Leave a Legacy: Not a mess

My client, Jack, recently contacted me and advised me that his mother, Mrs Smith, passed away. His siblings were not quite comfortable with the way in which she bequeathed her assets to the beneficiaries under her Will. He sought my assistance in resolving this matter.

Some further investigations revealed that:

1. Mrs Smith ran a small café business under a family trust structure with she being the sole shareholder and sole director/secretary of the corporate trustee.

2. The family trust owned commercial property, residential property and equipment to operate the café business.

3. The family trust, through its corporate trustee, also operated a bank account.

4. Mrs Smith had one residential property and one bank account in her individual name.

After reviewing the Will I found obvious errors in the Will (prepared by another law firm) some of which were:

1. the Will incorrectly assumed that the assets held by the family trust were owned by Mrs Smith and set out provisions for bequeathing specific assets held by the family trust to specific beneficiaries;

2. the Will incorrectly assumed that the equipment held by the family trust was owned by Mrs Smith and set out provisions for bequeathing them to a specific beneficiary; and

3. the Will incorrectly set out the manner in which Mrs Smith’s superannuation monies were to be distributed between the beneficiaries.

After identifying the assets held Mrs Smith in her individual name, and those held by the corporate trustee for the family trust I advised my client that:

1. the specific bequests of the assets that were held by Mrs Smith individually can be distributed to the specific beneficiaries set out in the Will;

2. the specific bequests of the assets that are held by corporate trustee cannot be distributed to the specific / nominated beneficiaries set out in the Will as the family trust (and not Mrs Smith) owns these assets and they ought not to have been included in the Will;

3. the superannuation monies are distributed by the trustee of a superfund subject to specific binding death nomination made by a member and they do not form a part of a person’s estate; and

4. subject to the provisions of the trust deed of the family trust, a deed of family arrangement may be agreed upon between Jack and his siblings in relation to the assets held by corporate trustee for the family trust.

Jack and his siblings’ relentless efforts yielded a positive outcome in Mrs Smith’s accountant providing them with a copy of the trust deed for the family trust. The trust deed set out that Mrs Smith’s children were the only beneficiaries of the family trust. This information assisted us to a significant extent in negotiating the terms of the proposed family arrangement.

I and the legal representatives representing John’s siblings extensively negotiated the terms and conditions of the proposed family arrangement with an aim to achieve an equitable distribution in value of the assets held by late Mrs Smith and the family trust to all beneficiaries in the Will.

Whilst negotiating the terms of the family arrangement, each beneficiary also took independent tax advice as to tax implications that he/she may encounter with the proposed distribution of the assets held by Mrs Smith and the family trust.

After lengthy negotiations between each beneficiary’s legal representatives, Jack and his siblings agreed to sign a deed of family arrangement, which had minimal tax implications on each of them.

Takeaway message

Before preparing your Will, seek independent legal advice to identify what You Own individually and what You Do Not Own (assets held by other structures like family trusts, self-managed superannuation funds). This ensures that your Will is limited to assets that You Own rendering it valid and accurate.

Examples of assets that you Can Include in your Will are:

1. real and personal property that you own only in your individual name;

2. real property that you own as a tenant in common with someone else and not as a joint tenant;

3. shares that you own in your individual name; and

4. subject to laws relating to international wills, any real and personal property held overseas only in your individual name.

Examples of assets that you Cannot Include in your Will are:

1. any real property held by you as a joint tenant with someone else as it is governed by rules of survivorship;

2. real and personal property held in a family trust as it is not owned by you but by the trust;

3. superannuation monies as they do not form a part of your estate, but are to distributed pursuant to a binding death nomination provided to the Trustee of the Superfund;

4. monies receivable under a life insurance policy as the proceeds of the policy are to be paid to a beneficiary nominated by the policy holder with the insurer.

Before preparing a Will, every individual must accurately identify his/her assets to ensure that the Will is clear and valid. This minimises the likelihood of your beneficiaries incurring significant legal costs in administering and distributing your estate.

Please note that any information included in this article is general information only and does not constitute legal advice. Please contact us to discuss your particular circumstances.

Archana Luktuke7 April 2019

Mr and Mrs Joe Bloggs contacted me to seek legal advice on a proposed commercial lease provided by the real estate agent for their upcoming coffee shop in suburban Perth.

Mr and Mrs Bloggs were being rushed into signing the proposed lease, which they were not comfortable with. They started by explaining how their friend, who runs a hair dressing salon, was provided with extensive written information and a proposed lease to review before executing it. This was in stark contrast to a small seven-page template that they received by way of a proposed lease from their letting agency. I explained to Mr and Mrs Bloggs that their friend and they are subject to separate leasing legislation, however their due diligence before signing the proposed lease will assist them in the long run. In Western Australia, leases for commercial premises can be categorised as retail leases and commercial leases. It is important to note that all commercial leases in Western Australia are not governed by the same legislation.

A summary of the safeguards that a potential lessee of a commercial lease must consider is discussed below.

Retail Leases

Retail leases are governed by Commercial Tenancy (Retail Shops) Agreements Act 1985 (WA) (the “Retail Shops Act”) and are limited to premises:

(a) with a lettable area of 1,000 m2 or less;

(b) used for carrying on a business and that are in a retail shopping centre (a group of premises, 5 or more) or otherwise; and

As at 1 January 2013, 'specified businesses' are limited to:

(a) dry cleaning;

(b) hairdressing;

(d) shoe repair (which includes key cutting and engraving); and

(e) sale or rental of videos tapes, DVDs, electronic games and other similar amusements.

Any landlord, whose commercial premises is governed by the Retail Shops Act, is bound by significant number of obligations as to the information he/she needs to disclose to a potential lessee prior to executing the lease. In comparison landlords, whose premises is governed by the Transfer of Land Act 1893 (WA) and the Property Law Act 1969 (WA), are not bound by any specific obligations as to the information he/she needs to disclose to a potential lessee prior to executing the lease.

The Retail Shops Act did not apply to Mr and Mrs Bloggs proposed lease. Therefore, began Mr and Mrs Bloggs’ due diligence journey before executing their commercial lease.

Commercial Leases

The real estate agent provided Mr and Mrs Bloggs with two documents – the Commercial Lease with Annexures and General Terms and Conditions of the Lease. Mr and Mrs Bloggs were seeking advice as to whether both these documents captured the terms and conditions of the agreement between the landlord and them.

Typically, most real estate agents would fill in the details in a Commercial Lease template published by Real Estate Institute of Western Australia (REIWA) and provide it along with the General Terms and Conditions of Lease, also published by REIWA, to any potential lessee.

The General Terms and Conditions of Lease document sets out the obligations and liabilities of the landlord and the potential lessee, however any potential lessee must review whether the following key details have been included in Commercial Lease document provided to him/her:

(a) whether the potential lessee and the landlord have been accurately identified (is the potential lessee and/or the landlord an individual or a company);

(b) whether any guarantors have been included in the lease;

(d) whether any other items (such as equipment) owned by the landlord are being included with the lease;

(e) the term of the lease;

(f) whether the potential lessee has an option or multiple options to renew the lease;

(g) the amount of rent and the frequency of payment of rent;

(h) the mechanism and frequency of rent review;

(i) what are the types of outgoings that the potential lessee is to pay and an estimated amount per month;

(j) whether a security deposit or bank guarantee will be held and for what amount;

(k) permitted use of the premises;

(l) whether the landlord has obtained approvals for the intended use and signage from the local council and the strata management (if applicable);

(m) whether the potential lessee has been provided with copies of approvals for intended use;

(n) insurance requirements to be complied with by the potential lessee; and

(o) how the agreement can be terminated and what is the notice period.

Mr and Mrs Bloggs proposed lease document had the following inadequacies:

(a) incorrect details of the proposed lessee – Mrs Bloggs was named as a lessee in place of the potential lessee company;

(b) the landlord had not obtained any approvals from the local council and the strata management for the intended use and signage although the terms stated otherwise;

If Mr and Mrs Bloggs would have signed up a lease with the inadequacies mentioned above, they would have put themselves in a financial predicament as the incorrect person would have been bound to comply with terms of the lease without any approvals to run the business at the premises and with no estimate of the costs towards outgoings.

Takeaway Message

Caveat emptor – buyers (in this case potential lessees) beware:

The clear message for any individual or entity considering a commercial (non-retail) lease is to undertake adequate due diligence and seek independent legal advice before executing any commercial (non-retail) lease.

Please note that any information included in this article is general information only and does not constitute legal advice. Please contact us to discuss your particular circumstances.