Chan & Naylor Partners every day are in the business of caring for our clients, their families and businesses from generation to generation.
Below is a great story on the extent our Chan & Naylor Partner for Melbourne & Moonee Ponds, Mr Sandro Bagnati had recently gone to, to ensure that a client was able to satisfy the SMSF Limited Recourse Borrowing (LRB) rules.
- After receiving advice from us for borrowing within a SMSF, the client had purchased a property with accessory car park in their SMSF. Both the property and the car park having separate titles. They had purchased at auction.
- We had advised the client to clearly note on contact ‘and/or nominee’ and request an extended settlement period. They did this.
- After acquisition we advise the client that they should get his conveyancer to confirm that both the property and the car park could be treated as one i.e. could not be sold separately.
- The client was applying for finance and the funder was prepared to fund the acquisition as long as all the SMSF borrowing rules could be met.
- The client’s conveyancer reported that there was nothing in the OC rules that prevented the car park and the apartment being sold separately, and whilst an objection would be lodged if this was the case, the rules had no restriction for the car park to be dealt with separately.
- This instantly put the funding of the property into jeopardy as the acquisition could not satisfy the “Single acquirable asset rule”.
- The client could not complete the acquisition without funding and the client was exposed to losing their deposit. So at this point panic is starting to set in.
- At all points we were in control, as we had come up with a number of viable solutions;
- The ‘and/or nominee’ clause could allow the client to purchase the property direct in their own names instead of the SMSF.
- Buy the car park directly. The issue with this option was that there was no separation of value of the Car Park to the Apartment. So an independent valuation of the property would be required before the funder would provide a loan proposal.
- Self-lend as we were convinced that the single acquirable asset rules were satisfied as there had been no precedents of such an event, the Body Corporation manager was unequivocal in their position of a separate sale of the car park.
- Have two bare Trusts.
- The funder’s lawyers maintained that the “single acquirable test” had not been met and were not prepared to lend.
- Our team prepared the bare Trust deed, who in turn became involved with identifying a solution that would allow the funder to be satisfied with the single acquirable asset test.
- We then contacted the conveyancer letting them know of the issues and the possible outcome if the test could not be satisfied.
- To the credit of the conveyancer she approached Land Victoria, and in turn received the advice noted below.
- This was ground breaking stuff, because based on the Section 2 of the 1988 legislation clearly the car park could not be sold separately and this was sufficient to satisfy the funders lawyers. This had not been tested before.
- The experiences gained from this case;
- The funders lawyers had no idea of the existence of the legislation and so were not prepared to fund, they have now learnt something new that extended beyond SMSF law.
- Our team were initially not satisfied that the arrangement would meet the test, but after receipt of the information from Lands VIC were readily converted.
- This legislation has application to any client acquiring Victorian property built pre 1988.
- Great team work between professionals building a strong relationship.
- Client trust has been cemented for life.
- We will be able to settle by the settlement date on contract.
Disclaimer: This article contains general information. Before you make any financial or investment decision you should seek professional advice to take into account your individual objectives, financial situation and individual needs.