Articles by The Professional Trustee Team
As you can imagine, we see lots of different types of Trust Deeds here at GRA. Despite there being a variety of Deeds around, there are some common provisions we like in all our clients' Deeds of Trust. One of these provisions relates to decision making. I've been talking about this particular issue for about two decades now. Some people have commented I'm seeing Gremlins where there aren't any but now, finally, we have a High Court case to prove this particular point. Gremlins can exist and when they come home to play, they can cost you big money. Read on to ensure you and your Trust don't fall into this situation.
I won't recite all the facts but the bare bones of the case are as follows. A Trust decided it wanted to purchase and develop some land. To complete the purchase, it needed to borrow funds so it approached a lender. The loan was duly granted and the legal papers were sent to the solicitor who was acting for the Trust. The solicitor called the Trustees together to sign the legal loan papers.
This Trust had 5 Trustees in total but only three of the Trustees actually turned up at the solicitor's office.
The solicitor put before the Trustees the loan papers and gave them an explanation of the documents. It seems from the evidence given that none of the Trustees really fully understood what documents they were signing. They certainly didn't appreciate the fact that they would incur personal liability for the loan. One of the three Trustees even went so far as to say that he just 'assumed' the documents must be 'all right' because his co-Trustees were signing them.
The loan was duly taken out and the land was purchased by the Trust. Of course there wouldn't be a case if everything remained okay. But like a lot of things in life, things didn't pan out as planned. The loan repayments weren't kept up and the lender ended up suing the Trustees. This is where things got really interesting.
Remember I told you there were five Trustees in this Trust but only three Trustees turned up at the solicitor's office and signed the loan papers? Seems the other two Trustees didn't ever sign those loan papers. But that didn't make them any less liable. Why? Because of the Gremlins in the Trust Deed.
GREMLINS AT PLAY
At the beginning of this article I said there were certain provisions we like all Deeds of Trust to have. One of those provisions is Unanimous Decision Making. What does this mean? Simply this. All Trustees, yes every single one of them, have to agree to a transaction before it can go ahead. If agreement cannot be reached, the transaction cannot proceed. Most importantly, one or the majority of Trustees cannot bind all Trustees, including the Trustee/s that don't agree with the proposed transactions.
Why is having a Unanimous Decision Making provision so important in a Trust Deed? Well in the words of Associate Judge Doogue "... if a majority makes a decision, it must be the case that the minority are bound by it in all respects. Otherwise ... those dealing with the Trust could be confronted with a situation where some of the owners of the Trust property would agree to executing securities affecting their properties ... but the minority could defeat the contractual objectives of the parties by declining to co-operate."
In other words, where there is a Majority Decision Making provision in a Trust Deed, enabling the majority of Trustees to bind all Trustees, including the minority, those that dissent must expect to be bound. The minority Trustees will be contractually bound and legally liable as if they had agreed and had signed the legal loan documents.
GETTING RID OF THE GREMLINS
What can you do to ensure you don't have a Gremlin in your Deed of Trust? Try calling us to start with. Then let us review your Trust Deed. If you are not one of our existing clients and you bring in your Deed of Trust, we will often see you free of charge.
When we review your Deed of Trust, we will look for other provisions that we think should be in the Trust Deed. Provisions that will protect you and the assets of the Trust.
Most importantly, we'll be on the look out for the Gremlins we know can lurk in a Deed of Trust. Gremlins that can cause havoc amongst Trustees and Beneficiaries.
We all know prevention is usually easier that cure. Prevention frequently saves us emotional heartaches and most importantly, money. So take some time now and send us an email or call us and let us check your Trust Deed.
Hi Salesh, I just wanted to send you an email on behalf of GRA to say how fantastic we have found your company to date. As you know, Ben and I joined GRA a couple of months ago and have just found you so amazingly helpful in getting our new property set up correctly and sorted out. We have what I would consider a rather complicated structure as a result and it’s a fantastic feeling to know that we are getting everything done in the best way possible. We have just had approval to put a minor dwelling on the property which will make a massive difference in terms of cash flow and obviously value, something we would never have even thought of without GRA and which we are very excited about. During the buying process we attended a seminar with Matthew and from the outset thought he was fab. We therein signed up for property school and found this nothing short of fantastic. The content was relevant, up to date and comprehensive, but more importantly it was taught in a way that we could actually understand and really get value out of. I wanted to mention also, that everybody GRA have recommended to us has been just so efficient and absolute masters at what they do. A wonderful network of people that we feel very lucky to now be able to call on. From Kris Pederson and Bryan Rist who put our mortgage together to the insurance guys they then referred us to, I’m super impressed. Within GRA, Ellery has probably turned things around for us faster than I’ve ever known before, something which we appreciated so very much when it came to crunch time. She’s always a pleasure to deal with and again, we’re stoked. We’ve just settled on the property today and are about to go and get the keys. I’m pretty pumped and hence this email is probably rather excitable. So, a massive thank you to you Salesh, the partners for such a fabulous 6 weeks at property school and everyone at GRA for their help. May this be the start of our property empire. Thanks again, - A & B - July 2015
If you're investing in residential property, seeking to maximise your ability to succeed and minimise risk, then this is a 'must read'.
Matthew Gilligan provides a fresh look at residential property investment from an experienced investor’s viewpoint. Written in easy to understand language and including many case studies, Matthew explains the ins and outs of successful property investment.