Task 2.
To: Julian and Fallon Wang
From: Student Lawyer
Re: Your enquiry regarding the purchase of 49 Fifth Avenue, Mount Lawley
Questions on the mortgage
1. The mortgage document is expressed this way to differentiate the interest rate from a
penalty. In this case, the standard rate is 6% but your timely payments will be rewarded by a
lower interest rate of 4%. If the rate is not a genuine pre-estimate of damages suffered by
the lender or its purpose is to punish or threaten the borrower, it may be deemed a penalty
and adjudged unenforceable. By wording it as such, the document provides not a higher
interest rate should late payments occur, but a lower interest rate for timely payments,
which is more akin to a reward for the latter instead of a penalty for the former.
2. You must pay 360 monthly repayments of $3,532.87 each during the term of 30 years. You
are allowed to prepay any part or all of the balance at any time, provided you pay the
applicable fees and charges under the National Credit Code on the day you do so.
It is also possible to pay out your contract early. The interests for paying out your contract
early will depend on what is owed at that time. You may also have to pay an early
termination charge and other associated fees.
3. Should your financial circumstances change, the first thing you can do is to get in touch
with your credit provider to see if you can come to some arrangement to extend the term of
your contract and reduce payments; or to extend the term of your contract and delay
payments for a set time; or to delay payments for a set time.
Yes, the mortgagee can take action against you as you will be considered in default under
your contract if you are unable to make mortgage payments. Section 88(2) of the National
Credit Code and section 108 of the Transfer of Land Act give the mortgagee the power of
sale in case of default. Section 57 of the Property Law Act 1969 (WA) also confers implied
statutory powers on the mortgagee in addition to those given under the mortgage
document.
If you are experiencing difficulties fulfilling your obligations under the mortgage contract due
to unemployment, illness, or other valid reasons, it may be possible to apply to the court to
make changes to accommodate your circumstances.
4. Yes, you have a responsibility to keep the property clean and in good and substantial
repair., as outlined in clause 8 of the Memorandum of Common Provisions. Additionally,
section 113 of the TLA provides for the covenants implied in mortgages, which include
repairing and keeping in repair the building and improvements on the mortgaged land. This
latter obligation exists regardless of whether or not it had been written into the mortgage
document.
5. The form of loan agreement is appropriate as it contains all the following provisions:
• the sum to be lent;
• the interest to be paid;
• the general nature of the security to be given;
• the duration of the loan;
• the mode of payment of principal and interest; and
• other essential conditions.
However, please note that the mortgagee will require you to obtain prior written consent
pursuant to clause 17 of the Memorandum of Common Provisions before you can lease a
part of the property to Wang Better Results Pty Ltd. The mortgagee will have discretion in
granting or denying the request. You may also incur additional costs in securing the written
consent.
6. The authority is normal in mortgage transactions. It is necessary to accomplish it because
some details are not available until settlement, as for example, the agreed dates for the
repayment of principal and interest after settlement of the mortgage transaction. This
authority allows the mortgagee’s solicitor to insert these details on your behalf.
Questions on the lease
7. There is a possibility that your rent may not remain the same for the duration of the lease.
Item 4 of the Lease Agreement provides for an annual rent review date. The rent review
allows the lessor to adjust the rent at the start of the lease year on the basis of a Consumer
Price Index review.
The CPI review will be computed as follows:
“CPI Review” = (A x B)/C
where:
A = Annual Rent payable for the last Lease Year;
B = CPI for the last quarter immediately before the first day of the Lease Year under review;
C = CPI for the last quarter immediately before the first day of the last Lease Year.
8. If you exercise the option to renew the lease, the new agreement will be for 3 years (item
6). You will be required to fulfill your obligations under the renewed lease, which includes
payment of the rent for its duration.
You may have the option of assigning the lease under clause 13.1. This is subject to the
lessor’s consent, which must not be unreasonably withheld, particularly if the conditions
under clause 13.2 are met.
9. Before the subsequent lease to Wang Better Results Pty Ltd may be made, you must
secure:
- prior written consent from the mortgagee; and
- development and any other approvals from the local council.
The mortgagee’s prior written consent is required under clause 17 of the MCP, whereas
approval from the council is necessary as the mortgage requires compliance with laws under
clause 10 of the MCP. As there will be a change of use of a part of the mortgaged property
from residential to commercial, council approval will have to be secured.
10. The lease document should clearly state what area is being leased, including the tenant’s
rights of access, use of amenities, parking, and common areas. It must also contain
provisions on payment of utilities and other charges, considering the proportion of the area
being leased; the extent of the tenant’s maintenance obligations; and restrictions on
tenant's use of the premises.
