People might have seen the clause 'signing contract and or nominee' when buying or selling property (conveyancing). Conveyancing is the legal process of transferring land or title from one person to another. But, what does a contract and/or nominee clause mean?
Basically, stating a signing contract and/or nominee in a contract permits the option to nominate another person (nominee) to purchase a property. A purchaser may not give any enforceable rights to the nominee and the purchaser may cancel the nomination at any moment prior to the registration of the transfer.
As a result, despite the nomination, the buyer still holds onto all of the contract's rights and duties, while the candidate has none. In contrast to other typical methods, nominating a person to take the title prevents a third party from finally obtaining title in a land sale. This includes a purchase transaction between a vendor and a buyer. These methods include:
- A novation (an agreement made between two contracting parties that allow the substitution of a new party for an existing one) of the contract.
- An on-sale with contemporary settlement; and
- An assignment of the purchaser's rights.
A buyer may instruct a seller to execute a transfer in favour of a third party even in the absence of a nominating clause. However, a nomination clause is preferable because it can address the steps that must be taken and state the expenses involved. Read on to know more about the 'signing contract and or nominee' clause.
Relevant Documents
It is typical to list one's name and/or a nominee when a buyer is unsure of the ultimate purchasing entity at the time of signing a contract. Back then, it was necessary to establish a connection between the "actual" purchaser and the nominee purchaser identified in the contract using:
- A Letter of Agency (also known as a Letter of Nomination) or;
- A Deed of Assignment.
The purchaser's solicitor usually prepares these documents. Revenue SA issued a ruling on January 16, 2015, eliminating the need for stating and/or designating a nominee on contracts. This includes recognising that the buyer in the contract is free to transfer the land to whoever they choose under common law rights.
Moreover, the receiver of this land is able to change their mind up until the settlement date. If transferred to a company, the company need not even have existed at the time the Contract was signed. As a result, a Letter of Nomination is also no longer required.
Nominating Under a Contract Sale
Under a contract of sale, purchasers have the legal authority to designate an alternative purchaser or purchasers. Furthermore, the purchaser's right to nominate is typically stated in a particular or general condition under the contract. In essence, the original purchaser will assign to the nominee their right to complete settlement under the contract by completing a nomination.
The vendor can enforce the contract against the initial buyer via nominations. The purchaser must receive any notice of default. It may actually be served to both the original purchaser and the designated buyer in practise. Some contracts may also state that the vendor will charge legal fees to a buyer if there is a nomination by way of special conditions in the contract.
However, under normal nomination forms, both parties are still responsible for a complete settlement with the vendor. There are a number of things to think about if you plan to complete a nomination when discussing the 'signing contract and or nominee' clause. They consist of the following, but are not limited to:
- The directors of the company that a person is nominating are typically required to produce a signed guarantee and indemnification.
- A person must make sure that the timing of the nomination is appropriate if he/she wishes to propose a substitute entity. This statement is true if the property is actively being built. Failure to do so will result in unintended double-duty effects.
- People must make sure that their ownership parts are accurately documented on the nomination. This is the case for people who are designating other purchasers in addition to themselves as the original purchasers. This includes joint tenant ownership or tenants in common ownership. Read on to know more about these types of ownership.
Signing Contract and or Nominee: Joint Tenant Ownership
A form of joint property ownership known as joint tenancy permits equal ownership and interest in the asset. This indicates that they share joint ownership of the property and do not each own a separate interest in it. The right of survivorship that exists between joint tenants is the main distinction between joint tenancy and tenants in common.
In other words, the interest in the jointly owned property that goes at the death of a co-owner automatically flows to the surviving joint tenant. Joint tenancy is most frequently used when a married couple has a co-ownership arrangement. For instance, if Marie and Richard own property and Richard dies, his name is removed from the title, which leaves Marie as the sole owner.
Signing Contract and or Nominee: Tenancy in Common
Owning real estate through tenancy in common entails taking advantage of special tax laws and division procedures. People will have a specific share of the property if they elect to set up their joint ownership as a tenancy in a common arrangement. This also allows the person opting for tenancy in common to transfer their interests separately.
As a result, the co-owners agreement may define equal or unequal shares in the co-ownership of the property. Moreover, beneficiaries may receive those shares upon the person opting for tenancy in common. However, each joint property owner does not have a separate physical portion of the property under Australian property law for usage and enjoyment purposes.
Can Vendors Nominate Under a Contract of Sale?
The purchaser will almost always nominate a new entity to complete settlement in cases involving a nominee entity. However, when discussing a signing contract and or nominee clause, a vendor may possibly nominate under a contract of sale. This commonly occurs in off-the-plan purchases where there are two separate contracts.
Vendors Nominating Under a Contract of Sale Example
The first buyer in our example is the vendor. The buyer under contract 1 subsequently sells all or one portion of their property to the buyer under Contract 2. However, the original purchaser designates a new entity before concluding settlement under Contract 1.
It's possible for the vendor under the second contract to designate the new entity under Contract 1 in this situation. This can only happen if there are suitable special conditions in place under the second contract. As a result, this can ensure that both settlements can be completed successfully.
Stamp Duty
People are always required to pay stamp duty if they are purchasing a house. A person might have to pay additional stamp duty on top of the initial stamp tax if they are considered a foreign purchaser. This is if that person buys residential land or non-residential land with the aim to convert it to residential land. The named purchaser is still personally responsible for carrying out all the purchaser's obligations under the contra