PENALTY UNITS

Acts which provide for penalties specify the penalties by way of penalty units rather than dollar amounts. The reason is that it would be a time consuming and difficult task to alter each Act each time a penalty (fine) was increased.  It is simpler to provide for penalty units in each Act and alter the value of a penalty unit from time to time.  For the financial year starting on 1st July 2008 the value of a penalty unit in Victoria is $113.42.

PROBATE – THE WHYS AND WHEREFORES.


What is Probate?

“Probate” is the official recognition of the validity of a Will. Probate is granted by the Supreme Court to an executor named in a Will and provides conclusive evidence of the Executor’s appointment and the terms of the Will. The Supreme Court (usually through its Officer, the Registrar of Probates) issues a certificate under the courts seal certifying that on a particular date Probate of the original of the attached copy Will of the named person who died on a specified date was granted to a named person. The certificate is the Probate document.

Why is Probate required?

Because organizations administering assets (e.g. Banks, Share Registries and the Land Titles Office) will not allow just anyone to deal with the Deceased’s Persons assets. The only person they will allow to deal with the assets is the Executor named in the Probate.

Section 31 of the Administration and Probate Act gives statutory protection to a person who makes a transaction or disposition relying in good faith on the Probate. There is absolutely no incentive to an Executor for allowing a person to deal with the deceased person’s assets without Probate.

When is Probate required?

The answer generally is rather simplistic. If you cannot deal with an asset without Probate then you need Probate. If you can deal with the asset without Probate then you do not need Probate.

However, there may be cases where assets can be dealt with without Probate but Probate should still be obtained e.g. where the Administrator of the asset requires the statutory protection, where the Executor wishes to have the Court’s authority, where a Part 1V Application (a claim by a person seeking a share or greater share in the estate) is to be made and cannot be made unless and until Probate is granted.

Jointly owned property and property held on Trust.

Probate is not required in these cases because in the case of jointly owned assets, they pass on the death of an owner. It is the death of an owner rather than his or her Will which entitles the survivor. Assets held in Trust (e.g. Family Trusts and Superannuation) are legally owned by the Trustee not by the Deceased person. The Trustee can deal with the assets without Probate because the Trustee is the legal owner.

How do you apply for Probate?

The normal method is by application to the Registrar of Probates. The application is supported by Affidavits verifying that the Will was the last Will, that it is executed in conformity with the Wills Act, giving details of the Deceased’s matrimonial history, the address of the Testator and the Executor, the identity and addresses of the witnesses to the Will and detailing the assets of the Estate and whether they are inside or outside Victoria.

On rare occasions the Application is made in person to the Supreme Court.

What happens if there is no Will or a Will with no executor.

In these cases it is possible to obtain a Grant of Letters of Administration. Letters of Administration is the name given to what would have been a Grant of Probate if there had been a Will or an Executor.

What happens if there is a Will but the executors do not apply for Probate.

In these circumstances the Supreme Court has the power to Summons the Executor to prove the Will (obtain Probate) or renounce Probate.

What happens if there is a Will but it is not certain whether or not the testator has died?

There is a common law inference that, after an absence of seven years, a person may be presumed dead where all the circumstances tend to show that the person’s absence and silence are due to death and not any other cause. If the Court is satisfied of death whether by direct evidence or by presumption then Probate of the persons Will may be granted. However, the estate cannot be distributed without a Court order. The Court can revoke the Probate if it subsequently appears that the person was alive.

What happens if an Executor does not want to take out Probate?

In this case the Executor can renounce Probate. This would then leave any named substitute Executor to obtain Probate, or if there is no substitute Executor, a Beneficiary could apply for Letters of Administration with the Will annexed.

What if an Executor is seeking probate but you believe that the Will was forged or that the Testator lacked capacity or was subject to undue influence or that there is a later Will.

In this case, it is possible to lodge a Caveat against the granting of Probate. The Caveat expires after six months but a new Caveat may then be lodged.

Once an application for Probate is made notice is given to the Caveator who then has 30 days to file the reasons why the Probate cannot be granted. The question of the Will’s validity will then be referred to a Court hearing.

Probate Duty

Probate Duty was a death duty which was abolished many tears ago. It was common to use the expression “Probate” as meaning Probate Duty e.g. “will there be much Probate payable”.

Executors commission

An Executor is entitled to receive a commission for his pains and troubles in carrying out the provision of the Will if
– the Beneficiaries agree; or
– the Executor applies to the Court and is awarded commission.

What is the difference between an Executor and a Trustee.

The difference is a technical one only. Until the Executor has got in all of the Estate and paid the bills he is an Executor. After that time he is holding the assets on trust for beneficiaries and is a Trustee.

PARTNERSHIP

What is a partnership?

A partnership is defined in the Partnership Act 1958 “the Act” as “the relation which subsists between persons carrying on a business in common with a view to profit..”.

This newsletter is about partnerships under the Act.
It does not include:
– partnerships under tax law where they would not be partnerships under the Act;
– domestic partnerships between individuals;
– syndicate or joint ventures where the arrangements contemplate the division of the joint venture property (rather than the division of the proceeds of the business).

In a partnership the partners collectively are called a firm and the name under which a business is conducted is the firm name.

Must there be a written partnership agreement?

The answer is no – it is not necessary to have a written partnership agreement. It is, however, prudent to have a written agreement because it requires the partners to agree on  matters which might give rise to a dispute before any such dispute arises.   Clearly it is preferable to preempt any situation before a dispute about that situation arises.

Who can be partners?

Partners are normally individual persons. There is, however, no reason why a partnership cannot exist between companies, between trusts, or between individuals or any combination of these entities.  Given that each partner has unlimited liability under the Act it would be unwise for an individual to enter into partnership with a limited liability company – the individual could finish up being liable for all the partnership debts.

If anyone who is not a partner represents himself, or knowingly permits himself to be represented as a partner, he is liable as if he was partner to anyone who has given credit to the firm on the faith of such representation.

What does a partnership agreement contain?

The contents of a partnership agreement will vary according to the requirements of each particular partnership.  At its simplest a Partnership Agreement is likely to include
– the identification of the partners;
– the nature of the partnership business and the firm name;
– the shares in which partners share profits and losses;
– the procedures for entry of new partners and the exit of old partners;
– what decisions can only be taken by unanimous resolution;
– the taking of accounts, banking and cheque signing arrangements;
– financing the partnership business;
– a procedure for representing a partner (where one or more partners are companies or trusts).

The Act contains a set of rules which govern a partnership (but only to the extent that there is no contrary agreement between the partners). The rules include the following:
– all profits and losses are shared equally;
– the firm must indemnify all partners for liabilities incurred in the ordinary and proper conduct of the firms business;
– every partner may take part in the management of the firm;
– any disputes about ordinary matters are resolved by a majority vote but no change in the nature of the business may be made without unanimous consent.

How is a partnership terminated?

An allied question is how long does a partnership last. The answer to this question is that it lasts until it is terminated.

Termination of a partnership may occur:
– when the venture for which the partnership was established ends;
– if the partnership was for a fixed term, when the terms ends;
– by notice from a partner, if the partnership was for an undefined time;
– the death or bankruptcy of a partner (but this is subject to any contrary agreement between the partners.Normally death does not on its own terminate a partnership, it usually gives the continuing partners the right to acquire the interest of the deceased partner but only if the written partnership agreement so provides)
– by order of the court where a partner is mentally incapable or otherwise incapable of performing its duties;
– where a partner is guilty of misconduct such as to affect the firms business,
– were a partner persistently breaches the partnership agreement; or
– where there are other circumstances which render it just and equitable that the partnership be terminated.

On the subject of partners leaving the firm it is to be noted that unless there is express written agreement to the contrary no majority of partners can expel a partner.

Liability of a partner

First, each partner is an agent of the firm and his other partners for the purpose of the business of the partnership.  Accordingly any act by a partner in the normal course of the partnership business will bind all the partners unless the partner in fact had no authority and the person he was dealing with it knew that to be the case.

Each partner is jointly and severally  liable for all debts and all obligations of the firm which are incurred while he was a partner (and his estate is liable after his death).
An admission or representation by one partner about the partnership affairs and in the ordinary course of business is evidence against the firm.
Notice to one partner, who habitually acts in the partnership business of any matter relating to the partnership affairs operates as notice to the firm (except in the case of fraud).

Competing with the partnership

Section 34 of the Act provides that if any partner without the consent of the partners carries on any business of the same type as the partnership business in competition with a partnership business then he must account to the other partners (and pay to the other partners) all profits made by him in that other business.

Similarly, if any partner enters into any transactions concerning the partnership or using the partnership property, name, or business connections then he must account to the partnership for any benefit he makes.  An allied obligation owed by all partners to one another is that they be just and faithful to the others.

Winding up the partnership affairs

When a partnership dissolves/comes to an end, the partners continue to have  partnership rights and obligations to the extent necessary to wind up the partnership and to complete transactions which were unfinished at the time of the dissolution.  If the partners cannot agree on the winding-up any partner may apply to the court to wind up the business and affairs of the firm – the court will appoint a receiver to carry out the winding-up.

On dissolution the partnership assets are applied, first in payment of the firm debts and any balance is to be paid to the partners in appropriate shares.
While the purpose of this newsletter is to generally discuss guarantees it should be noted that many guarantees contain explicit warnings about the risks assumed by a guarantor.

Unless the guarantee is essential, our recommendation is that guarantees should not be given – there is very little upside and there is very grave risk of a substantial downside.

The information in this newsletter is general.   It must not be relied on without first obtaining specific advice from Henderson & Ball.

BUYING OFF THE PLAN

What is an “Off the Plan Purchase”?

It is the purchase of an apartment which has not been constructed or has only been partly constructed and in either case is defined by reference to a Plan (which is an unregistered Plan of Subdivision). The Plan shows the dimensions and the layout and the situation of the Apartment.  It may also show the development in cross section.

There may also be:
–  Architectural Plans and/or
–  Specifications.

There may even be a mock up display unit.

What is the significance of the Plan (the unregistered Plan of Subdivision)?

The Plan is a necessary prerequisite to the ultimate completion of the purchase. When the development is completed, the Council will certify the plan. Then the Land Titles Office will register the plan.   Registration of the plan results in the creation of the Titles for the apartments. Completion of the purchase involves the transfer of the apartment title in exchange for the purchase price.

So, the purchase cannot be completed until the plan is registered – it cannot be completed earlier because there is no title for the apartment until the plan is registered.

Is a deposit payable?

Normally a 10% deposit is payable. The Sale of Land Act (“Act”) limits the maximum deposit to 10% of the price and requires the deposit to be held on trust for the purchaser until the plan is registered. If there is likely to be long lead time until the plan is registered, it is normal for the Vendor to accept a bank guarantee instead of cash.

When will construction be completed (and when will payment of the balance of purchase moneys be due)?

It should be appreciated that large developments require financial backing and that financial backing frequently depends on a particular level of presales having being made. If presales are insufficient the financial backing will not be forthcoming and the development will not proceed.   The Contract is also likely to provide that if the Vendor runs into difficulties with the development and considers those difficulties to insurmountable he may cancel the contract.

If the development commences the Vendor should be able to give an estimate of a completion date.   Payment of the balance of the purchase money will be due shortly after completion.

The completion date will be capable of extension if the development is delayed due to bad weather, or strikes etc.

The Contract will also have a “cut off date” i.e. a date after which the Vendor and the Purchaser can cancel the Contract because the Plan has not been registered.   In the absence of a Contract “cut off date”, the Act imposes an 18 month period from the date of the contract as the cut off date.

So, when you enter into a Contract you do not know when the balance of purchase moneys will be due because it depends on the registration of the plan and that in turn depends on completion of construction. If you are concerned that the price may be payable before it is convenient, then you need the contract to provide for settlement on whichever is the later of the specified date, and 14 days after notification of registration of the plan, and 14 days after notification of the issue of an occupancy permit. Sometimes a completion certificate from the Vendors Architect is also a prerequisite to completion.

What if the Vendor deliberately slowed down to ensure that the Plan of Subdivision is not registered by the cut off date?

The 1999 Victorian case of Etna v Arif & Ors (1999) VSCA 99 (1 July 1999) decided that in a typical “Off the Plan Contract” there was an implied obligation on the Vendor to use its best endeavors to have the plan registered by the specified cut off date. The result is that the Vendor cannot deliberately delay so as to ensure that the plan is not registered by the cut off date

Variations between the Apartment as initially represented and as presented when the Plan is registered.

The Vendor usually reserves the right to vary the dimensions of the apartment. The Act gives protection to a Purchaser by saying that the Vendor must notify the Purchaser of any proposed amendment and that the Purchaser may cancel the Contract if the alteration will “materially affect” the Apartment being purchased. There is no statutory definition of “materially affect”.
Contracts sometimes seek to limit the effect of the Act by saying that any reduction in area of less than say 5% is not material. Of course 5% may well be material, depending where the discrepancy is and the amount of the price.

The Contract also normally allows the Vendor to change the specifications as to construction details, appliances, fixtures, fittings and finishes and by substituting similar standard equivalents.

So, when you sign the Contract there is no guarantee that you will get exactly what you thought you would get and there is fact a possibility that the development will not proceed at all, or will commence but be cancelled before it is completed.

What about stamp duty concessions?

The amount on which duty is payable is determined by deducting from the purchase price the cost of construction occurring after the contract date. In a high rise development the cost of construction could be 75% of the price, so, if a high rise contract is signed before construction is commenced, duty could be payable only 25% of the purchase price.  State Revenue Office Ruling DA.048 sets out the duty concession and how it is calculated.  As with other contracts for the purchase of land the duty is payable on the transfer of title and that does not occur until the purchase is completed after the Plan is registered.

Reservation by the Vendor of other rights

Vendors often reserve to themselves:
– the right to conduct marketing activities for unsold units and to maintain signage after settlement
– the right to complete construction after settlement and require the purchaser not to object to any noise, dust or inconvenience.
– the right to enter into agreements about parts of the common property.
– the right to restrict Owners Corporation voting after settlement so long as the Vendor retains any apartment.

Builders warranty insurance

Regulation 1809 of the Building Regulations exempts a builder from the requirements for builders warranty insurance in the case of a multi storey residential building, i.e. a building of more than 3 storeys which contains two or more separate dwellings.

GST

Off the Plan developments will not normally be exempt from GST. It is important that the Contract should provide that the Vendor is to pay the GST i.e. that the price is GST inclusive.

Why does Henderson & Ball send newsletters?

There are several reasons. First, we come across problems during our day to day work.  It is sensible from our point of view to record the problem and the answer for our own educational purposes.  Second, the problems we encounter are likely to be common to other professionals – it makes sense to put the problem and answer in writing so others can benefit. Third, we think our Newsletters may indicate our expertise and may assist us to advertise that expertise. On that point, if you the reader have a problem which you think may merit being the subject of a Newsletter please let us know.

The information in this newsletter is general.   It must not be relied on without first obtaining specific advice from Henderson & Ball.

For Information about Henderson & Ball visit www.hendersonball.com.au <http://www.hendersonball.com.au/>

INVESTMENT BY TRUSTEE

This is an update of an article we published a number of years ago.  It is now, in the light of falling investment values, particularly relevant to trustees.

Under the Trustee Act a trustee has power, unless prohibited by the Trust Instrument to:

– Invest funds in any form of investment
– At any time vary an investment.

A trustee must however, in exercising a power of investment “exercise the care diligence and skill that a prudent person would exercise in managing the affairs of other persons”.

Investment by trustee

This is known as the “prudent person rule”.  Additionally, a trustee must observe any investment requirements in the trust instrument and review the investments individually and as a whole at least once a year.  The rule has different obligations for professional and non-professional trustees.  The duty for a professional trustee is higher than for a non-professional trustee.  There are other specific duties of trustees including:

– To exercise his powers in the best interests of all present and future beneficiaries.
– To invest in non-speculative investments
– To act impartially between beneficiaries and classes of beneficiaries
– To take advice.

 May 2008

Section 8 of the Act sets out a long list of matters which the Trustees must have regard to.

Included are:
– The purpose of the trust and the needs and circumstances of the beneficiaries
– The need to maintain the real value of the capital or income of the trust
– The likely income return and the timing of the income return
– The cost (including commission, fees, charges and duties payable in connection with the making of the investment)

For a trustee to fulfill the requirements of the Act will necessitate undertaking a formal and documented plan and not less than yearly reviews of that plan.  The simplest way of implementing a plan is to have a checklist of matters which require consideration and to complete that checklist.  The completed checklist should be retained well into the future because any investment decision that may be challenged in the future will probably have it’s genesis very many years earlier.

We set out hereunder the checklist we have prepared.

Trustees investment checklist

1.    Name of the trust

2.    Names of the trustees

3.    Date, time and place of meeting of trustees at which this check list is completed.

4.    Date of previous meeting of trustees (no more than 12 months ago)

5.    Investments of the trust

6.    List of beneficiaries in the trust who are to benefit from the trust.

7.    Outline the needs and circumstances of each beneficiary, taking into account the following variable:

– Age
– Health
– Dependants
– Need for Income
– Need for capital
– Financial/Debt Situation
– Residence
– Study/Education

8.    Are all trustees being impartial between beneficiaries and between different classes of beneficiaries?

9.    Are any investments speculative?

10.    Have the trustees taken advice regarding the investments?

11.    To what extent are the trustees acting on the independent and impartial advice of the person who gave the advice?

12.    What are the best interests for each beneficiary (including all present and future beneficiaries)?

13.    If any of the trustee’s profession, business or employment is or includes acting as a trustee or investing money on behalf of another person, are they exercising the care, diligence and skill that a prudent person would in that position?

14.    What is the probable duration of the trust?

15.    Outline the length of investments.

16.    What effect will any proposed investment have on the tax liability of the trust, including capital gains tax?

17.    What costs are involved in making any proposed investments (including commissions, fees, charges and duties payable)?

18.    What is the nature and risk associated with each trust investment and trust property?

19.    What is the real value of the capital and income of the trust?

20.    What is the likely income return and timing of the income return in relation to the trust investments?

21.    What is the liquidity and marketability of the proposed investment during, and on the determination of the term of the proposed investment?

22.    What are the results of a review of existing trust investments?

23.    Do any of the investments involve the following: (if so, special requirements under the Trustee Act apply)?

GUARANTEES
What is a guarantee?

A guarantee is a contract where the promisee undertakes to be liable for the debt or obligation of another.
A guarantee is a collateral contract – there must first be a primary contract where the debt or the obligation being guaranteed exists or is contemplated.

Does a guarantee need to be in writing?

A guarantee must be in writing (see Section 126 of the Instruments Act 1958). As with any other contract there must be consideration for the guarantee or it must be by deed under seal (which obviates the need for consideration).

Is a guarantee confined to one transaction only?

A guarantee may be confined to one single transaction or it may extend to a series of transactions (in which case it is called a “continuing guarantee”).  A guarantee may be limited or unlimited in amount.

Strictly, the liability of a guarantor is secondary – it does not arise until the principal debtor, whose liability is primary has made a default.

However, most guarantees will:

– provide that the guarantor’s liability is to be a primary liability; and

– will also operate as an indemnity where it is not necessary to establish the primary liability of the principal debtor before the guarantor becomes liable.

It is not necessary that notice of the principal debtor’s default be given to the guarantor. Nor is it necessary for the creditor (the person in whose favour the guarantee is given), before proceeding against the guarantor to request the principal debtor to pay, or to sue him.

What is the duration of a guarantee?

The duration of a guarantee depends on its terms. A guarantee for a single transaction extends to only that transaction.  A guarantee for a series of transactions extends until the transactions contemplated by the guarantee have been exhausted. The release of the principal debtor will normally automatically release the guarantor.  In the case of a continuing guarantee the guarantor can normally obtain a release only by arranging payment to the creditor of the amount then owing (even although the payment might necessarily be made by the guarantor).  If a guarantor is released from a continuing guarantee that may affect the principal debtors ability to obtain finance and thus to continue in business e.g. If the guarantee is of a bank overdraft then the release of the guarantee will extinguish the bank overdraft because the bank will not allow the overdraft to continue without the guarantee.

Is there a difference between a guarantee and an indemnity?

A guarantee document is normally framed as both a guarantee and an indemnity.  An indemnity is a contract under which the promisor undertakes an original and independent obligation to indemnify the creditor – it is not a collateral contract (as is a guarantee) and the liability of the promisor/guarantor does not depend on the principal debtor being liable (as in a guarantee). Indeed many guarantees and indemnities make the guarantor liable under the indemnity even if the principal debtor is not liable.

Are there circumstances in which a guarantee can be extinguished or diminished?

There are many circumstances where a guarantor’s liability would be extinguished were it not for contrary provisions in the guarantee document.

Thus it is common for a guarantee and indemnity to provide that the liability of  guarantor will not be extinguished or diminished by:
– the fact that one of a number of guarantors does not sign the guarantee or is not liable under it;

– the fact that a guarantor may cease to be a director of or shareholder in a company whose debt has been guaranteed;

– the fact that a guarantor becomes separated or divorced from his or her spouse where the spouse is principal debtor;

– the creditor releasing one of a number of guarantors;

– the fact that any security taken by the creditor is void;

– the death of the principal debtor;

– The principal debtor or any guarantor becoming incapacitated;

Generally

In general terms if a guarantee is given to a commercial institution there are unlikely to be any circumstances where the guarantor will not be liable while the principal debtor’s debt or liability still exists.

If there is more than one guarantor, each guarantor will be individually liable to the creditor for the full indebtness e.g. if there are two guarantors each is 100% Iiable rather than 50% liable.  One guarantor, may, however be entitled to contribution from a co guarantor.

Where a guarantor makes payment to a creditor pursuant to a guarantee the guarantor is entitled to obtain recoupment from the principal debtor.  But this right is likely to be worthless if the principal debtor has no funds.

While the purpose of this newsletter is to generally discuss guarantees it should be noted that many guarantees contain explicit warnings about the risks assumed by a guarantor.  Unless the guarantee is essential, our recommendation is that guarantees should not be given – there is very little upside and there is very grave risk of a substantial downside.
The information in this newsletter is general.  It must not be relied on without first obtaining specific advice from Henderson & Ball.

For Information about Henderson & Ball visit www.hendersonball.com.au

COMMON LEASE PROBLEMS

Leases are complex documents. They often deal with complex situations and/or complex relationships. This article explores some common problems and suggests strategies to overcome them.  At the outset the author acknowledges that this article owes much to Michael Redfern of Russell Kennedy Lawyers.

The permitted use

All leases restrict the tenants use of the premises to a use which may be highly specific (e.g. retail sale of cosmetics) or more general (e.g. retail shop). The restriction on use lasts for the full term of the lease and any renewal unless the landlord otherwise agrees. There is no obligation on the landlord to agree to a change of use.

If a tenant wants to transfer the lease the new tenant will be bound by the permitted use set out in the lease. This could have the effect of making the lease more or less un-transferable.

When the lease is negotiated the permitted use should either be so widely described so as to encompass any other contemplated use or should be specific but allow for “such other uses as the landlord may consent to such consent not to be unreasonably withheld”.

The initial rent

Rent is often based on a figure per square metre. The landlord and the tenant may have quite different views as to what areas are to be taken into account in establishing the rent. If the rent is based on a figure per square metre it makes sense to establish the precise area for which the tenant expects to pay rent and incorporate in the description of the rent the reference to the area and the rate of rental per square metre.

Rent review

A common method for reviewing rent to market is to provide that the landlord may give the tenant notice proposing the rent for the review period. If the tenant does not object within a specified period the proposed rent becomes the new rent. The danger is that the tenant can overlook the landlord’s notice or not realize that the notice requires an objection. It is preferable that the lease should provide that unless the tenant accepts the proposed rent within a specified time then the rent is to be determined by valuation.

If rent is to be determined by valuation the lease should be clear as to what factors the valuer is or is not to take into account. The lease should also provide for the valuer to give reasons for his valuation.

Tenants are frequently concerned when exercising their option for renewal because they do not know what the rent will be until after the option has been exercised. It should be possible at the outset of lease negotiations to have the lease provide that the tenant can give notice requiring the rent for the renewal period to be established by valuation and that the tenant thereafter has 21 days to elect whether or not to exercise the option.

Assignment/Transfer of lease

The Property Law Act (Section 144) provides that a lease which prohibits the transfer or subletting without consent (unless the lease contains an express contrary provision) is deemed to be subject to the proviso that consent is not to be unreasonably withheld. It is common for leases to provide a contrary provision i.e. that Section 144 of the Property Law Act does not apply. Either that provision should be deleted (or, and this is the more likely scenario) the lease will negative Section 144, but allow transfers or subletting with consent provided that certain prerequisites are met.

One common prerequisite is that a prospective transferee have at least as good financial standing and reputation as the transferor. If the tenant is a leader in its field there will be few transferees who would qualify. The test should be simply the transferee has good financial standing and reputation.

The transferability of a lease will most commonly arise on the sale by the tenant of his business. If the lease cannot be transferred the tenant will not be able to sell his business.

Repairs

Unless the lease specifically requires the Landlord to effect structural repairs then under the general law the landlord has no obligations to do so (but the landlord may be liable under the Retail Leases Act).  Leases normally exempt the tenant from carrying out structural works (unless the tenant is the direct cause of the work). The situation can arise when neither the landlord nor the tenant is liable. In that case the reality is likely to be the tenant will do the required work so as to be able to continue to effectively use the leased premises and carry on his business. The answer is to ensure that the lease requires the landlord to maintain the premises in water tight condition and in good structural repair.

Options to renew

Long term security of tenure may be important to a Tenant because:
–    the cost and inconvenience of moving to new premises is substantial;
–    the Tenant’s business may be reliant on being in particular premises or in a particular area
–    the saleability of the Tenant’s business may be dependant on the continuing right to occupy the rented premises.

Options normally give a right of renewal to the tenant only. From a tenant’s point of view it is preferable to have as many options as can be negotiated. After all, there is no obligation to exercise the options.

In the case of retail premises leases the landlord has an obligation to tell the Tenant of the last date for exercising its option. There is no such obligation in non retail leases. The consequences of failure to meet the strict time constraints necessary for the exercise of an option could be disastrous.

An alternative method of providing for options would be to have a lease for a long period with the Tenant having the right to terminate the lease at specific times with not less than a specified period of notice.

Rent guarantee and leases where the starting rent has not been negotiated at arms length

Rent guarantees are designed to provide a specified percentage return to the landlord. The rent guarantee may bear no relationship to the rent which is in fact obtainable for the property. If there is a rent guarantee a prospective purchaser of the premises should be satisfied that the return obtainable when the guarantee expires will not be less than the guaranteed rent.

When premises are initially leased there may be incentives given to the tenant (e.g. fit out contributions, rent free period). The incentives will possibly not be disclosed to any purchaser of the property.  The result may be that that a purchaser will rely on the rent shown in the lease as being a true market rent. Then, if there is a market review and there is no underpinning ratchet provision, the rent will reduce. Once again any prospective purchaser should be satisfied that the rent shown in the lease is a fair market rental.

Variation of a lease

Leases are sometimes varied by agreement between the landlord and the tenant. When there is a variation (not being a variation contemplated by the terms of the lease – e.g a rent increase pursuant to a rent review clause) the question will arise as to whether the variation evidences a new lease.  An extension of the term or the insertion of an option to renew is likely to result in the (unintended) creation of a new lease. Various consequences may flow from the creation of a new lease e.g a Mortgagee’s consent to the old lease may no longer be valid, a five year term might be required under the Retail Tenancy Legislation.

Conclusion

This article merely touches a few of the problems which can arise. Problems with security deposits, air conditioners, restoration of the premises at the end of the term and outgoings are some other problems which commonly arise. Many potential problems can be overcome by thoughtful action when the lease terms are being negotiated.  Many other problems are dealt with specifically by the Retail Leases Act but only, of course, if the Lease is of Retail premises.

The information in this newsletter is general.
It must not be relied on without first obtaining specific advice from Henderson & Ball.

For Information about Henderson & Ball visit www.hendersonball.com.au

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SOME LESSER KNOWN ASPECTS OF POWERS OF ATTORNEY

Various documents, for instance mortgages and leases, commonly contain a provision where the borrower/tenant appoints the lender/landlord his Attorney.

In such a case if the Power of Attorney is expressed to be irrevocable and is granted to secure
a) a proprietary interest of the attorney under the power, or
b) performance of an obligation owed to the Attorney.

then so as long as the Attorney has that interest or the obligation remains undischarged, the power shall not be revoked
c) by the donor without the consent of the Attorney or
d) by the death incapacity or bankruptcy of the donor, or if the donor is a body corporate by its winding up or dissolution.

This provision is contained in Section 109 (1) of the Instruments Act. Subsection (2) goes on to provide that a power of attorney given to secure a proprietary interest  may be given to the person entitled to the interest and the persons deriving title under him so that those persons shall be duly constituted Attorneys under the power for all purposes of the power.

The question sometimes arises to whether an Enduring Power of Attorney made in a State or Territory other than in Victoria is binding in Victoria.   Section 116 of the Instruments Act says that “if an Enduring Power of Attorney is made in another State or Territory and complies with the requirements of that other State or Territory then, to the extent the powers it gives could validly been given by an Enduring Power of Attorney made in Victoria, the Enduring Power of Attorney is to be taken to be an enduring power of attorney made under and in compliance in the requirements of the Victorian Act”.

Unfortunately the question remains unresolved as to whether a non Victorian Power of Attorney made before becoming into the operation of the relevant section of the Instruments Act is to be accorded validity in Victoria under this Section.

WHAT IS SOCIAL MEDIA?
Social media is electronic and technological applications designed for online socialising, networking, communicating, publication and advertising purposes. Social media is analogous to an electronic form of “word of mouth” communications. An important difference between a “word of mouth” communication and a “social media broadcast” is the very public and indelible nature of social media.
Social media platforms cover a range of categories, including: social connections and Q & A forums (Facebook, Twitter, Orkut, Quora, Skype, Formspring); art, design and photo sharing (Tumblr, Instagram, Flickr); commentary and popular interest (Reddit, Stumbleupon, Digg); location services and customer reviews (Yelp, Foursquare); blog and personal entertainment (Myspace, WordPress, YouTube, Last.fm); and professional networks (LinkedIn).
Social media platforms commonly involve “user generated content”. The users generate a range of content which, before being broadcast online, must be carefully considered to avoid social media gaffes being thoughtlessly broadcasted. It is vital that social media users understand the risks and opportunities in being able to exploit this evolving electronic media landscape.

What are the pros and cons of social media.

Social media has various advantages and disadvantages.
For businesses, social media platforms are increasingly being used in the recruitment process to screen candidates’ profiles and their broadcasts. A review of a candidates’ social media presence may produce examples of desirable qualities (such as good communication skills, creativity, suitable personality characteristics, professional awards, well selected online friends, or highly developed professional networks). Equally, and more commonly, it may reveal undesirable qualities (such as provocative and/or inappropriate images or statements, disparaging comments about former employers, discriminatory comments, unqualified claims to credentials, excessive online friends or references to alcohol or drug use).
Business can also engage with their customers through social media. For example, international consumer goods behemoth Procter & Gamble effectively used social media platforms in 2010 and 2011 to launch and promote Old Spice and Gillette branded goods. In contrast, Qantas was not as effective in using social media during the grounding of its entire fleet from late October 2011. Despite attempts by Qantas to use social media to pacify and communicate with its customers, social media details customers expressing their disappointment and dissatisfaction. Accordingly, businesses must be aware of the “immediacy” of social media and use it advantageously.
Given the digital footprint that social media broadcasts generate, evidence gathering and investigative authorities find social media platforms a rich resource of material. It is rare that police or other forensic experts, such as insurance or fraud investigators, are unable to retrieve social media profiles and/or contributions through social media forums. Searches of social media platforms may allow for evidence to be cross-checked and discrepancies to be investigated. Courts have even allowed social media to be used for the “service” of court documents in limited circumstances.
For employees, social media platforms need to be handled carefully with the opportunities to use the public forum to promote themselves favourably. The number of cases concerning employees being tripped up by social media is growing. These cases indicate the need for employees to be selective and careful in how they use social media. It is also becoming increasingly necessary for employers to implement an enforceable social media policy to protect the employers’ interests from their employees’ careless use of social media.

What have the courts, tribunals and fair work Australia said about social media and employees?

Decisions by the Courts, Tribunals and Fair Work Australia, regarding employees and social media platforms, determine each case on its merits. However, there are some common points that have been reiterated in the various decisions, both in Australia and overseas.
It is a common view that using social media platforms is similar to broadcasting and/or publishing in the public domain, irrespective of the privacy settings adopted by the social media user. The broadcast is able to be viewed 24 hours a day and is not removed during work hours. This broadcasting is further complicated, if the social media user has included colleagues as the recipients to share in the user generated content.
The intention of the broadcaster is not a paramount consideration and is superseded by the fact that the content can potentially be viewed by an unlimited number of people. Attempts by the social media users to limit or control their broadcasts, by adopting the maximum privacy settings, will not make those users immune from an employment review.
The decisions have drawn a line from, on the one hand an employee having a grumble over a coffee about a work place issue and on the other hand, posting the details of the grumble online to be viewed by an unrestricted number of people, at any time, including colleagues and/or an employer. For employees, the lesson is simple: do not use social media platforms to broadcast or publish unfavourable or inappropriate content about your employer.

Can employees’ misuse of social media be a valid reason to dismiss an employee?

The nexus between employees’ careless use of social media and a potential breach of the employment contract will depend on the circumstances. For example, if the disparaging broadcast has a direct connection with the employer or is directed to a work colleague, or is likely to cause damage to the employers’ interests, then these matters may be actionable by the employer. Social media broadcasts made outside work hours will not necessarily protect the employee from their employers’ scrutiny.

How can employers protect their business against the risks posed by employees’ improper use of social media?

An important and useful step for employers is to have a social media policy that binds employees. An effective social media policy will have some common and essential points, including: a clear definition of social media, a re-statement of the employees’ common law and statutory duties, and an explanation of the public and indelible nature of social media.
In the case of possible breaches, the social media policy must contain particulars of what constitutes a breach and the consequences for breaching the social media policy, including disciplinary matters.  Employers who have enforceable social media policies are in a stronger position to take action against employees who have misused social media resulting in damage to the employers’ interests.

More information

For further information and legal advice regarding social media, please contact Alex Long, Lawyer and Trade Marks Attorney, Henderson & Ball.

IMPLIED TERMS IN CONTRACTS

The terms of a contract are the specific agreed terms and any implied terms.  Implied terms serve at least two purposes. First they fill gaps–no contracts can allow for all eventualities.  Second, implied terms allow regulation of the performance and enforcement of contracts.   But implied terms will always be overruled by specific contrary terms.   There are at least three different kinds of implied terms.
–    Obligations implied in all contracts e.g. the obligations of cooperation and good faith;
–    Obligations implied in particular types of contract. Such obligations are to found in the sale and leasing of real estate, the sale of goods, employment contracts, contracts of agency and partnerships;
–    Obligations implied in specific contracts.

This third class is where problems are most likely to arise.   Take the situation where  a contract is silent on a particular point.  Is it or is not possible to imply a term which resolves the point. The rules for implying a term in a specific contract are clear. For a term to be implied the term:

–    must be reasonable and equitable;
–    must be necessary to give business efficacy to the contract;
–    must be so obvious that “it goes without saying”;
–    must be capable of clear expression;
–    must not contradict any express term of the contract;