Possible options for development structure

Discussion in 'Legal Issues' started by Rooky, 20th Oct, 2019.

Join Australia's most dynamic and respected property investment community
  1. Rooky

    Rooky Well-Known Member

    Joined:
    18th Jun, 2015
    Posts:
    438
    Location:
    Perth
    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.
     
  2. thatbum

    thatbum Well-Known Member

    Joined:
    18th Jun, 2015
    Posts:
    4,916
    Location:
    Perth, WA
    1 and 2 seem to conflict with each other?
     
    Terry_w likes this.
  3. Rooky

    Rooky Well-Known Member

    Joined:
    18th Jun, 2015
    Posts:
    438
    Location:
    Perth
    @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.
     
  4. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

    Joined:
    18th Jun, 2015
    Posts:
    35,863
    Location:
    Australia wide
    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.
     
    [email protected] likes this.
  5. Rooky

    Rooky Well-Known Member

    Joined:
    18th Jun, 2015
    Posts:
    438
    Location:
    Perth
    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 ?
     
  6. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

    Joined:
    18th Jun, 2015
    Posts:
    35,863
    Location:
    Australia wide
    Yes, B can borrow against other property
     
  7. Paul@PAS

    [email protected] Tax, Accounting + SMSF + All things Property Tax Business Plus Member

    Joined:
    18th Jun, 2015
    Posts:
    18,485
    Location:
    Sydney
    ? 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.