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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The Importance of a Sole Director Having a Will

Companies that have a person registered as both the sole director and sole shareholder could be taking a big risk if the director dies without leaving a Will.

The company could have difficulty continuing to operate or it could be wound up.

Under the Corporations Act, if a single director of a company dies, the executor or personal representative appointed to administer the deceased’s estate may appoint a new director to the company having obtained a grant of Probate from the Supreme Court. The transitional director has all the powers, rights and duties of the deceased director and can keep the company functioning until shares are transferred to beneficiaries who may then appoint new directors. But if there is no valid will, a relative or other person would have to apply to the Supreme Court for letters of administration to manage the estate. This generally takes longer than an application for a grant of Probate.

While an option would be for the Public Trustee to be appointed to administer the estate, this procedure could take several months. A trading company in this situation would be unable to proceed with financial arrangements, might lose valuable work or incur penalties because it is unable to complete contracts.

It is therefore vitally important that a sole director who is also the sole shareholder of a company makes a valid Will. The Will can even nominate who the testator wishes his or her executor to appoint as a replacement director.

PLEASE CONTACT

Contact David Vilensky 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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Choose Now Whilst You Can! – Your Future Decision Makers

Most of us are aware that a Will is a document that captures our wishes for the disposition of our assets (amongst other matters) once we die. It is not common knowledge, however, that there are also documents that one can execute in order to preserve our wishes for when we are still alive.

These documents are called an Enduring Power of Attorney, Enduring Power of Guardianship and Advanced Health Directive (sometimes called a Living Will).

For anyone who is addressing their estate planning objectives (and that should be all of us) it is important to consider the protection of your person and estate during your lifetime, as well as considering what happens to your assets once you die. To only execute a Will, and not consider what measures you take to protect the estate during your lifetime, is only addressing part of your estate plan.

Enduring Power of Attorney

An Enduring Power of Attorney allows you to appoint a person that you trust implicitly (usually a spouse or a child) to have authority to deal with your financial affairs.

This means that your ‘attorney’ (the person you appoint) has the authority to deal with your assets as if they were standing in your shoes. Your attorney may access your bank accounts, investments and (if you lodge the document with Landgate) deal with your real estate, if you ever lost the capacity to do so yourself.

Although this may not seem rational in reality, provided that your attorney is a reliable person to be given such a power, it is an important document that may assist you in times of emergency. If you were ever in a position where you could not make decisions for yourself, and you have outstanding financial obligations that need to be addressed, your attorney may step in and address those requirements on your behalf.

An Enduring Power of Attorney will provide you peace of mind in knowing that in a time of crisis, your financial obligations are being attended to by someone you trust and in whom we you have confidence.

Enduring Power of Guardianship

This document is similar to an Enduring Power of Attorney, however it relates to health and lifestyle decisions only. When you have capacity, you are able to make decisions relating to your own health and treatment and lifestyle decisions. For example, where you live, what medical treatment you undertake or what entertainment you will enjoy, etc.

Should you become incapacitated, you will have selected the person whom you trust to make these decisions on your behalf.

Although you may think that this document is unnecessary and when the time comes your family will be able to make those decisions for you, it is important to remember that decisions of these nature are particularly personal and you must consider reasonably whether it would be prudent to appoint particular people to preserve your wishes regarding your health and lifestyle.

Advance Health Directive

An Advance Health Directive is a document in which you set out, in advance, what treatment decisions you choose in certain circumstances where you cannot communicate those decisions at the time. The types of treatment decisions set out in these documents relate to the situation where you may be on life support or in a vegetative state. You may set out that you consent to, or do not consent to, treatments such as resuscitation, artificial feeding, blood transfusion, and similar treatments.

Your treatment decisions in your Advanced Health Directive must be followed by a medical practitioner and you therefore control the way you are treated in the event that you require life sustaining measures to be kept alive.

PLEASE CONTACT

Contact us at bbv@bbvlegal.com.au if you wish to discuss this matter further.

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Before Taking the Plunge: What are Pre-action Procedures?

Googling Pre-action Procedures will bring up formal documents that have been published by the government relating to Family Law called “Before you File” (the link to the Family Court of Western Australia version is at the end of this article).

Pre-action Procedures set out what couples are directed to do by the law to avoid going to court about their settlement, if possible.  Couples are expected to engage in family dispute resolution.

If a person doesn’t take part in the processes described in the Pre-action Procedures documents, there are consequences that range from having a legal fight when they should have been able to avoid it, to having to pay legal costs for the other party’s lawyer.

Many couples have it clear in their minds that they don’t want to go to court but are not sure how to avoid that process.

This article is about three steps to set you on the way to a successful settlement.

Your particular case: which process to use?

The first step is to provide my client with a clear picture of the processes that can be considered in their particular case.

There will be discussion about the options of mediation and collaboration and negotiation outside of those processes.  These are different approaches to a negotiated settlement.  Both mediation and collaboration is designed to empower the parties with the skills of their professional advisors and in mediation, the mediator.  Negotiation (without mediation or collaboration) is a less formal process.

The ethical approach of the professionals, the lawyers and other experts, provides support for what can be a difficult process to be as smooth and comfortable as possible.

For some couples, some water needs to go under the bridge before they can deal with issues.  Often one partner will become frustrated at the speed at which the other wants to proceed.

Often legal advice is required urgently to deal with immediate practical problems or issues, even though it may be some time before settlement can be contemplated.

The first step towards a successful settlement is assessment of the best approach to take.

Time lines: how much time should be spent?

The second step is to establish the time line that is going to suit the situation and circumstances.  Before the settlement process can properly get underway there has to be “disclosure”. The Pre-action Procedures document lists what paperwork each party has to provide to the other.

It may seem odd to be giving your ex documents that they may already have or have seen, and confronting to give over documents to the other party that they have never seen before.

Disclosure is about ensuring that there is a level playing field for the couple.  One spouse or partner is usually across the financial details more than the other.

Until there is proper disclosure and the opportunity for reflection and advice about the disclosure, a person shouldn’t be asked, confronted or challenged to say what they want.

In a successful settlement process, it is not so much about what a person wants, as having the opportunity to find out and understand what is reasonable and fair in the particular circumstances and to explore all the options that are available.

Couples who have an out of court settlement can generate options that may not be available to parties in contested litigation.

For whatever reason, a time line necessity may require fast tracking of Pre-action Procedures and a limited time for settlement negotiations before litigation, while a last resort, has to be considered.

Disclosure and Resources

The third step in preparation for settlement is to achieve disclosure and to access relevant resources.

Disclosure usually takes some time and can be complex and time consuming.  Valuations are usually needed. Consideration may be given to instructing financial advisors to assist in establishing the asset pool.

There are services and resources that can assist in preparation of a couple for engagement in their negotiation and settlement processes.

As part of the preparation to be able to engage properly, I encourage my clients to access relevant services and often to seek counselling support, having in mind that most people go through a difficult adjustment during this time.

Finally

Any person in the circumstance of considering a separation from their partner should access legal advice even if they are still uncertain about the future of their relationship.  As lawyers we are duty bound to assist you to consider whether marriage and relationship counselling might help you.

We can also reality test your circumstances with you and talk about what might happen, without you making any final decisions.  Because separation is a complex and difficult step, advice about the way to separate can be of great assistance.  It can support a process that will ultimately lead to a final settlement by agreement.

The Family Court of Western Australia website www.familycourt.wa.gov.au provides downloadable access to the brochures with the link as follows: www.familycourt.wa.gov.au/B/brochures.aspx

Brochure 2 in Children’s matters: Before you file- Pre-action procedures for Parenting Cases

Brochure 2 in Financial cases: Before you file-Pre-action procedures for Financial Cases

If you would like any further information in relation to this topic please feel free to contact the author to discuss the matter further.

PLEASE CONTACT

Contact Rhonda Griffiths 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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The Curse of Homemade Wills

In today’s economy, people aim to save and avoid unnecessary costs and expenses. Some consider that one such unnecessary expense is instructing a solicitor to draft your Will. This suggestion may stem from the belief held by some that we are all able to write our own Wills (particularly if our affairs are simple) without any legal assistance or we can simply purchase a cheap ‘will-kit’ from the post office or local newsagency, in which all that has to be done is to fill in the blank spaces and to sign it.

There are, however, numerous risks associated with this course of action. These risks were clearly identified in the recent decision of the Supreme Court of Western Australia in Rogers v Rogers Young [2016] WASC 208. In this case, the Testatrix (‘Will-maker’) utilised a ‘will kit’, which is a type of homemade Will that can be purchased from most post offices and newsagencies. In her Will, the Will-maker gave the residue of her Estate to her daughter (her only child), and stated that in the event that her daughter were to predecease her, then the Will-maker’s nieces and nephews were to inherit her Estate. However, the Will also stipulated that, if at the time of her death any beneficiary of the Will was under the age of 18 years, then that beneficiary’s share would be held on trust for that beneficiary’s support, welfare and education until they reach the age of 25 years. As it turned out, at the time of the Will-maker’s death, her daughter who was to inherit her Estate was 16 years old (thereby being a minor). This meant that, on the face of the Will, a trust would need be administered for the daughter’s benefit until she reaches 25 years of age. However, as was mentioned in this case, it has been settled law since the middle of the 19th century that if the beneficiary of a trust is over the age of 18 years and has an absolute vested and indefeasible interest in that trust, then he or she can request that the trust be terminated and the trust property be transferred to him or her.

Given the legal uncertainty which arose from the Will, the Executor of the Will made an application to the Supreme Court, seeking directions from the Court as to the proper interpretation of the Will pursuant to s 45 of the Administration Act 1903(WA) and s 92 of the Trustees Act 1962 (WA).

Ultimately, the Court held that the daughter acquired an absolute vested and indefeasible interest in the trust property upon reaching the age of 18 years and not 25 years, despite the apparent intentions of the mother that her daughter should not receive the residuary estate until she has reached the age of 25 years.

In this decision, the Court made the following damning observation about homemade wills:

On numerous occasions when dealing with so-called homemade wills, I have observed they are a curse. Homemade wills which utilise what is sometimes known as a ‘will kit’ are not much better. This case proves the point. The disposition effected by the will is not complicated and no doubt the testator had clearly in mind what she intended to achieve. But the way the will is drafted is difficult, and the parties have been put to the trouble and expense of coming to the court seeking directions as to its proper interpretation. If the will had been drafted by a competent legal practitioner, this problem would not have arisen and the parties would have been spared a great deal of trouble and expense.

This case, therefore, highlights the problems that arise if people decide to draft their own Wills, namely:

  • Uncertainty as to the meaning of certain words or clauses in the Will, which leads to a dispute as to its proper interpretation;
  • The time and expense of having to go to Court in order for the Court to determine the correct and proper interpretation of the Will;
  • The risk that the Court might declare that the clause in question (or possibly the entire Will) is void or inoperable, giving rise to a partial or full intestacy, which means that that part of the Estate which was dealt with under the inoperable clause will now have to be determined under the intestacy rules in the Administration Act 1903 (WA); and
  • The risk that the testamentary wishes of the Will-maker may not be given effect to.

It is therefore self evident that the benefits of avoiding the ‘curse’ by having an experienced estate planning lawyer draft your Will and effectively arrange your estate planning objectives greatly outweighs the potential consequences of not doing so.

PLEASE CONTACT

Contact us at bbv@bbvlegal.com.au if you wish to discuss this matter further.

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Marriage Breakdown – Keeping it in the Right Perspective

Separation and relationship breakdown is one of the most difficult situations that a person can find themselves in, even if it is not apparent from the outset.  Unfortunately, the majority of cases involve litigants who are usually at one of the most vulnerable points of their life.

It is of utmost importance to maintain perspective and composure in legal disputes. This is particularly in the case in family law matters.

In the case of parenting disputes involving the care and custody of children, lawyers are increasingly being retained to assist a party where the primary issue of dispute between the parties relates to their level of communication and understanding of their respective situations. Obviously, there are those cases where, due to issues such as family and domestic violence, addiction, use of illicit drugs, or mental health issues, the parties are unlikely to be able to effectively communicate with each other concerning their dispute.

It is important in all cases that the parties assess their ability to effectively communicate with each other, even on the smallest of levels, and take steps to address those issues.

There are also an increasing number of parenting matters where the parties have engaged one or more other professionals to assist them in resolving their legal dispute. In particular, the use of family counselling to provide therapeutic intervention for the parties themselves (and with the children if that is what is recommended as necessary and agreed by the parties) seems to be steadily rising.

The Family Court has the power to order family counselling in certain circumstances.

There are a variety of private and public services that are available for parties to consider that are available to teach strategies, not only individually, but as parents together, to assist in improving their communication and understanding.

It is also particularly helpful for parties to consider individual counselling in this regard, if they consider that they need assistance in maintaining their perspective, or indeed to assist them in dealing with issues that may pose a risk to the children.

It is also important to consider issues of a practical nature, which will impact the legal ramifications of their dispute.

A good example is in financial and property settlement cases involving clients who retain lawyers on the basis that an agreement has been reached with their spouse in the absence of legal, or other professional, advice. The current economic climate, and particularly the real property market, has created numerous problems with parties who are attempting a series of complex property transfers and refinancing in order to implement their agreements.

In the midst of all the tension and angst and possible relief of the parties in agreeing in principle, it is necessary for the parties to consider, as the initial step, whether or not the property transfers are able to proceed by giving due consideration to the practical hurdles and consequences, such as the overall ability to refinance and possible capital gains tax consequences on investment properties. This may mean that retention of property in a settlement may not be possible.

The above issues also highlight the importance of taking professional advice in your legal dispute at an early stage.  An experienced family lawyer will be able to raise these issues with you, and discuss with you options to address these issues and the benefits and detriments to you in your family law case.  They should also be able to assist by referring you to other professionals to provide assistance in family counselling, or the accounting, taxation or other financial advice that may be required.

It is important to seek such advice early on in the piece as this will greatly benefit you in your negotiations with the other side, whether they are conducted directly, or with the assistance of legal representation.

PLEASE CONTACT

Contact us at bbv@bbvlegal.com.au if you wish to discuss this matter further.

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Blended Complications – Tetris for Estate Planners

Today, there are increasing numbers of blended families, which often causes confusion and concern when decisions must be made as to who will be provided for in a Will and in what proportions. The definition of a child in the eyes of the law obviously includes biological children. However, it also includes adopted children. Therefore, any such “child” has standing to bring a claim against their deceased parent’s Estate.

An example of a child’s right to adequate provision under a parent’s Will is the decision of Mead v Lemon [2015] WASC 71 which saw the Supreme Court of Western Australia determine that $25 million was adequate provision for mining heiress Olivia Mead – the daughter of mining magnate Michael Wright (“the deceased”) – who commenced proceedings in the Supreme Court under the Family Provision Act 1972 (WA) for further provision from her late father’s Will.

In this case, the deceased died on 26 April 2012. The deceased married four times in his life. He had three children from one marriage and Olivia (his youngest child) was the result of a relationship the deceased had with Olivia’s mother. Olivia’s mother and the deceased never married.  In the deceased’s Will, Olivia was to inherit $3 million (subject to strict conditions), compared to her half siblings who stood to inherit approximately $400 million each. The Executor of the Will has appealed the Court’s decision to award Olivia $25 million and the matter is currently before the Court of Appeal.

This case highlights that making appropriate provision for your children is a crucial consideration in the estate planning process. It also demonstrates that, failing to make adequate provision for your children – even though you may not have had a close relationship with them – may result in those disinherited children bringing a claim against your Estate.

Another issue arising from blended families is the provision for stepchildren.  Until recently, stepchildren were unable to make a claim under the Family Provision Act. The recent amendments to the Family Provision Act provide that a stepchild can make a claim in specific circumstances and usually in circumstances where the stepchild was financially dependent on the stepparent, or where the stepchild’s biological parent left his or her entire estate to their new spouse or partner, who in turn does not leave adequate provision for that stepchild.  Accordingly, even though a stepchild may not be a “child” in the eyes of the law, he or she may still be able to bring a claim against your Estate.

The fact that your children and other close family members can challenge your testamentary wishes highlights the reason why it is crucial to seek sound legal advice when dealing with your estate planning and business succession planning. The benefits of carefully and effectively arranging your estate planning far outweigh the dire consequences of not doing so and leaving important matters unaddressed.

PLEASE CONTACT

Contact us at bbv@bbvlegal.com.au if you wish to discuss this matter further.

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Who Inherits Prince’s Diamonds and Pearls?

Despite achieving the status of music royalty, Prince’s untimely death at the young age of 57 years has once again highlighted the simple fact that no one can avoid the fallout from dying without a Will.

Whilst hard to believe that a superstar of Prince’s status would not execute a single document to say who inherits his wealth,  his family have filed papers to declare that Prince died without a Will. This means that Prince died ‘intestate’ and his family and the Courts are left to deal with the resulting mess that is likely to take years to sort out – not a legacy that Prince is likely to have wished to leave behind.

So, what happens to Prince’s ‘Little Red Corvette’ and other assets?  That will be up to the law in Minnesota… but what would happen if Prince lived right here in Western Australia and held his assets here?…

If Prince lived in Western Australia, there is a formula imposed by section 14 of the Administration Act 1903 that dictates who inherits the estate and in what proportions. Although each person’s intentions are different, it is very unlikely that this formula will mirror exactly what each person wishes to happen to their estate and therefore will most likely be problematic.

For example, if Prince died leaving a wife and children, the wife would receive a statutory legacy of $50,000 and one third of the remainder of his estate. The other two thirds would be divided between his children. Interestingly, the statutory legacy of $50,000 (which represented the median house price in the 1980s – definitely a ‘Sign o’ the Times’) has not increased since 1982.  For many widows or widowers left behind, $50,000 plus a third of the estate is simply not enough to maintain the same standard of living that the widow or widower may have become accustomed to whilst the deceased was alive.

If a beneficiary is not sufficiently provided for by the section 14 formula, their only recourse is to commence proceedings under the Family Provision Act 1972, which normally incurs significant legal costs and entails lengthy delays in finalising the estate.

By delaying the crucial exercise of making a Will, you run the real risk of dying intestate.  It is unfortunate when fighting over money takes precedence over mourning the loss of a loved one. To actively attempt to avoid disputes with respect to your estate, everyone should have (at the very least) a basic estate plan, including a valid and up to date Will.

PLEASE CONTACT

Contact us at bbv@bbvlegal.com.au if you wish to discuss this matter further.

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