I continue to encounter property buyers and clients who are confused by the rules and consequences of nominations in Victoria.  This confusion is not helped by changing rules over time and differences in the rules between states.

For those who aren’t aware, nomination occurs where the purchaser under a land contract nominates another party (the nominee) to settle the purchase of property, instead of the named purchaser.  This often happens when the purchaser wants to buy in the name of a company or trust or where one spouse is unable to attend an auction.

Myth 1 – I can always nominate

It’s true that the typical general conditions offer few restrictions on nominations. 

However, special conditions can:

  • Remove the right to nominate – common in off the plan contracts;
  • Impose Conditions – for instance limit the time window or require specific documents to be signed; and / or
  • Impose Fees payable by the purchaser for the additional legal work for the vendor’s solicitor.

It is worth checking the special conditions rather than just assuming you will be able to nominate.

Myth 2 – There is no Stamp Duty on a Nomination

Stamp duty can arise on a nomination.  In simple terms, where you nominate at a profit or after land development (including preparation a plan of subdivision) or in the context of signing a building contract with the vendor, stamp duty may be payable on the nomination.

This is a nasty result – as the State Revenue Office will seek stamp duty at full conveyance rates on the original purchase price of the property and again on the full price including any nomination fee.  That’s why this is loosely called ‘double duty’.

Myth 3 – The Company / Trust Must Exist before the Contract is Signed

Years ago, this was a requirement in Victoria.  However, this requirement no longer applies.

You can safely nominate a trust / company that is set up after the date that you sign a contract.

Myth 4 – The Original Purchaser is not at Risk After Nomination

After nomination, the original purchaser effectively remains liable as a guarantor that the nominee will settle.

If the nominee does not settle then the vendor is entitled to look to the original purchaser for any losses incurred by the vendor in excess of the deposit paid.

Myth 5 – I can nominate after settlement

In short – no.  Nomination can only occur prior to settlement.  After settlement, it will be a transfer of title and this may involve stamp duty, refinancing, tax and other complications.

For those that are interested in the correct way to approach nomination – you can watch a short video here. 

Given the high cost of getting it wrong and the small cost of getting advice it is worth double checking with a professional to make sure you get it right.