Ensuring that the correct party details are used in any legal matter may seem straightforward, but in practice, errors or omissions occur more often than expected from various parties. Such mistakes can lead to costly corrections, potential double stamp duty, significant delays, and unnecessary complications for all parties involved. Getting these details right from the outset not only ensures a smoother process but also helps to mitigate legal risks and liability, particularly when dealing with companies or trusts.
Parties to a matter – Individuals
When a party is an individual, it is essential to use their full legal name without abbreviation or omission of their middle name, as the name on the Contract must match the exact name on the loan documents and their passports, licenses and other government identification.
Banks will generally not provide finance approval unless the contract is identical to the buyer’s finance application.
If the Contract does not have the correct purchaser (or all purchases, if there are multiple), then once it is signed, the only way to change the buyer entity would be by Deed of Rescission and new Contract, to avoid additional stamp duty. However, this would trigger additional legal costs on both sides of the parties.
Parties to a matter – Businesses and Companies
Companies are expensive and complicated to set up. They generally suit people who expect their business income to be highly variable, and want the option to use losses to offset future profits. Click here for our article for some general information on the correct business structure.
Where a company is involved, recording the Australian Company Number (“ACN”) and registered business address is vital.
If the ACN or ABN are not showing on the Contract, however the correct company name is, it is a simple corrective error which can be fixed, therefore a Deed of Rescission and new Contract would not generally be required in this instance, unless there are a few entities which a person may have, so they’ve inserted the incorrect company. In that case, we would need a Deed of Rescission and new Contract.
Parties to a matter – Trust
In these structures, an individual, or a company may take on the role of a trustee. As a trustee, they have the responsibility and duty to manage assets for the benefit of the beneficiaries. See our exploration of trusts and the impact of recent legislative changes here.
The name on a Contract for a trustee of a trust, would generally be shown as XYZ as trustee for the XYZ Trust in full, and if the trust name is not noted, then a Deed of Rescission and new Contract would be required.
Implications
Rectifying incorrect party details can result in extensive delays, legal costs, and in some cases, additional liability. In 2016, we explored the impact of changing the person(s) or entities listed as buyer in the Contract and how these changes can trigger double transfer duty as the correction may be treated as a new transaction.
Mismatched details may also cause issues with other regulatory bodies, such as the Australian Taxation Office (“ATO”). A Foreign Resident Capital Gains Withholding Clearance Certificate, for example, must exactly match the seller entity name on the contract. This is especially important for time sensitive matter considering that ATO can take up to 28 days to issue a certificate.
Furthermore, knowing the correct party details could mean a quick check over a finance approval could pick up a costly mistake, should the details does not match the party requiring the finance.
Prevention
In our view, prevention is always better than correction and can be achieved through careful checks and clear communication. It is critical to obtain tax advice with regards to the correct buying entity and ensuring that it is confirmed with your accountant and financial advisor, and advising your lawyer of this so that we can check the contract matches your advice received.
What is a Deed of Rescission?
A Deed of Rescission is a document which forms an agreement between the Seller and Buyer to terminate the original Contract. For an a more in-depth definition, read our article here.
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