25 Sep Use a Lot Owners Deed to settle disputes – Jacob Duane
It might look rosy at the start but buying with friends and relations can turn sour but Jacob Duane has a solution. He calls it the Lot Owners Deed. He explains that and tells us about 2 other ways your investment journey can come unstuck.
Kevin: Sometimes when we go into any endeavour, it’s not so much a matter of how much we know. It’s a matter of what we don’t know, and this highlights some of the common mistakes that property investors make. So, we’re going to talk about that with Jacob Duane, who is the Director of Bennett and Philp Lawyers, and leads the firm’s property and real estate team. Jacob, thanks for your time.
Jacob Duane: Thanks for having me, Kevin.
Kevin: I asked you to put together the top three mistakes that you see investors make. We might just work through those. I wasn’t at all surprised to see that the first one was going in with others. You’re talking here about family and friends?
Jacob Duane: I am, and I’ve got this one down from personal experience, Kevin.
Kevin: Oh, really? Okay.
Jacob Duane: Years and years ago, I was involved in an investment property transaction. Family, in-laws, friends, it was a decent bit of property. But honestly, different stages of life, different investment appetite, and changing family circumstances all imploded. So I see this regularly, and my advice is always to avoid it at all costs.
Kevin: Avoid it, but if you need to do it, always go in with the end in mind. In other words, have your exit strategy before you even … And I have those important conversations as well, Jacob.
Jacob Duane: One of the things that a lot of these co-interested investors don’t consider is a Lot Owners deed, which actually outlines the exit opportunities for them at all stages of the ownership.
Kevin: In putting that together, that would raise a lot of interesting questions that need to be confronted as well, wouldn’t it?
Jacob Duane: It does and it’s interesting because what they say is, “Oh, look. That won’t happen. We don’t need to consider that.” And so they’re happy families when they go into the transaction, but generally they’re not happy at the end.
Kevin: Such a shame, isn’t it? But that can be avoided by having this thing documented. I guess we’ve gotta realise that this thing is like a business, and with any business transaction, you need to have it really, clearly set out as to what the procedures are.
Jacob Duane: That’s right, that’s right. I had a matter recently, Kevin, where a brother and sister, and a sister-in-law purchased a property. It was all fantastic in the beginning. By the end of it, the sister was excluded from the property and was living in a room downstairs, away from the kitchen, away from the balcony, away from all the exciting parts of the property.
Kevin: It’s amazing, isn’t it? When something goes wrong, it just drives an enormous wedge and even those very strong family ties can’t help it at all. But it is a matter of clarifying it, and I said at the outset, that sometimes there are reasons why you’d want to go in with others, and that is to get your foot into the ladder. But if everyone understands that is the case, and then everyone sort of says, “Well if I want to sell this is going to be the scenario.” As long as everyone understands it, Jacob.
Jacob Duane: That’s exactly right, Kevin. And look, it’s not a difficult document to draught, a co-owner’s deed. Couple of hours of my time, and an hour with you running through the scenarios that might be relevant to you and we get it sorted.
Kevin: Yeah. And the reason I like doing it with a solicitor, a third party, is that you can offer or ask those very uncomfortable questions that need to be confronted.
Jacob Duane: Yes, and then you’d appreciate this, Kevin. Noel Whittaker wrote a piece two weeks ago on the Courier Mail, and said, “Your best business partner is always the bank, as they only want you to pay interest.”
Kevin: That’s so true. That’s what I like about Noel, he cuts straight through, doesn’t he? Number two you said it was due diligence. This is such a broad subject on its own. But just quickly cover off for me, what are some of the areas in due diligence we need to be aware of?
Jacob Duane: Well, one thing that people need to remember is that the consultants generally haven’t seen the property. So I don’t know whether that pergola looks like it’s approved. So I don’t know whether it’s appropriate until you obtain a full town planning certificate. I don’t know whether we need to get a building approval search done. People say, “Well look, just order the relevant searches.” And I say, “Look, to me all the searches are relevant, because they’re all going to turn up something.” It’s a commercial call for you as to what ones you want to take, and what risks you’re prepared to take.
Kevin: Getting a building and pest inspection done, they’re very basic things. But it’s amazing how many people don’t do it.
Jacob Duane: Kevin, I’ve seen extensions built over underground easements. And people have lost part of living rooms, in relation to council coming along and saying, “Look, I need access to that sewer easement. You have to remove that part of the building.”
Kevin: Exactly. Spruikers was number three and this is one that we’ve covered quite often in the show, but it amazes me how many people continually fall for this.
Jacob Duane: Yeah, Spruikers have a role Kevin, but I think what investors have to do is ask a lot of questions. You don’t necessarily have to use those associates recommended by the spruiker. You may use some, you may use the real estate agent, you may use the accountant. But what you need to do is go in with your eyes wide open, having asked a range of questions. Advisors have the obligation to provide recommendations to their clients that’s in the client’s best interest. You’ve always got a question whether there’s a conflict between your advisor and whether your best interest is being considered.
Kevin: Yeah. When we talk about Spruikers, I normally think of spruikers as people who are trying to sell you something, but it’s a product that I’ve got. So therefore they’re getting a double commission. They might be getting something from you, but certainly getting something from the developer as well.
Jacob Duane: Yes. Well, one thing that we never do Kevin, is that we never get kick backs to you.
Kevin: Well that’s good for us. Yeah. I think that’s the question you need to ask these people when they’re offering you a service is, “Are you getting a kickback on this?” It’s okay sometimes to get a kickback, but as long as it’s disclosed and you know.
Jacob Duane: If it’s disclosed it’s right. As long as everything’s up front Kevin, it’s fine. But as a matter of policy, I think it would be better for advisors not to do it.
Jacob Duane: Fee for service or for advice I think is more important.
Kevin: We touched on three very important issues here and they all need further discussion, so we’ll probably do that at a later time. But Jacob, thank you so much for your time.
Jacob Duane: Great. Thanks for having me. Kevin.