Purchasing a commercial property: technical due diligence

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Purchasing a commercial property can be a significant financial investment for a buyer. In order to protect his or her potential investment, a buyer should take steps to investigate the risks of acquiring a commercial property and how to reduce those risks where possible.

An important step is to gather as much information as possible about the physical condition and compliance of a property in a process known as technical due diligence.

There are a number of reasons why engaging an expert to undertake technical due diligence of a commercial property is a good idea. The objective of technical due diligence is to carry out investigations about the physical condition of a building and available documentation to alert a buyer to any issues with the property.

Technical due diligence might identify such things as latent defects, environmental risks and/or necessary capital expenditure.

Any information about the property, which arises out of the due diligence process, might enable the buyer to cancel the contract of sale or seek to re-negotiate a price reduction with the seller. In this way, technical due diligence allows a buyer to mitigate his or her risk associated with the purchase of a commercial property.

Technical due diligence is typically undertaken by specialist consultants, such as a quantity surveyor, and generally takes between 2-3 weeks. The process can be as comprehensive or limited as a buyer requires, but would normally include the following searches and investigations:

  • Building structure and fabric;
  • Building services;
  • Regulatory;
  • Environmental;
  • Depreciation; and
  • Capital expenditure.

The importance of carrying out a thorough legal and technical due diligence process when considering purchasing a commercial property and prior to signing a contract should not be underestimated and should be undertaken with the assistance of specialist consultants experienced in the process.

Tim Hayter, Principal, Mid West Lawyers

This information is general in nature and should not be relied upon as legal advice. Formal legal advice should be sought for your particular circumstances. 

How effective are your post-employment restraints?

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Much damage can be done to a business where an executive or senior manager resigns taking valuable customer information and confidential information.  Restraint of trade clauses, or post-employment restraints, play a crucial role in protecting the legitimate interests of the employer. 

In order to protect business interest’s employment contracts should contain protections which operate after the employment ends.

Restraints of trade are included in employment contracts to protect an employer’s trade secrets, confidential information, customer connections and staff connections by restricting an employee’s activities after they have left employment.

Restraint of trade clauses will be enforceable to the extent that the restraint is reasonably necessary to protect the legitimate business interests of the employer. Whether a restraint is reasonably necessary will depend on the particular clause and the facts of the case.

At common law, post-employment restraints of trade are on the face of it invalid as infringing public policy. A restraint clause in an employment contract will only be enforceable if the restrictions imposed are no more than necessary for the protection of the employer’s legitimate business interests. 

Legitimate interests that can be protected include confidential information, customers and staff.  It is typical for a restraint clause to prevent an employee from: 

  • Soliciting the employer’s clients; 
  • Setting up a competing business with the employer’s business or working in a competitive business; and 
  • Poaching employees of the business.

Some tips for drafting restraint clauses in employment contracts:

  • Make sure the period of restraint is appropriate to the employee’s position and access to confidential information;
  • Make sure the prohibited activities to be prevented are similar to the employee’s current activities; and
  • Ensure contracts are reviewed regularly and updated to reflect changes in the employee’s role.

Tim Hayter, Principal, Mid West Lawyers

This information is general in nature and should not be relied upon as legal advice. Formal legal advice should be sought for your particular circumstances. 

Common misconceptions about estate planning

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An estate plan involves more than signing a Will and leaving it in a safe place. An effective estate plan requires consideration of several matters and ongoing review to ensure it reflects your testamentary wishes and covers unexpected events.

I have a Will – isn’t that an ‘estate plan’?

A Will is a great start to planning your estate, however a Will alone does not appoint a trusted person to look after your financial and property affairs when you are away or if you are incapacitated. Likewise, a Will cannot appoint a guardian to make health and lifestyle choices on your behalf if you are incapacitated, taking into consideration your morals and values.

Tip: Various legal documents form part of your overall estate plan. Think about what you would do if the unforeseen happened and you could no longer manage your affairs. Talk to you lawyer about the benefits of appointing an attorney or guardian to assist you if you are incapacitated.

Only the rich need an estate plan

This is certainly not the case. No matter what your financial status, an estate plan enables you to appoint a trusted person to administer your assets when you die, ensure your hard-earned property is left to beneficiaries chosen by you and not others, maximise the gifts and benefits you leave to your loved ones through appropriate taxation planning, and prepare for unexpected crisis (illness and incapacity) by appointing somebody you trust to deal with your affairs when you cannot.

Tip: Think about your current assets and the assets you aim to accumulate in the future – they soon add up. Think about who you would like to benefit from your estate and how you can maximise the value of your assets for your beneficiaries.

Superannuation is automatically dealt with in my Will

Many people assume their superannuation will be divided up in accordance with the wishes in their Will, but that is not necessarily the case. 

Death benefits, comprising the superannuation account balance and any life insurance payments, are paid to a ‘dependant’ (defined by legislation), as determined by the fund trustee or in accordance with a Binding Death Benefit Nomination (BDBN).

Tip: Review your superannuation and life policies to determine whether you have in place a valid and current BDBN. Talk to your lawyer about the formalities required to execute a BDBN and strategies to minimise adverse tax implications on the payment of your death benefits to your beneficiaries.

Tim Hayter, Principal, Mid West Lawyers

This information is general in nature and should not be relied upon as legal advice. Formal legal advice should be sought for your particular circumstances. 

Co-Ownership of Property

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A co-owner is a person who owns land with one or more other owners. Co-owners may hold land as joint tenants or tenants in common. The way land is held is important in property law as it impacts on the way it can be dealt with generally, and what happens after the death of a co-owner.

Co-ownership is a popular way for individuals to acquire interests in property – the pooling of resources and stronger borrowing capacity assists in obtaining finance which may otherwise not be possible.

Spouses and de facto partners usually hold property as joint tenants whilst holding shares as tenants in common is a popular arrangement between other family members, friends or business entities.

Co-owners who are tenants in common each acquire a share proportionate to the contributions made. Any loan for the property is taken in all names and the parties are usually jointly and severally responsible for repayments and performance of all obligations.

Whilst there are benefits in co-owning property, disputes do arise causing financial and emotional anguish.

Property disputes between co-owners are often triggered by changing circumstances – a relationship or business breakdown, financial stress or the death of a co-owner. Some disputes arise simply because the owners do not understand the implications arising from how the interests in the property are held.

Co-owners may claim that interests held are disproportionate to contributions made, or argue over loan repayments, maintenance and other expenses, the use and development of the property and the entitlement to profits. Significantly, the dispute will be over when or whether to sell the property.

If other purchasers (besides a spouse or de facto partner) are buying, you should consider having a property ownership agreement prepared. Ideally, this will set out the agreed interests held, options to purchase a co-owner’s share, distribution of proceeds on sale of the property, the agreed use, distribution of profits and responsibility for management.

Tim Hayter, Principal, Mid West Lawyers

This information is general in nature and should not be relied upon as legal advice. Formal legal advice should be sought for your particular circumstances.

Corporate Trustees for SMSF’s

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A Self-Managed Superannuation Fund (SMSF) is a type of superannuation structure that allows members to control and manage their own funds. Unlike other superannuation funds, members have autonomy over the choice of investments they can make.

A SMSF must comply with the requirements of the Superannuation Industry (Supervision) Act 1993 (Cth) and relevant tax laws. Compliance is necessary to take advantage of income and capital gains tax concessions which have been implemented by the Government to encourage people to save for their retirement.

The activities of an SMSF must be conducted through a trustee because the fund itself is not a separate legal entity. Each member of an SMSF must also act in the capacity of trustee whether this be as an individual or through a corporate entity.

It is important to consider the trustee structure of an SMSF from the outset. Whilst changing the trustee structure at a later stage is possible, additional administration and costs are involved.

Initially, an individual trustee structure costs less and there are fewer reporting requirements, such as those of a company under the Corporations Act 2001. However, there are many benefits of having a corporate trustee for your SMSF which in the long term, are likely to outweigh the associated costs and administration. Given that superannuation is a long-term strategy, these benefits should be carefully considered. The benefits include:

  • Protection of the SMSF’s members;
  • Administration advantages;
  • Advantages for sole member SMSF’s; and
  • Advantages for limited recourse borrowing to invest in real estate.

Establishing a corporate entity as trustee for your SMSF is well worth considering. The process is relatively straight-forward however certain requirements must be met for the SMSF to be considered a complying fund. It is also recommended that a sole purpose company be used as the corporate trustee which results in lower ASIC fees and assists in separating the affairs of the fund with any other activities.

Tim Hayter, Principal, Mid West Lawyers

This information is general in nature and should not be relied upon as legal advice. Formal legal advice should be sought for your particular circumstances.

Can I Terminate an Employee for Refusing to Work?

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As an employer, you do not have an automatic right to terminate an employee if they refuse to work a public holiday.

The decision by Fair Work Australia in the case of Steven Pietraszek v Transpacific Industries [2011] addressed this question. The case considered a situation where an employee did not work Christmas and Boxing Day even though his employer had requested that he do so. The employer then terminated him for not working on these days of work over the holiday period.

The Commissioner held that the employer’s request was reasonable but also that the employee’s refusal was reasonable. In reaching its decision, the Commissioner considered the employee’s personal circumstances, such as a family situation and belief that he would not be asked by the employer to work any public holidays. The Commissioner held that there was no valid reason for termination and that the termination was unreasonable under the Fair Work Act 2009 (Cth).

The Commissioner made an important note that the employer did not ask the employee for the reasons that he was refusing to work the public holidays. It was pointed out that if the employer had asked, the outcome might have been entirely different. An employer should consider any refusal to work a public holiday over the Christmas leave period in the context of the Fair Work Act 2009 before taking any disciplinary action or dismissing the employee.

Key Takeaways

When dealing with issues around employees taking annual leave and working public holidays, an employer should take the following steps:

  • know your employee’s status: This includes understanding their work status, any applicable awards, enterprise agreements and pay rates. It is important to pay the correct entitlements to avoid having to back pay entitlements or fines from Fair Work Australia;
  • acknowledge your employee’s rights: Understanding your employees’ rights with having to work public holidays (including refusing requests to work) will make the process smoother and avoid issues later on; and
  • have a well-organised system for counting annual leave days taken and accrued. Many software systems can now manage this process for you automatically.

Tim Hayter, Principal, Mid West Lawyers

This information is general in nature and should not be relied upon as legal advice. Formal legal advice should be sought for your particular circumstances.

Can I Force My Employees to Work a Public Holiday?

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Many industries require employees to work public holidays. For example, retail workers for boxing day sales or hospitality workers for Christmas or New Year’s Eve parties.

It is essential that employer’s your employees’ rights around public holidays and your obligations as an employer.

First, confirm what award or enterprise agreement applies to the employee.

For example, the General Retail Industry Award will most likely cover retail workers, and the Hospitality Industry (General) Award 2010 or Restaurant Industry Award 2010 will most likely cover hospitality workers.

Once you have confirmed the employee’s status, you should also know the different requirements for full-time, part-time, and casual employees. Under awards, there are penalty rates for working public holidays that you will be required to pay if your employees work these days. Some awards may include flexibility such as using days in lieu or other options instead of payment for the public holiday worked.

If your employees are award free, then the process for this may be set out in the relevant employment agreement. For casual employees, they will only be paid the penalty rates if they work that particular day.

Can my Employee Refuse to Work a Public Holiday?

An employee has the right to be absent from work on a public holiday. However, as an employer, you may request that the employee does work the public holiday. The employee may refuse the request if the request is unreasonable or if the refusal is reasonable.

The factors for determining reasonableness include:

  • the nature of the work and the employee’s status (e.g. full-time, part-time, casual);
  • the personal situation of the employee;
  • how much notice the employee received;
  • whether you expected your employee to work a public holiday; and
  • other relevant matters.

Tim Hayter, Principal, Mid West Lawyers
This information is general in nature and should not be relied upon as legal advice. Formal legal advice should be sought for your particular circumstances. 

What if My Employee Has Not Accrued Sufficient Annual Leave?

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Often employees do not have sufficient annual leave accumulated to take annual leave during the Christmas and New Year period.

If an employee has not accrued sufficient annual leave, then the employer should refer to the award or enterprise agreement relevant to the employee as this will determine the process by which the employee can take annual leave.

However, if an award or enterprise agreement does not cover the employee, then the employer can request that the employee takes the annual leave as unpaid leave or that they use their annual leave in advance during the Christmas and New Year period.

If the employee does not agree to either of these options, then the employer is required to pay their normal salary for that period.

When calculating annual leave over the Christmas and New Year period it is important to remember that for permanent staff, if they would typically work the public holiday you must count that day as a public holiday rather than a day of annual leave.

What are the Official Christmas and New Year Public Holidays?

This table sets out the relevant public holidays for the Christmas leave period and New Year 2019/2020 in Australia:

When What
Friday, 25 December 2020 Christmas Day
Saturday 26 December & Monday 28 December Boxing Day
Friday, 1 January 2021 New Year’s Day

 

Tim Hayter, Principal, Mid West Lawyers

This information is general in nature and should not be relied upon as legal advice. Formal legal advice should be sought for your particular circumstances. 

Christmas Employee Leave Entitlements

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With Christmas fast approaching many employees will be submitting Christmas leave requests to employers. There are a number of questions that employees will have to consider in relation to annual leave during the Christmas and New Year period. Some typical questions include:

  • whether you can force employees to take unpaid leave during the shutdown;
  • what to do if your employee does not have enough accrued leave but doesn’t want to take unpaid leave either;
  • what to do if you require your employees to work the Christmas period including public holidays; and
  • whether you need to pay a levy for public holidays that your employees work.

This is the first in a series of columns that will deal with these questions.

What are the Employer’s Rights in Relation to the Christmas and New Year Period?

Under certain circumstances, the employer can request that employees take annual leave over the Christmas and New Year period. The employer can also deny requests for leave where the employer requires the employee to meet the operational needs of the business.
Firstly, the employer should check if an award or an enterprise agreement covers the employee. This will determine if the employer you can force the employee to take annual leave during the Christmas and New Year period. If not, the employer should refer to the employment agreement with the employee to see if there is a relevant policy dealing with shutting down during the Christmas holiday and New Year period.
If an employer has no work for employees, or the office shuts down, the employer can direct its employees to take annual leave. The process will then be a matter of negotiation with the employee as to whether they take unpaid or paid leave during that period.

Tim Hayter, Principal, Mid West Lawyers

This information is general in nature and should not be relied upon as legal advice. Formal legal advice should be sought for your particular circumstances.

Preparing for Christmas Parties

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It will not be long until work Christmas parties are held to celebrate the end of the working year. However, this time of year often leads to an increase in employment related complaints. The alcohol fueled parties often lead to workplace injuries or inappropriate behaviour, such as sexual harassment, discrimination or bullying. Employers are legally responsible for the conduct of employees at work Christmas parties.

Employers should be mindful that there are a number of things that you can do to reduce of these issues arising.

Some Tips to Reduce Risk

  • Before the event, remind employees that as the party is a work-related event employees must comply with workplace policies. Suggest that emplloyees familiarise themselves with relevant policies, such as the employee code of conduct, discrimination, sexual harassment, bullying and alcohol and drug use.
  • Warn employees about the consequences of unacceptable conduct.
  • Specify clear start and end times for the party and ensure alcohol is not served after the end time.
  • Serve alcohol responsibly and limit the amount of alcohol available.
  • Ensure that food and non-alcoholic drinks are available.
  • Make sure that young employees below the legal drinking age do not drink alcohol.
  • Appoint a person or persons from the management team to keep an eye on the party and take appropriate action if any concerns arise.
  • Ensure safe transportation home is available and advise employees that they should not drive if they are going to drink.
  • If an employee is behaving badly at the party, ‘nip it in the bud’ immediately.
  • Don’t organise, or pay for, drinks at alternative venues after the party is finished.
  • Ensure that everyone leaves the premises at the end of the party.
  • If a complaint arises about behaviour at the Christmas party, make sure that the complaint is dealt with promptly and that it is investigated if required.

Tim Hayter, Principal, Mid West Lawyers

This information is general in nature and should not be relied upon as legal advice. Formal legal advice should be sought for your particular circumstances.