Hi,
I was doing some research tonight and noticed that a proposed amendment to the Land and Business (Sale and Conveyancing) Act 1994 (SA) provides the following provisions:
34—Amendment of section 6—Abolition of instalment purchase or rental purchase arrangements(1) Section 6—after subsection (2) insert:
(2a) A contract under which a person has—
(a) a right or obligation to purchase land; but
(b) an obligation to pay rent in respect of a period of occupation of the land of more than 6 months before the right is exercised or the purchase completed,
is voidable at any time at the option of that person.
(2b) A person will not be taken to have elected to affirm a contract that is voidable under subsection (2a) by reason of a payment made under the contract.
(2c) If a person avoids a contract that is voidable under subsection (2a), the person may, by action in any court of competent jurisdiction, recover any amount paid under the contract in excess of what would have been fair market rent for any period for which the person has occupied the land under the contract.
(2) Section 6(3)—after the definition of deposit insert:
rent includes any amounts payable in respect of a right to occupy land.
By my read that would spell the end for wraps and lease options in SA.
Your thoughts?
Steve McKnight
**********
Remember that success comes from doing things differently.
**********Steve McKnight | PropertyInvesting.com Pty Ltd | CEO
https://www.propertyinvesting.comSuccess comes from doing things differently
Think your right there Steve,
Only thing being that the contract becomes voidable not void ab initio. The point being that from reading the amendment it would seem that it is not void from the beginning but rather void if the tenant chooses to rescind the contract.
SO there is hope but only if your extremely trusting of your tenant
True enough, but who would go into a contract with a contingency such as this where you only had a downside?
Steve McKnight
**********
Remember that success comes from doing things differently.
**********Steve McKnight | PropertyInvesting.com Pty Ltd | CEO
https://www.propertyinvesting.comSuccess comes from doing things differently
This legislation is basically saying that anyone with an option to purchase a property in which they are paying rent for more than 6 months can ask for all their money back if they decide not to purchase. The contract is voidable!!! The vedor/owner however is locked into the contract if the purchaser does decide to buy!
I think this piece of legislation is appualing on the part of the state government and there is no need for the proposed changes. There is a serious issue with affordable housing in SA and they want to limit the solutions! Lease options create opportunities for home buyers to enter the market and this should be seen as being favouable!
The state governement is allowing equity loans in which a bank can finance a 20% deposit then be allowed to take 40% of any future equity in the home once it is sold! Why is this scam allowed and yet they want to abolish lease options in which a purchaser can keep all future growth in the propertry even before it is purchased!
During a discussion with parliment on March 6, the Real estate institute of SA neglegted to comment on this part of the legislation. Typical real estate agents…. focused on commissions and not solutions!
This affects all investors whether involved in vendor financing or not. Investors, renovators and developers can no longer negotiate a settlement of 6 months or longer for the purpose of renovating or developing the land under a lease agreement or license to occupy, the contract would be voidable!
We are obviously opposing these changes and I would like to hear from any one in SA who this is affecting!
Investment Property Management
http://www.adprop.com.auFrom the amendment it doesn’t look like they can ask for all of their money back – just the money that is over what they would have paid for market value rent.
For example if they were paying $300 p/w and fair market value was $250 p/w then they would be able to get the $50 x eg 26 weeks back so $1,300 – the market value portion ie $250 x 26 = $6,500 would be kept by you.
Plus the proposed change says
(1) Section 6—after subsection (2) insert:
(2a) A contract under which a person has—
(a) a right or obligation to purchase land; but
(b) an obligation to pay rent in respect of a period of occupation of the land of more than 6 months before the right is exercised or the purchase completed,
So this could be taken to read that this would apply for example if they had an option to buy at any time – eg 2 years – which would be over the 6 month period. The way I read it, is if you charge market value, then if the tenant chooses the option to buy then you would be able to increase the payments to what they would be paying under the purchasing contract.
If you were charging above market rent for eg 2 years, then the tenant would be able to request the monies paid over fair market value if they decided not to take the option.
Perhaps you can just change the contract to read that the tenant has the option to purchase. Before they take up that option they would be required to pay market value for rent – this rent payment may increase depending on market trends (maybe it could have a clause to be reviewed 6 monthly or annually). If the tenant chooses to purchase the property then they would be required to pay x amount.
Because you’re not guaranteed the extra money perhaps you could put a set timeframe – for example if the option is not taken in 2 years and the tenant would like to purchase after this 2 year period then sale amount would be reviewed at that time and the tenant can decide at that time to continue with the contract. This would allow you to increase the price depending on current market value to make up for the lost revenue while the potential purchaser is deciding on whether to buy or not.
Not sure if you will be able to do it this way, obviously you would need to get legal advice but this could be a way around the proposed legislation.
Linda
Hi all,
I am new at this option thing and have just started in SA too. Am nearly at the paperwork stage for signing up the buyer and seller. I am very concerned about this new legislation as I don't want to be seen as doing anything illegal. We live in a small community and this could have bad effects all round.I have emailed a friend who is doing these in Adelaide and he saud that we just call the excess over and above the market rent, an option fee. Would this cover it or not? If we also collect an option fee up front, can they get this back too if it is voidable, or is it only the weekly excess rental payments?
Now you've got me worried. What other strategies are there for us in SA with no wraps and lease options. Spewing!!
Mandy
As far as I know that legislation did not go through, it will be looked at again in July next year. We have done 2 lease options this week, all is well in SA.
HI Xenia,
That is great news, now if they can make it a bit easier for these people trying to get into homes on Rent 2 Own as well as wraps I'd be happy! Is there a way or someone we could lobby to to see if we can get wraps in SA too, let them know we are behind all other states and maybe we are doing something wrong. May be worth a push if there is enough of us!
Anyway, on the lease options, what do you call the payment over and above the rent, do you call this an ongoing option fee so save confusion or what? Don't suppose you would be happy to let me have a look at the paragraph or 2 in your option paperwork that talks about the option fee part of it so I know I am on the right track and not doing anything illegal?
Thanks anyway for your advice and it's great to know that we can do this with no problems as such,
MandyHi Mandy, we thought about Lobbying and getting the support of some of the bigger players from other states.
Our solicitors advised against it as it would create competion for our business, better let people keep thinking that it is not legal
(especially real estate agents who have absolutely no idea). If the new legislation does get passed in, it will pose some restrictions on our current model but we have found a way around it (can still be done). Obviously our contracts are all confidential and I can't say any more than that, but it won't really stop our business model.Happy to do the lease options for you though
We have many many examples of people who would not have been able to afford a home being given a unique opportunity (without robbing them of their equity like banks are trying to do). At the moment there is a boom in SA and many of our tenant buyers are excersising out early, they are buying properties with built in equity and are truly on a winning streak. Being able to help people like this is just amazing.
Existing legislation in SA forbids payment for land by more than 3 instalments, which is why wraps are illegal in SA.
If we had a lease option contract that provided for that portion of the tenant's payment that was in excess of fair market value to be deemed an option fee, could that portion be classed as an instalment towards the purchase price?
If a Residential Tenancies Agreement was in place to cover the fair market rent of say $200 per week, and also there was a separate option agreement that cost the tenant $100 per week, would this be legal under the existing legislation?
What about under the proposed legislation? Could the option fee be voidable?
It could be argued that the tenant is not required to pay above market rent under the option contract, because their obligation to pay rent is only under the Residential Tenancies Agreement
Any ideas?Hi Xenia,
Thanks again, it's been a while since I was here as you can see!!
As I understand it, there would be plenty of work for everyone even if all knew about it. Real estate agents wouldn't tend to use the approach because it kind of contradicts what they do doesn't it?
Anyway, I am over on the Eyre Peninsula in SA so wouldn't be dabbling in your territory at all. How would I make the money if I got you to set up the lease options? Could be an idea, but let me know how?
I have a property or 2 over here that I am trying to rent to own, but have lots of interest and no one handing over any money. How much do you ask for an up front option fee? I am wondering if this is what is stopping them. What percentage of people finally finance and buy? Most or not many? Are you finding people with negatively geared properties and just setting up the transaction for them or actually doing a sandwich lease?
I'd love to know more about your business.
Thanks for tha advice,
Mandy
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