PROP - Activity 2 Task 1
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Deakin University *
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Feb 20, 2024
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Activity 2, Task 1 – Property Practice
Questions on the mortgage
1.
Does this mortgage allow us to make extra payments of principal or interest in the
event that we have extra funds available? Will it be possible to repay the entire loan amount earlier than the due date set out in the loan agreement? Will a penalty
be payable if this is done?
Yes. Under clause 3.5 early repayment, you can pay the principal early with the written consent of the mortgagee and pay three months’ interest calculated at the rate at the time of repayment.
2.
It has always been our understanding that if our financial circumstances changed and we are unable to make mortgage payments, then the mortgagee would be able
to take possession of the property, sell it, then recover any shortfall from us. Where in the memorandum is the mortgagee granted these rights? Please advise us.
Clause 13.4 explains the effects of defaulting on mortgage payments. If a default occurs,
the mortgagee must give you notice under clause 13.2. If you fail to rectify the default by making payments, then the mortgagee may sue you for payment, take possession of the
property, sell the property, lease it, or deal with it as the owner would. Clause 13.4 has exhaustive provisions about default.
3.
Do we have any specific obligations in respect of the state of repair of the property?
Yes, under clause 7.3, you are required to make the mortgaged property in good substantial and tenantable repair order. Among other things, you must also fix all defects, not do anything that might lower the value of the property, tell the mortgagee if the property is contaminated or materially defective or damaged in a way that might affect its value, and remove any contamination.
4.
Is the loan agreement appropriate bearing in mind our proposed ultimate use of part of the property for a business (leased to Churchill Services No 3 Pty Limited)?
Yes. The lease will be to Churchill Services Pty Ltd, which is a separate corporation and therefore a separate legal entity.
5.
We will be taking out an insurance policy for the Jan Juc property. Are there any insurance obligations imposed on us that arise from the mortgage for this property?
Yes, under clause 8.5, the mortgage will hold all insurance policies as security if those insurance policies are over the mortgaged property, whether or not they cover other property.
6.
Does the Mortgagee’s interest in the property need to be noted on any insurance policy?
Yes, under clause 8.3, the mortgagee’s interest in the property must be noted in any insurance policy taken out for the mortgaged property.
7.
Where in the lease document is there a reference to the annual rent?
It is mentioned in clause 10.1.3.
8.
Does the rent stay the same for the remaining term of the lease?
No, the landlord may increase the monthly rent by giving the tenant one month's written notice.
9.
If the lease provides for the rent to be reviewed during the term of the lease, what rent review process applies to this lease?
Yes, under clause 11.1.2, each side may initiate a review by giving the other party a written notice stating the market rent which it proposes for the review period. If the party receiving the notice does not object in writing to the proposed market rent within 14 days, it becomes the rent for the review period.
10. At the expiration of the current term of the lease, does the company have an option to renew the lease for a further term? If so, what is the procedure for exercising any such option?
Yes, under clause 12.1.3, the tenant company can request the renewal in writing no less
than three months before the end of the initial term. The landlord must renew the lease if
there is such a request, no unremedied breach, and no persistent breaches of the lease by the tenant.
11. If the company does decide to try to end the lease early and move the surgery to Jan Juc, what provisions of the lease apply?
Under clause 10.2, the tenant can vacate the premises during the term of the lease. The lease will continue until a new tenant takes possession of the premises, or the landlord accepts the surrender of the lease, or ends the lease by re-entry.
Questions about planning issues
12. Are there any issues that might arise with the council in respect of the Jan Juc lease for the surgery? Do we need to further investigate this issue with council or the clients?
Yes, under the zoning rules, The gross floor area of the building being used for a medical centre must not exceed 250 square meters and must adjoin or have access to a
road in Red Zone; otherwise, a permit is required.
13. The company will only be using part of the Jan Juc premises for Toni Churchill’s surgery and the Churchills will use the rest as their residence. How should the new lease document best identify the area to be leased by the company?
By reference to the floor plan if the business and the residence are on separate floors. The description may also include dimensions and refer to landmarks, or directions (e.g., the two rooms on the southwest of the property measuring 5x4 and 3x5m
2
, respectively).
Alternatively, they might convert the property to a Strata Title Scheme.
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