hold, or who anticipate holding, significant funds in superannuation. Therefore, for those who are, or might soon be, affected by these changes it becomes critically important to respond and carefully review your estate planning arrangements and strategies. This review may necessarily extend to reviewing business structures and business succession arrangements.

Those who choose to ignore the new superannuation rules and/or who choose not to regularly review their estate planning and business succession arrangements do so at their own peril. They also do so at the peril of their families and loved ones with potentially significant detrimental financial consequences.

PLEASE CONTACT

For more information or to discuss any particular concerns contact Les Buchbinder at [email protected].

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The Sham Of It All!

Surely I can save money by terminating the employment of a worker and then re-engage them as an independent contractor?

Not so fast….

Recently the Federal Court of Australia imposed a significant financial penalty against a company after that company was found to have breached the sham contracting provisions of the Fair Work Act 2009 (Cth) (“the Act”).

Section 357 of the Act protects genuine employees from “sham” arrangements in which they are portrayed as being independent contractors whereas in reality they are genuine employees.

Genuine employees are entitled to a range of rights and benefits (including sick leave, holiday pay and superannuation) whereas independent contractors do not enjoy these same benefits.

A sham self-employment contract arises in circumstances where a person is engaged to undertake certain work and/or provide certain services ostensibly as an independent contractor when the true situation is that they are not actually an independent contractor at all but an employee.

Cases where employers have misrepresented employees as being independent contractors have become more prevalent primarily because there is a financial benefit in doing so.   It is often less expensive to engage an independent contractor than to engage the services of an employee and, further, very often there are not the same risks associated with terminating an independent contract as there are in terminating the services of an employee.

On 2 December 2015 the High Court of Australia handed down its decision in the matter of Fair Work Ombudsman v Quest South Perth Holdings Pty Ltd (2015) HCA 45, which was a case in which in 2009 Quest South Perth Holdings Pty Ltd, through the services of an independent  staffing agency, terminated the employment of two housekeepers and then immediately re-hired them but allegedly as independent contractors to perform the same duties.  The Fair Work Ombudsman commence legal proceedings against Quest South Perth Holdings Pty Ltd alleging that this arrangement was in breach of the sham contracting laws set out in Section 357 of the Act.

Initially the proceeding commenced by the Fair Work Ombudsman in the Federal Court of Australia was unsuccessful. However, in a subsequent Appeal to the High Court of Australia, the Court held that Quest South Perth Holdings Pty Ltd had breached the sham contracting provisions of the Act by misrepresenting an employment relationship with the the two housekeepers as that of independent contracting. The High Court of Australia said that the two housekeepers continued to perform precisely the same work for Quest South Perth Holdings Pty Ltd in precisely the same manner as they had always done. The Court said that in law, the two housekeepers had never become independent contractors.

The Federal Court of Australia when it initially rejected the argument of the Fair Work Ombudsman found that the sham contracting provisions of the Act had not been breached because the arrangements had been made through the services of a third party (an independent labour hire firm) and not directly between Quest South Perth Holdings Pty Ltd and the two housekeepers. However this finding was rejected by the High Court of Australia and the fact that the arrangement was conducted through the services of the labour hire firm did not mean that the sham contracting provisions of the Act had been circumvented and not breached. Indeed the High Court of Australia went on to say that the misrepresentation by Quest South Perth Holdings Pty Ltd was exactly the type of activity which was intended to be caught by Section 357 of the Act.

The High Court of Australia referred the matter back to the Federal Court of Australia for it to impose appropriate penalties.  The Federal Court of Australia has recently dealt with the issue of penalty and imposed  a fine of  $59,000 against the company for breaching the sham contracting provisions of the Act.

This case highlights the difficulties faced by those who engage the services of workers and those workers themselves in determining whether a particular relationship is one of employer and employee or, alternatively, one of principal and contractor. This distinction can have significant financial and other consequences for all involved.  The Courts have developed a series of key indicators to assist in determining whether a particular relationship is one of employer and employee or, alternatively, one of principal and contractor.   None of these indicators is alone determined in a true and ultimately it is for the Court to decide based on all of the evidence before it.

Perhaps the more significant feature of this decision is that it highlights that the sham contracting provisions of the Actcannot be avoided by utilising a labour hire firm through which to engage the worker.

In order to minimise the risk of being caught in a sham contracting situation, employers should:

  1. ensure that the relationship with their workers is what they have assumed them to be.   If in doubt, they should seek competent legal advice;
  2. ensure that they do not misrepresent the nature of relationship to workers otherwise they will face prosecution and potentially significant penalties, for breaching the Act;
  3.  if engaging workers through a third party such as a labour hire firm, continually examine the relationship and implement risk management strategies.   If an employment relationship is later found to exist instead of one of contractor, the employer can be liable for significant back payment of entitlements in addition to any penalties that may be imposed for breaching the Act.

PLEASE CONTACT

Contact Les Buchbinder at [email protected] if you wish to discuss this matter or your estate planning objectives further.

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What’s to Know About a Commercial Lease?

When first entering into a lease of commercial premises the task may seem daunting as well as confusing.

A lease is a legally binding contract (carrying significant legal consequences if its terms are breached) which creates certain rights and obligations between a landlord and a tenant in respect of a particular property. A commercial lease is used where the main use of the property is for business purposes.

It is critically important for prospective tenants to be aware of, and to fully understand, all of the important terms and conditions of the proposed lease. Entering into a lease without doing so can lead to significant and potentially fatal financial consequences.

Most, if not all, commercial leases contain several key terms which must be well understood before any prospective tenant finally commits to entering into the lease. These include:

Rent
What is the rent that you will be expected to pay? When will it fall due and payable (i.e. each month or each fortnight)?

Generally rent is calculated based on the area (per square metre) of the premises being leased. Sometimes reaching agreement as to the area that is being leased and for which rent is payable is not a straight forward exercise.

Rent Increase
Equally as important as ascertaining what is the actual rent payable, is understanding when rent increases are due and how they are to be calculated. Rent usually increases annually during the term of the lease determined either by a fixed percentage, market-value or possibly with respect to the Consumer Price Index (CPI). In the event that the lease provides for a market value review (as opposed to fixed increases) a market value review is required to take place at the expiry of the initial term and at expiry of any option to renew the lease.

Security/Bank Guarantees
In some instances, a landlord may ask for some form of security from the tenant or proposed tenant in order to cover a situation where the tenant fails one of the key obligations under the lease, such as failing to pay the rent. Sometimes the security required is a payment equal to 3 or 6 months’ rent and in some instances this is sought to be further guaranteed by some form of a bank guarantee. If such a security is sought in the lease, then the lease should also set out clearly the terms as to when the security payment will be returned back to the tenant. Similarly, if the tenant is a company then it is common for a landlord to require one or more of the company directors to provide a personal guarantee that the company will meet all of its obligations under the lease, including the obligation to pay rent.

Term (Duration)
Another key term of the lease is the duration of the lease itself. The lease document should set out clearly the length of the lease as well as any further options to renew the lease and any particular terms or preconditions that may be required relating to the renewal of the lease. Where a lease provides for one or more options for the tenant to renew the lease, it is essential that the tenant be aware of both when each option must be exercised and how it must be exercised (i.e. what form of written notice is required to validly exercise that option to renew the lease). Failing to exercise each option by the prescribed date and/or in the prescribed manner will (unless otherwise agreed) result in the lease ending and either no further lease being offered to the tenant or a new lease being offered but potentially on less favourable terms. This, of course, can be financially disastrous to a small business.

PLEASE CONTACT

Contact Les Buchbinder at [email protected] if you wish to discuss this matter or your estate planning objectives further.

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Leasing Incentives – the Disincentive is in the Detail!

A recent survey by  Property Council of Australia found that the Perth office vacancy rate rose from 19.6 percent to 21.8 percent in the six months leading up to July.  This high vacancy rate has resulted in an increase in lease incentives being offered by landlords to prospective new tenants and to existing tenants whose leases are due to expire.

In a significant turn around to the recent past, the commercial rental market today is very tenant friendly and we are seeing (among other things) a resulting drop in effective rents.

Incentives

A lease is a legally binding contract which sets out the respective rights and obligations to both the landlord and the tenant in respect of the use by that tenant of a property owned by the landlord. The terms of a lease are negotiated between the landlord and the prospective new tenant and there are sound reasons why leasing incentives are offered.

Landlord’s reasons to offer incentives

 

  • Landlords can choose between their premises becoming or remaining vacant or accepting a lower rent or offering other incentives
  • Landlords can achieve a rent that provides some or all of the cash flow to pay for ongoing holding and operating costs (and possibly pay off development costs)
  • Landlords can encourage tenants to take up longer lease terms (the longer the term, the higher the incentive)

 

Tenant’s reasons to accept incentives

 

  • Tenants will seek to maximise the benefits that can be obtained when entering into a lease;
  • Tenants may have the choice as to whether to pay a higher rent and receive an incentive or pay a lower rent and receive no incentive
  • Landlords may offer an incentive to fund some or all of the fit-out costs or (in some other way) free up the tenant’s finances to enable the tenant to meet those fit-out costs.

 

Lease incentives can take one, or a combination, of the following forms:

 

  • Rent free period or reduced rent period;
  • A cash payment to the tenants or other in kind payments;
  • A free office or other fit-out, whether paid directly by the landlord or by way of reimbursement to the tenant for fit out expenses; and
  • The landlord assuming the tenant’s liabilities under an existing lease (i.e. lease legacy or lease tail).

 

So, What’s the Disincentive?

Negotiating the terms of a lease and any incentives to be offered or gained is often an extensive and robust process. At the conclusion of this process it is vitally important that both parties have a very clear common understanding as to the agreed key terms of the lease  and  exactly what incentives have been agreed to by the parties. Failure to achieve this will almost certainly result in misunderstandings, disputes and ultimately expensive protracted litigation.

Settling the wording of a lease is also a critical step in the process of securing a viable long-term tenancy for any property. This includes ensuring that all agreed incentives offered by the landlord are carefully and accurately recorded in the lease document. This is as much for the protection of the landlord as well as the tenant.

In addition, careful consideration must also be given to what other implications of the agreed incentives may exist.  For example:

 

  • Are there any tax implications?
  • Are there any government approvals that must be first obtained?
  • Has an agreement been reached as to what is to happen to any of the assets from which the tenant has benefited and for which the landlord has paid once the lease comes to an end?

 

Sometimes, where a tenant accepts certain incentives offered or agreed to by the landlord, the effective rent payable by the tenant is significantly reduced  and the Landlord may wish to keep this information confidential in order to preserve other tenancy arrangements with other tenants and/or to preserve the value of a building’s capital value. Such a confidentiality requirement can be recorded in the lease itself or, alternatively, as a separate Deed.

Whilst there are many incentives on offer to prospective tenants which are very attractive, it is essential that prospective tenants fully explore and understand the incentive being offered, whether it is a real benefit to the tenant’s business and what are all of the implications and obligations in accepting such an incentive. It is also essential to both the landlord and the tenant that the incentive agreement be fully and properly recorded in writing as part of the lease so that both parties have a clear understanding of the nature and full extent of the agreed incentives.

It is strongly recommend that all lease agreements be carefully reviewed by a lawyer before being signed by either the landlord or the tenant to ensure that it appropriately records all of the required terms and conditions including any incentives that may have been agreed to by the parties during the negotiation process.

PLEASE CONTACT

Contact Les Buchbinder at [email protected] if you wish to discuss this matter or your estate planning objectives further.

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Slap on a Caveat!

A reoccurring issue that I deal with relates to people or businesses that are looking to register a caveat against the Certificate of Title (“Title”) to land. A caveat when registered against the Title to the land will generally prevent ownership of the land from being transferred into another person’s or entities name. More often than not, such people are looking to register the caveat against the Title because the registered owner of the property owes them money and they are trying to stop the land  from being sold so as to secure payment of the debt owing to them.

Unfortunately, a caveat cannot be registered against a Title simply because the registered owner of the land owes money to the person or entity seeking to register the caveat or for some other reason that person wishes to prevent the transfer of ownership of the land into the name of a third party.

In order to be entitled at law to register a caveat against the Title of land owned by another person or entity you must have what is referred to as a ‘caveatable interest’ in the land.

So, What Exactly is a Caveat?

As I mentioned above, a caveat is a document registered on a Title to land, that prevents dealings (such as buying, selling or mortgaging the land) with the land. A person who registers a caveat is known as a “caveator”. The caveat itself does not create an interest in the land or give the caveator the power to sell the land. Rather what it does do is to act as a:

  • warning that the caveator has some form of interest in the land; and
  • an  injunction to prevent any dealings in relation to the land.

Importantly, in Western Australia a person who registers a caveat against a Title to land without having a valid a ‘caveatable’  interest in the land  becomes  liable to pay compensation to any person who suffers financial  loss as a consequence of the caveat being registered against the Title to that land. Such compensation may amount in some cases to many thousands of dollars, such as where a sale of land is lost because the caveat is registered against the Title unlawfully.

Therefore, whilst the actual process of registering a caveat against the Title to land is a relatively straight forward one, the consequences of doing so if you do not have a clear caveatable interest in that land can be very significant and sometimes financially fatal.

When do I have a caveatable interest?

There are different kinds of interest in land that will satisfy the requirements of a “caveatable interest’ in the land. The following kinds of interest in land have been accepted by the Courts as caveatable interests:

  • as purchaser under a contract to acquire the land;
  • as grantee of an option to acquire the land;
  • as tenant of the land;
  • as the holder of an equitable mortgage in relation to the land; and
  • as chargee of the land;

A caveatable interest in land can arise in several different ways including by agreement. The latter is very important in commercial transactions because it is possible in many circumstances for parties to a contract to agree to the creation of a caveatable interest in one or more nominated pieces of land to secure a debt thereby providing the creditor or potential creditor with the ability to secure debt against tat land by way of a valid caveat

Is there More Than One Kind of Caveat?

There are different kinds of caveats and so it is important that if you are intending to register a caveat against the Title to land  that you also ensure that the correct kind of  caveat is lodged in the circumstances. There are 3  kinds of caveats that can be registered against the Title to land  in Western Australia. These are caveats that prevent dealings relating to the land:

  1. absolutely (absolute caveat);
  2. until after notice is given to the caveator that the caveat has been registered against the Title to the land (notice caveat); and
  3. unless the caveat registered is expressed to be subject to the claim of the caveator (subject to claim caveat).

Each of these kinds of caveats have different characteristics and benefits depending on the situation at hand. Care needs to be taken in selecting the most approprate caveat for the situation at hand.

Conclusion

Registering a caveat against a Title to land can often provide a swift and cost effective way of securing an existing or anticipated future debt. However, unless there is a valid caveatable interest in the land and  the correct kind of caveat is selected the exercise can quickly turn into a financial disaster. If the validity of the caveat is challenged then the caveator must either withdraw the Caveat voluntarily (thereby losing the security for the debt) or take a potentially significant financial risk in maintaining the caveat registered against the Title to the land and hope that he/she/it is found to have a valid caveatable interest in the land in question.

It is highly recommended that competent legal advice be obtained before proceeding to register or attempt to register a caveat against the Title to land to ensure that a valid caveatable interest exists and that the correct kind of caveat is selected to register against the Title to the land. It is also highly recommended that competent legal advice be obtained before entering into any significant commercial transactions to ensure that either:

  1. you  are aware of, and agree to, the creation of a caveatable interest in a Title to land registered in your name or one of your business entities; or
  2. a valid caveatable  interest is in fact created in Title to land if as a creditor or potential creditor you wish to secure debt against Title to land.

PLEASE CONTACT

Contact Les Buchbinder at [email protected] if you wish to discuss this matter or your estate planning objectives further.

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Business Succession – My New Business Partner

When starting a business the last thing that many new business owners give consideration to, or sufficient consideration to, is what will happen in the future when the new business owner or an existing joint business owner either wants to exit the business or, through death, illness or disablement, is forced to exit the business.

A recent Succession Report prepared by Pitcher Partners in conjunction with Swinburne University revealed that 51% of business owners do not have a business succession plan in place.

An important part of any business succession planning is putting in place as early as possible an agreement between the business owners setting out an agreed process for what is to happen when one of the business owners wishes (or is forced) to exit the business and, importantly, what is to happen to that business owner’s interests in the business.

Can’t I give my interest in a business to someone else in my Will?

Business owners are in many instances able to bequeath or gift their business interests to someone of their choice under a Will.

However, this method of business succession has a number of pitfalls, the most significant of which is that it may well leave the surviving business owners in a business arrangement with a person or persons with whom they are not familiar and with whom they may not wish to have an ongoing business relationship.

For this reason it is important for businesses to have an agreed business succession plan in place. A commonly used way of achieving this is through the use of a Buy/Sell Agreement.

A Buy/Sell Agreement will take precedence over the Will because the deceased’s business interests will be transferred in accordance with the Buy/Sell Agreement and will not form part of the deceased’s estate.

What is a Buy/Sell Agreement?

A Buy/Sell Agreement is in effect part of a business succession plan. It is a contract that provides for the future payout or sale of a business owner’s interests to his or her business partner(s) on the happening of certain events. Typically these events include such things as the disablement or death of one of the business owners. A Buy/Sell Agreement will also often set out an agreed mechanism for the succession of one business owner’s interest in the business to the remaining owners of the business or to a third party.

Buy/Sell Agreements are also frequently linked to insurance policies which are put in place where a trigger event will (or is likely to) have a significant financial impact on the business.

If you own a business and you’re concerned about how the death, disablement or retirement of one of your business partners may have on the operation of your business, then a Buy/Sell Agreement can assist you. Not only does it allow you to purchase your business partner’s share if any of these things trigger events were to happen, but it can also help you avoid your ex-business partner’s spouse or children moving into your business.

However, business owners must seek competent accounting advice in relation to any capital gains tax implications before entering into a Buy/Sell Agreement.

Are all Buy/Sell Agreements the same?

Standard-form legal documents written with generic terms and conditions often do not take into account the particular circumstances in a given case and therefore risk being ineffective in the particular circumstances and are often unclear and confusing.

In particular, the risk with standard-form Buy/Sell Agreements is that the document:

1.will not be prepared for your particular  business with all of its unique circumstances and your specific needs; and

  1. may in the end be found to be legally unenforceable making the whole exercise a waste of time and money.

Therefore, it is advisable, and makes commercial sense,  to have a Buy/Sell Agreement prepared specifically for your personal and business circumstances by a lawyer experienced in preparing such documents.

What are the main advantages of having a Buy/Sell Agreement?

Buy/Sell Agreements:

  1. provide certainty for the business owners by reducing the risk of succession disputes;
  2. reduce the risk of the transfer of an outgoing owner’s interest in the business being undervalued with devastating financial consequences;
  3. reduce the risk of the business suffering significant financial loss , or even having to be wound up, because no agreed mechanism is in place to deal with business succession thereby resulting in all the business owners suffering financial harm.

There are many good reasons to have a current business succession plan in place for your business and to include a carefully and properly prepared Buy/Sell Agreement as part of that business succession plan.

PLEASE CONTACT

Contact Les Buchbinder at [email protected] if you wish to discuss this matter or your estate planning objectives further.

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Landlords – Back to Basics

The starting point for all Landlords should be ensuring that they have an appropriate and well drafted lease for their commercial premise. It is a crucial step for Landlords as a poor lease or a bad leasing decision can be a costly mistake. The lease is central to the goodwill, value and future sale of a business.  A well drafted lease can avoid or assist the Landlord in resolving disputes that they may have in the future with tenants.

In Western Australia, the Commercial Tenancy (Retail Shops) Agreements Act 1985regulates many retail shop leases. Landlords should understand their rights and obligations in relation to the lease and what procedures to follow in the event of any disputes.

In October 2015, the commercial leasing vacancy rate in the Perth CBD was 19.6%. This figure was expected to grow in early 2016 as final completions of new developments came onto the market and leasing space that was taken up during the boom, was handed back as businesses have downsized.

At its meeting today, the Reserve Bank of Australia’s Board decided to leave the cash rate unchanged at 2.0 per cent. The reasoning behind the decision was that recent information suggested the global economy is continuing to grow, though at a slightly lower pace than expected. This is the ninth month in a row that Australia’s official interest rate has remained unchanged at a record low 2 per cent.

The ramifications for Landlord’s entering into a bad or hastily drawn lease in this current climate is that they may find that they have an invalid lease or they may experience significant disputes and as well as potential litigation in later years as a result. When interest rates do start to rise in the coming years, we are likely to see a large number of disputes concerning rent reviews.

Legal and commercial advice should therefore be obtained before:

  • making any commitments to lease, take on an assignment or incur any other obligations;
  • signing an offer to lease or any other lease related document;
  • payment/receipt of any deposit or other monies; or
  • occupying the leased premises.

If you are a Landlord looking to lease in this competitive market, you should begin by considering your leasing requirements with the main goal to develop a profitable business. Once you have identified your leasing requirements (i.e. the lease term, annual rent, rent reviews, etc) you must then seek to include as many of these requirements as possible when negotiating the terms of a new lease or the renewal of a lease with the tenant.

PLEASE CONTACT

Contact Les Buchbinder at [email protected] if you wish to discuss this matter or your estate planning objectives further.

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Insurance Checklist

by Leslie Buchbinder
Builders’ Choice Magazine, December 2014

Builders and building subcontractors are exposed to many risks which, if not properly managed, can lead to financial ruin.

Builders and building subcontractors are exposed to many risks which, if not properly managed, can lead to financial ruin. These include risks under the terms of building contracts or subcontract agreements, as well as exposure under various pieces of legislation such as under the Workers Compensation and Injury Management Act 1981 and the Occupational Safety and Health Act 1984. There is also potential exposure under general laws such as negligence and breach of contract.

One useful management tool to have in place is appropriate and adequate insurance cover. However, not every risk can be insured against; insured against adequately, or insured against for a price that is acceptable to the builder or building contractor.

It is important that the builder or building contractor clearly understands the extent of the insurance contract before the contractual terms are finalised in order to avoid circumstances where the wrong assumptions have been made as to what risk is covered by the insurance policy and which party must accept responsibility for that risk. In a climate where insurance premiums are increasing, and more and more exclusion clauses are being inserted into building contracts and insurance policies, this is even more so the case.

Insurance checklist

When deciding how best to deal with a particular risk, you may find it useful to consider the following:

  1. Is the risk concerned insurable? Can a policy of insurance be procured which will specifically cover this risk?

  2. Is the insurance cover adequate? If a policy is obtained will it respond to the risk that has been identified and will it do so to the fullest extent of that risk?

  3. Does the cost of obtaining the insurance outweigh the risk?

  4. What is the nature of the policy and for how long will that policy provide cover?

  5. Can the policy wording be amended to specifically provide for the risk at hand or is it to be generic in nature only?

  6. Is the insurer likely to remain in business for the duration of the construction project?

Insurance disputes

Having the appropriate insurance cover does not necessarily avoid disputes arising. Issues can arise in relation to the insurance cover itself and whether or not a builder or a building contractor is protected by that insurance cover in any given circumstance.

What happens if you need to submit a claim to an insurance company? In the case of smaller and more straightforward matters, the claim may be adequately submitted by the builder or building contractor directly.

However, for larger and more complex claims, or where issues arise as to whether or not the insurer will extend indemnity to the builder or building contractor, legal advice can make a significant difference as to whether or not the claim will be ultimately accepted. Sometimes the wording of the claim submitted becomes extremely important.

Claims may be declined by an insurer for a variety of reasons. For example, in the case of a claim for storm damage, an insurer may attempt to decline the claim on the basis that gutters were blocked by roof debris and argue that this is evidence that the building was poorly kept and not properly maintained as required under the terms of the policy of insurance.

Building claims are often denied by insurers because of issues associated with defects.They may be inherent defects or defects which develop in a building over the years and fail to be considered separately from any compulsory insurance requirements.

Being declined by an insurer is not the end of the road

That decision may be the subject of internal dispute resolution pursuant to the insurer’s nominated procedures and from there the matter can be escalated further and ultimately, if necessary, to litigation. However, prior to reaching the stage of litigation there are often opportunities to seek to resolve the dispute quickly and less expensively.

Insurance is a key element of risk management – but policies must be properly considered, drafted and managed. Once any level of complexity is involved, taking legal advice is highly advisable, both in structuring insurance policies and when making claims. BC

PLEASE CONTACT

Bowen Buchbinder Vilensky Lawyers: (08) 9325 9644 or bbvlegal.com.au

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Contested Wills

– The West Australian

Contested wills are among the most rapidly growing form of litigation in Western Australia.  Booming property values over the past ten years, along with enforced superannuation contributions, means that many older people are leaving behind life-changing amounts of money.  And the rise of divorce, de facto relationships and blended families makes for many more potential claimants than in the past. 

In my experience, as soon as the value of an estate exceeds $500,000, the likelihood of someone challenging a Will becomes very much higher, although I also see challenges to estates that are more modest.  And with the average family home in Perth worth over $500,000, many estates present high value targets.

The law provides that, so long as you are mentally competent, you may leave your assets to whoever you chose.  But this seemingly unfettered discretion is tempered by what the Courts have described as a “moral responsibility” to make provision for certain family members.  

The Family Provision Act, formerly known as the Inheritance Act, opens your will to challenge if you do not make “adequate provision” for the “proper maintenance, support, education or advancement in life” of certain family members. These family members include spouses – current, former and de-facto  – children, step-children, grandchildren and parents, to name the main groups.

 

The Supreme Court can, and often does, over-ride the wishes expressed in a will that fails to make adequate provision for these family members.  By allowing a successful challenge, the court can effectively rewrite your will after your death.

How do you avoid such a challenge?

Obviously every individual is different, and specific legal advice on your own situation should be taken.  The greatest complexity is that adequate and proper provision is different not just for every family, but for different members of the same family and at different times in their lives:  what is adequate and proper for the a young child of a multi-millionaire is different to that for an adult child with their own means with a more modest upbringing. But by way of a few general guidelines:

·        Make sure you leave adequate and proper provision for family members who could prove that they are even partially dependent on you materially.  For example, even though you may have a very difficult relationship with a step-son, if he lives rent-free in your granny flat and you don’t make provision for him in your Will, he may have a good case for making a successful challenge after you die.

·        Be a ‘wise and just testator’ as opposed to a ‘fond and foolish’ one.  Leaving $50,000 for the continued care of your beloved cat while making no provision for your defacto’s irksome daughter, who still lives at home, is an example of a Will that is open to challenge.

·        Explain your decisions in your Will or in another document clearly.  Such explanations can strengthen it against challenge.

·        Update your Will every three years.  Life moves on, relationships change, and what was once a sound plan of action may be overtaken by events. 

·        Be as open as possible with your children and beneficiaries about your plans for your estate and how much wealth you have.

This last point – conversations about inheritance – is worth emphasising.  Many parents avoid it, not wishing their kids to feel entitled, uncertain about their own intentions, feeling uncomfortable talking about their own death, or for various other reasons.  Children, similarly, may feel awkward, not wanting to appear greedy, believing ‘it’s Mum and Dad’s money after all,’ and so on.  A recent study by UBS Bank Investor Watch in USA revealed that only 54% of people had discussed estate plans with their children, and only 34% told their heirs how much money they had.

From a legal perspective, the fewer unresolved issues there are, the less likely a legal challenge.  Discussion not only clears the air, but by identifying potential problems down the line, a parent can make a plan that’s legally more robust.  All of which enables the smooth transfer of assets in accordance with your wishes.

As always, sound legal advice at the outset is the best possible step you can take.  A properly drafted Will can prevent disputes, whereas a poorly drafted or inadequately thought out Will is fertile ground for protracted, expensive and acrimonious litigation.  Legal advice, and open conversations with your family, are the key.

PLEASE CONTACT

Bowen Buchbinder Vilensky Lawyers: (08) 9325 9644 or bbvlegal.com.au

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