Nominating Off The Plan Contracts – Care Needed

In Victoria, stamp duty applies on most transactions involving land.

One exception is when a purchaser nominates an additional or substitute purchaser to take his/her place under a Contract of Sale prior to settlement, provided the nomination does not involve extra consideration being paid (as opposed to an on-sale), amongst other things.

This arrangement has been in place for many years and was typically used between related parties. A common scenario is where Mr X signs a Contract of Sale then prior to settlement, nominates his wife Mrs X, as a co-purchaser or a family trust as a substitute purchaser.

It is important to note that if the State Revenue Office’s conditions of the exemption for nomination are not met, stamp duty will apply on both transactions – i.e. a transfer between the vendor to the first purchaser and stamp duty between the first purchaser and the nominee.

Due to a combination of credit becoming less available, restricted economic conditions, foreign purchaser restrictions and changes to off the plan stamp duty concession rules, nominations have been increasingly used between unrelated third parties in recent times.

Why would someone consider a nomination sale with an unrelated party?

A second hand purchaser may prefer to take a nomination instead of buying it direct from the Vendor to utilise off the plan stamp duty concession for Contracts dated prior to 1 July 2017. Similarly, a purchaser may prefer to nominate to a third party as he/she is unwilling or unable to obtain finance to complete the sale due to change of circumstances. Again, these transactions will be considered on-sales for stamp duty purposes if there is any extra consideration involved.

How are nominations treated in a Contract of Sale?

The standard form of Contract of Sale used in Victoria, is not equipped to handle nomination transactions adequately. The only provisions that are contained in the Contract dealing with nominations are:

  1. the first purchaser will remain personally liable for the Contract notwithstanding any nomination; and
  2. the nomination must be submitted 14 days prior to settlement.

In addition, it is not uncommon for an off the plan Contract to contain special conditions that deal with whether nominations can be made to foreign purchasers and the form in which it will be accepted by the Vendor.

It does not address important questions like:

  • Does the nominee pay the deposit upon receiving the signed nomination form or at settlement?
  • Who does the nominee pay the deposit to – the first purchaser or the Vendor?
  • Will the first purchaser be entitled to use the deposit before settlement?
  • Can the nomination be subject to finance approval?
  • Can the first purchaser change his/her mind and nominate someone else before settlement?
  • For off the plan properties, is the nominee aware of any changes to the Plan of Subdivision, Building Works or Specifications?
  • Has the nominee obtained advice about the conditions of the Contract?
  • Who will be responsible for paying the Vendor’s costs in relation to the nomination?
  • Who will be responsible for paying legal costs of the first purchaser or the nominee?
  • Who is responsible for any penalties or default interest if settlement is delayed?
  • Is the nominee aware of the terms and conditions of the contract?
  • Will additional stamp duty apply and who is responsible for it if it does apply?
  • Will the nomination be subject to finance or any other condition?

As you can see, this is not just a simple process and great care should be taken before entering into these arrangements. Each situation is different, so it’s worth seeking professional advice beforehand.

Over the last 20 years I have facilitated a number of nominations between unrelated third parties, but always only with the advice and guidance of independent, reliable and experienced property lawyers. The outcome has always been successful, while protecting my clients’ rights.

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Disclaimer: The information contained herein is general in nature and does not take into account individual situations, needs or goals. It should not be relied upon and persons should satisfy themselves through independent means that any decisions based on this material are appropriate. We recommend that you consult with your adviser who will be able to make a recommendation based on your specific circumstances.

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