“Or nominee” clauses in contracts

It is not uncommon for a prospective purchaser of a property to ask that the purchaser be shown as e.g.., John Brown or nominee. This is not uncommon in real estate auction situations. There are problems that can flow from such wording and these problems can affect the rights of both the purchaser and the vendor.

It has been held in a recent Victorian case that similar wording creates a situation where the nominated purchaser will have no contractual rights against the vendor in respect of issues arising under the Contract. Similarly the vendor will have no rights against the end nominated purchaser. Further, the vendor’s rights against the purchaser named on the original Contract can be clouded because of the nomination provision.

In New South Wales, a nomination by one purchaser in favour of another purchaser will normally attract additional stamp duty, i.e., stamp duty is paid in full both by the purchaser named on the Contract, and by the purchaser who is nominated and eventually purchases the property.

In order to avoid the impact of double stamp duty, the purchaser when entering into a Contract should ensure that the correct name is shown on the Contract. If there is the likelihood that another person or company will be the ultimate purchaser, the Contract should contain a properly drafted novation clause which will ensure that the rights and obligations of the respective parties under the Contract will be maintained. Double stamp duty will still be incurred but at least the contractual rights and obligations of the respective parties will be clear.

In certain circumstances, stamp duty paid by the original purchaser may be refunded but the rules are complex.

Novation clauses and the associated stamp duty issues are complex. The advice of a competent lawyer should always be sought.