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Old 13-04-2009, 09:58 AM
chb chb is offline
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Building on land owned by someone else

Hi All,

I've currently got the option of building a house on an empty land that my parents own. I am very tempted as it would be a good start and the cost will be low seeing as the property has been paid for already. What I would like to know is the legal implications if anyone has done it before.

Should I get the title of the land transferred to my name?

If I don't, how does that impact me for if I want to sell later on in life or any other impacts>?

The loan would be under my name but I understand that my parents would be guarantor seeing as they own the land.

Anyone with any experiences?
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Old 13-04-2009, 11:38 AM
trajik trajik is offline
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chb,

I'm not a lawyer, but from my understanding, fixtures to land become part of the land and it is very difficult to then separate them. So, the land owner would own your house also. Unless the house was not a permanent fixture to the land. I have experienced this personally, we built a "house" on the in laws farm, but our "house" was actually 2 restored heritage railway wagons with an attached breezeway living area. So, part of our house is not strictly fixed to the land. Also, the in laws have had general advice from their solicitor about a shed that a has been built on their land by one of their suppliers, and the advice was that the shed becomes part of the underlying land.

Hope this helps.

Ross
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Old 13-04-2009, 12:13 PM
chb chb is offline
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ouch,

wouldn't want the house im paying for to be owned by my parents(not that its a bad thing but would prefer to own it myself haha)
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Old 13-04-2009, 01:54 PM
klublok klublok is offline
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What you propose to do would be messy - from a financing point of view, legal ownership, tax, asset protection and estate planning.

Under your current arrangement, your parents are LEGALLY entitled to the profits. It is likely that they would be taxed on the gains etc. Not sure whether you would be able to borrow against the increased value though given that ultimately your parents are the legal owners of the property.

From an estate planning point of view, you have to ensure that you get the improved value - but your parents might want to split the property between your siblings. Could be potential for conflict here especially if you have siblings that are not involved.

Relationship wise as well - could be a drama if you have a spouse and she contributes to the improvement (either now or later) and then you ultimately suffer a relationship breakdown.
It might be better if you have an arrangement with your parents to PAY you to improve the vacant land. You can either do a joint venture (where you get to keep a portion of the improved value) or a straight out contracting agreement. This is very clean and especially good if you just want to flick it after building.

If it is more of a long term hold then it might be worthwhile biting the bullet and get your name on the title. There would be stamp duty and CGT implications here - but you might be able to get away with "friendly" valuations based on current market conditions.
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Old 13-04-2009, 02:46 PM
chb chb is offline
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From what my understanding is, it's possible to get the money to build as long as the land has been paid outright and my parents go guarentor so funding is not a problem. I didn't realise that my parents would be legally entitled to the profits, but i guess there could be work arounds there.

If the land and house is under my house and I pay it off, then legally my defacto is not entitled to it right? I'm a bit unsure about defacto laws but i'm guessing if she hasn't made any payment towards it then if anything happens(not that she's the type) then she would not be legally entitled to a share?

Hrm..looks like a transfer is the way to go. Will have to get my parents to talk to their accountant. Does it matter that I won't be paying them for the land?
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Old 14-04-2009, 05:58 AM
klublok klublok is offline
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That doesn't matter in the eyes of the ATO - your parents may still need to pay CGT. Whether they will depends on if the property falls in any exemptions such as PPOR. There is also an exemption where they can sell the two hectares(?) of vacant land adjacant to their PPOR. The issues is whether they can just sell the vacant land or do they have to sell their PPOR as a package.

I am sure their accountant can figure that out for them.

If it is just a piece of land that they own, then they are most likely liable for CGT.

You will still pay stamp duty on the transfer regardless of whether you paid money for the land or not.
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Old 15-04-2009, 10:30 PM
Minx Minx is offline
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Quote:
Originally Posted by chb View Post
From what my understanding is, it's possible to get the money to build as long as the land has been paid outright and my parents go guarentor so funding is not a problem. I didn't realise that my parents would be legally entitled to the profits, but i guess there could be work arounds there.

If the land and house is under my house and I pay it off, then legally my defacto is not entitled to it right? I'm a bit unsure about defacto laws but i'm guessing if she hasn't made any payment towards it then if anything happens(not that she's the type) then she would not be legally entitled to a share?

Hrm..looks like a transfer is the way to go. Will have to get my parents to talk to their accountant. Does it matter that I won't be paying them for the land?
What I have bolded above is not true. No major bank in their right mind would allow it for ethical reasons (and yes my parents owned the land outright and the bank still did not allow me to take out the loan). They cited that they could not do it based on ethical reasons and that if our relationship turned to crap, my parents would own the building on site.
I would be asking for definite answers in regards to that, and more importantly look into land transfer, stamp duty and cgt if that's the road you want to head down.
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Old 21-04-2009, 06:53 PM
letiha letiha is offline
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Quote:
Originally Posted by Minx View Post
What I have bolded above is not true. No major bank in their right mind would allow it for ethical reasons (and yes my parents owned the land outright and the bank still did not allow me to take out the loan). They cited that they could not do it based on ethical reasons and that if our relationship turned to crap, my parents would own the building on site.
I would be asking for definite answers in regards to that, and more importantly look into land transfer, stamp duty and cgt if that's the road you want to head down.
Thats not true. I am on a loan for my mothers home that i don't own. The only thing that would be required is independant legal advice with the solicitor signing off on it.
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Old 22-04-2009, 07:29 AM
Raddles Raddles is offline
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Hi there
another way of doing it is perhaps to have a long lease over the property.

Just think about landholding for example in the ACT - the Crown owns the land and leases it for 99 years - people build on that land but they are just long term leaseholders - banks still lend on those properties.

So - it is doable. But as has been highlighted above - you do need to be on good terms with parents and siblings.

I note that my parents built a granny flat on property that is owned by my brother. They basically have a life interest in the property which will revert to my brother upon their death. Theirs was a cash transaction so no banks involved.
thanks
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