Unincorporated Joint Ventures + HDT ++

[Splinter Wood]

Hi All,

I am in a consortium of approximately 9 people, and we are about to go into a Property Development of medium size.

It was recommended that we use and Unincorporated JV, to run the 'project' (With A Nominee Company). Reason for using a UJV is to avoid 'purchasing' the land as the owners will retain 50% and will also be in the development - hence no need to 'buy' the land.


All participants will engage in the UJV through their own vehicle. I have been advised to use the Unit Trust + HDT route. Some players will need to have the project (or proceeds) included the development for their SMSF's.

Anyone with any experience or input into the Pros and Cons of UJV's and also the use of the HDT would be appreciated.

I am also hoping the SMSF Player can effectively participate if we do use the UJV.

Regds
Splinter.

 

[coastymike]

Splinter,

Interestingly we had a client who wanted to do something very similar quite recently. Have you ensured that this proposed development either falls outside of Class Order 02/239 regarding Participating Property Syndicates or is not a Managed Investment Scheme. Need to look at how funds for development, etc. are being raised.

If it is not a Participating Property Syndicate or Managed Investment Scheme and you are complying with ASIC then you have a myriad of issues to consider. Considering the complexity of the situation and the number of parties involved you do need to seek professional advice.

Ask your advisor about deeds of partition, SIS Act regarding the running of a business and undertaking property development, cloned trusts, etc and you should be heading in the right direction.

Seriously though this sort of transaction is quite common but advice in this area usually costs thousands of dollars so expecting an answer to all the issues in this forum is quite unreasonable.

 

[see_change]

Seriously though this sort of transaction is quite common but advice in this area usually costs thousands of dollars so expecting an answer to all the issues in this forum is quite unreasonable.

Obviously Splinter needs professional advise, but I know I always like to have an idea on what's involved before I start talking to the professionals. That way , I know whether they know waht they're talking advice.

Probably not relevant to relate advice on the forum to dollars. That defeats the purpose in my opinion.

Several of the professionals on the forum would have picked up a significant volume of business simply because they have given detailed information ( with the appropriate warnings ) in response to questions.

I know the free advice I've received on the forum has helped me make many 100's of thousands of dollars so I'm happy to reciprocate when I think I have something to add.

See Change

 

[coastymike]

SeeChange,

Ive also provided advice free of charge to others on the forum but unless you have been in a property development of this nature then you do not realise the issues involved. There are

1. ASIC Class Orders to consider;
2. Capital vs Income issues to consider;
3. Funding issues and structural issues to consider;
4. Stamp duty issues;
5. Information regarding deeds of partition and cloned trusts.
6. GST issues to consider.

If someone is going to give advice for free on this transaction then expect the response to be around 10 - 20 pages. That is the level of complexity involved.

Giving some free advice on whether CGT and GST is applicable on a subdivision is very different to giving advice on a complex property development structure.

 

[Mry]

If I could add something to Coastymike's description of the events, I have had accounting specialists in super quote to me $5,000 as a bare minimum start up cost to get a venture like this going. That's if things run smoothly and there was no discussion of ongoing costs.

Your normal run-of-the-mill accountant does not have the expertise to run something like this properly. I'd even say that at least 95% of accountants cannot run something like this. It is very difficult and technical.

As for warnings, each of Coastymike's points listed could have a book written on the subject.

 

[Splinter Wood]

Thanks Coasty and SC for your input,

I have actually engaged a 'big gun' tentatively to get cracking on this, but I am having some difficulty getting the partners 100% on board. Hence my Q's reros & Cons, and whether slotting SMSF into the deal is possible/effective.

I am trying to get myself educated to the extent where I am clear about what is going on. The nitty gritty of all the contractual and compliance should be handled by the lawyers (that's why we pay them the big bucks right ??). There is obviously some level of blind trust involved when have lawyers set up this kind of structure. I would need several years to become an expert, and frankly, I have other fish to fry.

I was and am curious if any forum folks have used such entities (or Non-entities) for development work. Also keeping an eye out for further posts about using Trusts to purchase IPs. Surprisingly there is little posted - especially seeing that some heavy industry Gurus swear by the use of Trusts for asset protection and Tax minimization.

REgds
SW

 

[coastymike]

Splinter,

Stick with the advice from your advisors. As Mry said a book could be written on the various issues involved here and it would be professionally negligent for someone other than your advisors to comment. Again Mry is spot on. This is a highly complex area and property development structuring, property syndication, etc is a speciality in and of itself. If you have hired some big guns then take their advice, let them assume the legal liability and enjoy the venture. That is what you pay for them. I think it is more appropriate to ask them these questions than an internet forum because to be honest most people on here would have very little exposure to this type of structuring. Not trying to denigrate anyone here but during a recent property syndication proposal for one of my clients I was dealing with partners from Abbott Tout before deciding the venture would have been in breach of the ASIC class orders regarding property syndicates. Its complex stuff and I suggest you trust your lawyers and accountants to give you the specialist advice you are seeking.

 

[NigelW]

If I could add something to Coastymike's description of the events, I have had accounting specialists in super quote to me $5,000 as a bare minimum start up cost to get a venture like this going. That's if things run smoothly and there was no discussion of ongoing costs.

Your normal run-of-the-mill accountant does not have the expertise to run something like this properly. I'd even say that at least 95% of accountants cannot run something like this. It is very difficult and technical.

As for warnings, each of Coastymike's points listed could have a book written on the subject.

$5k, crikey that's CHEAP! I would have thought $15-20K.

You've gotta get the commercial deal bedded down before you get too far down the documentation track or it will cost you even more.

Good luck
N.

 

[Splinter Wood]

Tx again for your input Coasty.

One obstacle I am finding tough - is dealing with the 'Local Accountants' who have been handling the consortium affairs (...till I turned up).

I noted that a previous development deal I was in ( I was abroad for the whole project) was set up poorly, using a standard company with shareholders plugged in through trusts, companies and as individuals. When the project was complete, the partners wanted to secure a property each from the development. It then became apparent that we would get slugged with full valuation Stamp Duty, plus what looks like an inherent profit to the company on the sale to each of us (The Owners) for the difference between cost and current valuation price. This was a double whammy and very unpleasant pill to swallow. I think I saw the expression 'Poison Property' on a Website recently - I now know what this means.

So - I then went to work and found if we had done the project in a Unit Trust + DT etc, the result may have been quite different.

The intent was for some partners to take on a property as PPOR. The 2 scenarios - a) 'if we had' and b) 'what we did', have a significant difference in bottom line bankable profit if we were to sell after 12 months of occupying the property as PPOR. (not happy about that one )

My view is that the accountants should have raised their game on the set up BUT they were reactive and didn't try to plan too much outside the box.

Message here is to question, push and perhap change your accountant if they can't keep up.

Be very careful with Accountants' advice if it even appears out of their league. Unfortunately, many accountants will not admit such things are above them, and they can be reluctant to engage superior talent to gain information, relying instead on their 'peers' to confirm what they believe is the right thing to do. If these guys (or my partners and I) had spent $1000 on advice prior to this deal, it would have made a difference of several hundred thousand dollars to the bottom line. That ain't chicken feed.

Any readers here take special note of Coasty's notes above - THAT is very good advice.

Regds
Splinter.