Trustees looking to buy property through limited recourse borrowing arrangements (LRBA) should confirm with their third-party lenders the correct order in which key documents need to be signed during the purchasing process, an SMSF legal expert has said.
Highlighting existing confusion in some states, including Queensland, with regard to this issue, Townsends Business & Corporate Lawyers solicitor Elizabeth Wang urged trustees to contact third-party lenders to find out whether the holding trust deed should be signed and dated before or after executing the contract of sale.
“The conservative approach would be to secure the property by executing the contract of sale first and then signing and dating the holding trust deed as close to settlement as possible,” Wang said.
“While a Queensland holding trust deed does not need to be submitted to the local duties office to be marked as exempt from stamp duty, it is important to make inquiries with third parties, such as a commercial lender, regarding the order in which the holding trust deed should be signed.”
Some commercial lenders might require the holding trust deed to be signed prior to the contract of sale before advancing the loan amount at settlement, she noted.
“To prevent delays and further legal fees as a result of having to prepare additional documents to satisfy the requests of a commercial lender, always ensure that inquiries are made with the lender as to the order of signing a holding trust deed, particularly if the property is being acquired in Queensland,” Wang suggested.
In addition, she pointed out loans for off-the-plan properties from multiple lenders under LRBAs should be provided when the properties were being acquired in order for SMSFs looking to acquire such properties to remain compliant.
“If the finance for the acquisition of the property is, say, to be split so that if part of the loan is being financed by a commercial lender and the remainder is being financed by a related-party lender, then it is important to obtain written confirmation from the commercial lender regarding this particular financial set-up,” Wang explained.
She also noted a second mortgage securing a related-party loan would need to be “separate and distinct” from the first mortgage to the commercial lender.
“It is also vital to ensure that the related party’s mortgage is not acting as security for the commercial lender’s loan,” Wang added.
In August measures allowing SMSF corporate trustees to sign and execute deeds electronically were extended by a further six months and will now end in March 2021.