Forums / Property Investing / Help Needed! / 50% owner – ensuring payment

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  • Profile photo of arpeggioarpeggio
    Participant
    @arpeggio
    Join Date: 2007
    Post Count: 6

    I have 50% ownership of a commercial property (factory) in Melbourne. The other 50% belongs to my brother who unfortunately cannot be trusted completely. (It was an inheritance.) We will rent out the property.

    I’ld like to ask,
    1. what conditions can I put in place to ensure that I will receive 50% payment of the rental income? (An idea I had is to have either tenant/ or licensed RE Agent pay into 2 separate bank Accounts.)

    2. Also, because I live overseas, I am concerned that he may even rent the property under only his name. Would that be legal? and if not what measures are possible to prevent this?

    3. What measures would savvy investors put in place to ensure that this partnership with my brother is “strictly business & NOT personal”.

    Thank you very much for reading & looking forward to any help.

    Profile photo of Corey BattCorey Batt
    Participant
    @cjaysa
    Join Date: 2012
    Post Count: 1,010

    Definitely engage a property manager to handle this for you – that’ll keep it running above board.

    You’ll need to work out how to handle any costs of holding the property and how to pay for these – the agent should be able to facilitate this. if you have to pay into a single account you can have the bank account require both parties to give authority for any transfers out.

    Corey Batt | Precision Funding
    http://www.precisionfunding.com.au
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    Investment Focused Finance Strategist - servicing Australia-wide

    Profile photo of TerrywTerryw
    Participant
    @terryw
    Join Date: 2001
    Post Count: 16,110

    Not much you can do really other than run thru a property manager. Just contract with the agent that he pays each to each of you via a separate bank account and also that all important decisions are only made with unanimous consent.

    Terryw | Structuring Lawyers / Loan Structuring Pty Ltd
    http://propertytaxbook.com.au/
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    Lawyer, Mortgage Broker and Tax Advisor (Aust wide) http://propertytaxbook.com.au/

    Profile photo of arpeggioarpeggio
    Participant
    @arpeggio
    Join Date: 2007
    Post Count: 6

    Dear Corey & TerryW,
    Thank you both very much for your responses.
    The property manager here seems to be key in all our opinions.
    I will ensure that the contract between landlord & property manager clearly states that all payments to landlords must be split into 2 separate bank a/cs.

    Good point also about property running expenses a/c. I can foresee my brother “not having the money” to fix/ pay for things when the time comes, asking me to fork out all of it, yet still feeling entitled to rental payments! Need to set up some kind of account balancing routine here.

    My next question is;
    What legal standing do i have in the event my brother decides to rent the property under only his name?
    Can such a contract be legally binding?

    Thank you again & with best regards.

    Profile photo of hobartchichobartchic
    Participant
    @hobartchic
    Join Date: 2015
    Post Count: 8

    Have you thought about selling the property with your brother? Or selling your half to your brother?

    Profile photo of arpeggioarpeggio
    Participant
    @arpeggio
    Join Date: 2007
    Post Count: 6

    Thank you hobartchic. Yes, of course selling is a option however a rental income stream is more attractive is more attractive for me if it can work. Understanding boundries & minimising wiggle room for possible deviants is my purpose for enquiry here.:)

    Anyone know, What legal standing do i have in the event my brother decides to rent the property under only his name?
    Can such a contract be legally binding?

    Thank you again for the thoughtful replies.

    Profile photo of Steve McKnightSteve McKnight
    Keymaster
    @stevemcknight
    Join Date: 2001
    Post Count: 1,729

    Hi,

    Normally you would want to have a ‘Heads of Agreement’, or a ‘Shareholder’s Agreement’ with your brother that governs the agreed behaviour. A lawyer will be able to assist you to draft such an agreement.

    I like the idea of using the rental manager. You may like them to keep a float in trust to pay expenses from, if that is a service they offer. That is, they could distribute the agreed portion over and above an agreed limit (say 2 months rent held back?).

    Can I ask what structure the property is owned in?

    Regards,

    – Steve

    Steve McKnight | PropertyInvesting.com Pty Ltd | CEO
    https://www.propertyinvesting.com

    Success comes from doing things differently

    Profile photo of TerrywTerryw
    Participant
    @terryw
    Join Date: 2001
    Post Count: 16,110

    Dear Corey & TerryW,

    What legal standing do i have in the event my brother decides to rent the property under only his name?
    Can such a contract be legally binding?
    Thank you again & with best regards.

    Such a contract could be legally binding.
    And you would be entitled to recover your share of the profits from your brother – he would be holding them on constructive trust for you.

    But complex and expensive to enforce, possibly.

    You could also enter a co-owners agreement which is a contract on how you will pay for expenses and other things such as who does what and how they are compensated for.

    You could then sue him on 2 different grounds if things go wrong – breach of contract and under equity.

    But if you are this worried you might want to get out of the deal now rather than later.

    Seek specific legal advice.

    Terryw | Structuring Lawyers / Loan Structuring Pty Ltd
    http://propertytaxbook.com.au/
    Email Me

    Lawyer, Mortgage Broker and Tax Advisor (Aust wide) http://propertytaxbook.com.au/

    Profile photo of arpeggioarpeggio
    Participant
    @arpeggio
    Join Date: 2007
    Post Count: 6

    Thank you everyone for theses suggestions.
    To Steve,
    May I say, firstly Wow! Congratulations on what you have built.
    I agree, the “Heads of Agreement” is absolutely vital. I’m beginning to note things down as I think of them so as to include them in the final draft. But yes, I will get it written by a lawyer.

    To Terry,
    1. Can I assume that above that my brother would rent it out directly, no RE agent middle man?
    2. In such a case, a cease & desist letter from a lawyer sent to him could start proceedings on the right track?

    3. Can I assume, that the contract would not be legal if done by a RE agent? I’m thinking that before agents can prepare a rental agreement, they must first independently check the names of the owners names on the deed. If there were 2 names then the contract would also need 2 signatures?

    Thank you and with best regards.

    Profile photo of TerrywTerryw
    Participant
    @terryw
    Join Date: 2001
    Post Count: 16,110

    1. It’s possible
    2. Perhaps
    3. No

    Terryw | Structuring Lawyers / Loan Structuring Pty Ltd
    http://propertytaxbook.com.au/
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    Lawyer, Mortgage Broker and Tax Advisor (Aust wide) http://propertytaxbook.com.au/

    Profile photo of arpeggioarpeggio
    Participant
    @arpeggio
    Join Date: 2007
    Post Count: 6

    Thank you Terry,
    For No.3, are you saying that a licensed Realtor in Australia is:

    a) not required to independently verify the owner/s of the property before leasing the property?
    b) & that after verifying that there are multiple owner/s, that the Realtor can then go ahead and make a legally binding contract between only one owner & the tenant, without having evidence of consent by other owners?

    Profile photo of TerrywTerryw
    Participant
    @terryw
    Join Date: 2001
    Post Count: 16,110

    No

    Terryw | Structuring Lawyers / Loan Structuring Pty Ltd
    http://propertytaxbook.com.au/
    Email Me

    Lawyer, Mortgage Broker and Tax Advisor (Aust wide) http://propertytaxbook.com.au/

    Profile photo of arpeggioarpeggio
    Participant
    @arpeggio
    Join Date: 2007
    Post Count: 6

    A licensed Realtor in Australia is not required to independently verify the rightful owner/s of property before preparing lease documentation.
    Sounds comforting.
    :)
    thank you for helping me.
    There is no more questions now.

    Profile photo of TerrywTerryw
    Participant
    @terryw
    Join Date: 2001
    Post Count: 16,110

    A agent should make sure they have authority to act as an agent by all owners. But this doesn’t always happen. Where one owner has suffered a loss due to negligance or fraud of an agent then they may have recourse against that agent – ‘may’.

    Terryw | Structuring Lawyers / Loan Structuring Pty Ltd
    http://propertytaxbook.com.au/
    Email Me

    Lawyer, Mortgage Broker and Tax Advisor (Aust wide) http://propertytaxbook.com.au/

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