Nomination under Contracts of Sale of Land - Key Considerations in Victoria

by James Lainas, Senior Associate

Nomination under a contract of sale is not always a straightforward process. 

The vendor, the purchaser and the nominee each have relevant considerations and interests which need to be addressed in any form of nomination document.  A simple one-pager that provides only for the nominee to take over the transfer in lieu of the purchaser is not likely to cut it, in the context of more complex and higher value transactions.

Below is a summary of some of the key considerations on nomination.  Always refer to the provisions of the contract in question, and keep in mind these issues to ensure that each party’s interests are protected.

Given parties may be reluctant to grant rights they are not required to grant under a contract, it is important that contracts either provide the necessary protection for the parties where nomination is contemplated, or the purchaser or nominee negotiate appropriate arrangements with each other and the vendor before agreeing a nomination.

	Vendor	Purchaser / Nominee
Party Details	In a contract of sale based upon the Law Institute of Victoria precedent, there is no need to include “and/or nominee” in the description of the “Purchaser”. The purchaser can rely on the ability to nominate in accordance with the provisions of the contract.
Form of Nomination	The nomination document needs to includes a covenant from the nominee to assume, observe and perform the obligations of the purchaser under the contract of sale, as if that nominee had originally signed the contract.
	The nomination should be in the form of a deed of covenant in favour of the vendor.	Consider whether the vendor has a preferred form of deed of covenant, to minimise back and forth in respect of the nomination document.
		Consider the nominee’s right to enforce the contract. Generally, the vendor has not given any warranties to the nominee. Consider the effects of any warranty under the contract being incorrect and the nominee suffering loss as a result.
Duty	Consider seeking an indemnity from the purchaser / nominee in respect of any additional land transfer duty that might be assessed as a result of the nomination.	Consider the effect that the nomination, and the timing of the nomination, will have on land transfer duty. Ensure to review the sub-sale provisions in the Duties Act 2000 (Vic), including whether: 1. “land development” (as broadly defined) has occurred; 2. additional consideration has been provided; 3. the transfer right acquired arose under an option and there was land development or additional consideration.
GST status	How is GST being dealt with under the contract? Is the supply under the contract the supply of a going concern? Is the margin scheme being applied?
	Ensure that the nominee agrees the status of the GST supply made under the contract in the nomination document.
	Consider whether the nominee needs to provide evidence that it is registered for GST. This is likely to be required if the supply under the contract is the supply of a going concern.
GST withholding	Is the purchaser required to make a payment under section 14-250 of the Taxation Administration Act 1953 (Cth) in relation to the supply of the property?	Is the nominee required to give the vendor the notice of the name of the recipient of the supply for the purposes of section 14-255 of Schedule 1 to the Taxation Administration Act 1953 (Cth)?
Foreign Investment	Is approval from the Foreign Investment Review Board required for the purchase by the nominee?
	The nominee should provide a warranty regarding whether FIRB approval is required, and if so, that it has been obtained. Consider also seeking an indemnity from the purchaser / nominee in respect of any claims or consequential loss incurred by the vendor as a result of having relied on that warranty.
Deposit	The nomination document should contain a direction that the deposit paid under the contract is to be held on behalf of the nominee.
Guarantee	Consider whether the directors of any nominee company be required to provide a personal guarantee to the vendor in respect of the contract on nomination.
Costs	The nominee should bear the vendor’s costs associated with the nomination. Consider whether the contract provides for a cap on these costs.