01/02/2013

Those familiar with limited recourse borrowing arrangements will appreciate that the property, once purchased, is held by a so-called ‘bare trustee’ that the ATO prefers to call a ‘Holding Trustee’.  The Holding Trustee is usually a passive entity that simply holds the property title while the loan is being repaid.  However, some clients may find that a few years into the LRBA the entity appointed to act as the Holding Trustee needs to be replaced or substituted. 

Say if Bonnie and Clyde have purchased a property with their SMSF using limited recourse borrowing, where the original finance for the property is with a Lender which uses its own Holding Trustee. 

Now if in a few years from their initial purchase, Bonnie and Clyde decide they wanted to refinance the loan over the property and change lenders, or lend themselves to their SMSF, the property will need to be transferred to a new Holding Trustee.  

Apart from ensuring that the refinancing of the loan is properly taken care of, Bonnie and Clyde need to ensure that they consider the following:

•   preparing and executing a Deed to effect the appointment of the new Holding Trustee and the retirement of the Lender’s Holding Trustee;

•   whether there is a requirement to register this Deed on the General Register of the relevant State;

•   how to meet the requirements to obtain concessional stamping on the Transfer at the relevant Duties Office;

•   registration of the Transfer with the relevant Titles Office (along with the Discharge of the previous Mortgage and registration of the new Mortgage, if relevant);

•   written resolutions of the Fund Trustee relating to the appointment of the new Holding Trustee and the Transfer;

•   written resolutions of the new Holding Trustee relating to its appointment as the Holding Trustee and the Transfer;

•   ensuring that a formal direction from the Fund Trustee to the new Holding Trustee is given to allow the new 
Holding Trustee to execute the documents required for the Transfer. 

As with any documentation for LRBAs, Bonnie and Clyde must ensure that all documentation is correctly prepared and executed in order to maintain the compliance of the arrangement.  They also need to ensure that the Transfer is fully completed so that the new Holding Trustee is the registered proprietor of the property. 

If you need assistance or have any questions in relation to this article, please contactTOWNSENDS BUSINESS & CORPORATE LAWYERS on (02) 8296 6222.