When dealing with property purchase there are no short cuts
When establishing the usual “Mum and Dad Family Trust” that owns the family home and possibly also some investments, it is likely that you, your partner and an independent person will be the trustees of your family trust. This article hopefully will convince you of the importance of making sure that all relevant documentation with regard to the assets held by the family trust are signed by all trustees, not just the “Mum and Dad”.
It may be, that even though you have transferred your family home into the name of your trust, you still think of your home as being “yours”. The independent trustee that you have appointed may be a close friend, colleague or relative. They may regard their role as independent trustee of your trust as one that merely means that occasionally some documentation may require their signature and apart from that, they do not need to get too involved with your trust. And realistically speaking, the assets of the trust are nothing to do with them. In the same vein, it may be that your independent trustee, in the past, has always acted on your instructions and will “rubber stamp” anything that needs signing without asking any questions.
Purchasing and selling property that’s in a trust
- If you wish to sell your family home, could you commit your family trust to the sale of the property without your independent trustee’s signature on the agreement for sale and purchase?
- Can you indeed just assume that your independent trustee will sign the agreement for sale and purchase if you ask them to?
- If the agreement for sale and purchase has been signed by the purchaser and by you and your partner as trustees of the trust (but not by your independent trustee) can your purchaser enforce the agreement?
The answer to the above question is “no”.
Things to look out for when buying property from a trust
In a recent court decision a couple had transferred their property to the family trust. The couple were the trustees of the trust together with their independent trustee. The couple then decided that they wished to sell the property and over a couple of days of negotiation with the purchaser, they signed the agreement for sale and purchase. The purchaser claimed that the real estate agent and the couple had made various assurances to him about the third trustee’s signature, namely that it was merely a formality, that by the couple signing the agreement the third trustee was also bound, and that the third trustee’s signature would be made at a later date.
The conditions in the agreement were satisfied and the agreement was declared unconditional. A sold sign went up outside the property. The purchaser paid the deposit to the real estate agent. At that time the third trustee refused to sign the agreement for sale and purchase as he believed that the purchase price was too low.
The purchaser then lodged a caveat against the title to the property which meant that the trust could not sell the property to any other purchaser. The trust applied to have the caveat removed so that the property could be placed back on the market for sale. The purchaser applied to the High Court requesting that the caveat remain on the title. In order for the purchaser to succeed they had to show that they had a “reasonably arguable case” that the agreement for sale and purchase was legally enforceable. The judge in the case held that there was not enough evidence that there was a binding agreement between the vendor and the purchaser to allow the purchaser’s caveat to remain on the title to the property. The judge said “as a general rule, all registered proprietors must execute any agreement for sale and purchase before the vendors are bound to sell. It is usually presumed that any registered proprietor who does execute does so on condition that the other or others will do likewise“.
For the agreement to be enforceable the signatures of all the trustees was required. Without the third trustee’s signature the couple and the real estate agent could not commit the third trustee to the agreement, nor make the agreement enforceable against the trust, by making promises and representations about what the trustee would, or would not agree to. To bind the third trustee to the agreement at the time the couple signed the agreement, they would need to be able to show some evidence to the purchaser that they had the third trustee’s authority to sign on his behalf. They did not have this.
As a general rule, therefore, if a person’s name is on the certificate of title to the property, their signature will be required.
This is an important point to remember when dealing with property if you are a trustee of a family trust.
How a property lawyer can help you navigate the world of trusts
A trustee will not always do what you tell them to do, and their signature is not just a “rubber stamp”. All trustees are required to consider what is in the best interests of the trust’s beneficiaries when they are dealing with trust assets. The same principle applies when the trustees of a family trust are purchasing a property. Again it is important that all trustees signatures are obtained.
If you’re considering purchasing property from a trust, or purchasing a property using a trust arrangement, then employing property law experts is going to be the easiest way to manage the process. Get in touch with the Home Legal team today for expert guidance on buying property.
- Guide to family trusts https://www.sorted.org.nz/a-z-guides/family-trusts
- Property related terms http://www.publictrust.co.nz/more-information/common-terms-explained#property
- Types of property sale https://homelegal.co.nz/news/what-is-a-deadline-sale/