There are a number of things that a solicitor will need to take into account during the process of an SMSF conveyance.
Here are five questions to ask your solicitor to make sure they know their stuff.
Are there any restrictions on the types of property I can buy?
Before you sign a contract to purchase a property through your SMSF, it is important to consider what types of property can be purchased by an SMSF. If necessary, your solicitor can advise you on this.
While SMSFs can purchase both commercial and residential properties, a residential property cannot be purchased by an SMSF from a related person. If you purchase a residential property through your SMSF, you cannot live in it, nor can a family member of yours.
Who should be listed as purchaser on the contract?
Your solicitor should be able to advise you on the correct entity to be listed as purchaser on the contract of sale.
In an SMSF purchase the contract purchaser is usually the custodian trustee. The custodian trustee is a company that is set up specifically to be the registered owner of the property. It holds the property as trustee for the SMSF’s trustee company, which in turn acts as trustee for the SMSF.
This structure is necessary because SMSFs cannot borrow money to own property in their own right.
By consulting your solicitor before signing the contract, you will ensure that the correct entity purchases the property, which will save you hassles later on in the settlement process.
What does it mean to nominate a contract?
In certain circumstances, a purchaser may decide to nominate a substitute purchaser to take over the purchaser’s obligations under the contract.
If your solicitor has advised you on the correct entity to list as purchaser, a nomination will not be necessary. However, if you signed a contract of sale before deciding to purchase the property through an SMSF, you will have to nominate the contract to the custodian trustee.
Nomination is a relatively simple process, which involves the purchaser and the nominee signing a nomination form and providing it to the vendor. If you have signed a contract in your personal name, you will need to sign the nomination form as purchaser, and in your capacity as director of the custodian trustee.
What is a limited recourse borrowing arrangement?
A limited recourse borrowing arrangement (LRBA) is a mechanism that allows an SMSF to borrow money from a third party. If you are borrowing money for your SMSF purchase, you will be doing so through an LRBA.
LRBAs are complex arrangements and there are a number of criteria with which an LRBA needs to comply.
You should ensure that your solicitor is familiar with LRBAs so that your SMSF loan is compliant and there are no issues during the settlement process.
What is a solicitor’s certificate, and do I need to get one?
If you are obtaining finance for your SMSF purchase, it is likely that you will need to obtain a solicitor’s certificate.
Solicitor’s certificates are necessary if your lender requires you to personally guarantee your loan. If this is the case, your solicitor will need to meet with you and explain the obligations of your guarantee to you.
Before you make a finance application your solicitor can explain solicitor’s certificates to you, so that you are more prepared when your lender informs you that you need to get one. This should help to streamline the SMSF settlement process.
Ensuring that your solicitor can answer these questions should help to make the process of purchasing your SMSF property as simple as possible.