Possible options for development structure

Consider following scenariofor small development involving total capital outlay of appx 2 million including construction.

Partner A contributes 1 mil to site purchase plus some for DA and BA. Site is in partner A's name and its unencumbered.
Partner B sources finance via bank only for construction

What is the best ownership structure to achieve

1 - partner A is not liable for fianance i.e. bank cant come after partner A. Bank does not know partner A at all.
2 - Partner B gets finance for development. What level of LVR bank will allow ? Partner A is happy for bank to have rights on title of the property in order for partner B to secure funding for development.

 

1 and 2 seem to conflict with each other?

 

@thatbum ,

No it does not. Partner A does not want to sign up for finance. Basically, he wants his exposure limited to current project only. If something goes wrong, he does not want bank to come after him i.e. bank cant claim anything else from him - other than site. Partner B will be signing mortgage so technically bank can go after his other assets in case situation arise.

 

Yes it does.
Only legal owners can give registered mortgages.

How can B borrow against A' property? Only by you giving a guarantee.

To avoid this either
a) A can sell to B or
b) A can gift to B, or
c) A can transfer to B as trustee for A and B can become the legal owner

You had better get some legal advice.

 

Thanks @thatbum and @Terry_w .

Terry has made it much more clear. So i was wrong about it.
Any other way to achieve end goal ? I.e. to secure finance for construction and A's liability is limited to development site ?

 

Yes, B can borrow against other property

 

? Unit trust ?
? Company ?
A investor (unitholder / shareholder) will generally have liability limited to loss of their investmnet. However rights to a share of income / profit etc may all need to be considred. A hybrid unit trust may asist and not expose any ATO issues BUT many lenders dont like hybrid trust elements. Shareholdings using different classes of shares is another method.

All need legal advice. For example a unit trust may confer a right to a unitholder to demand redemption (prior to completion !) or may limit rights of redemption (trustee discretion) and require a unitholder agreement to prevail. Parties who are in control (trustee / Director etc) may also need to give personal guarantees.