Navigating the Nominee Clause: Understanding Your Western Australia Property Contract Buyer's Risk

1. Plain English Definition

"Nominee Clause" means a special condition in your Western Australia property contract that allows the original buyer to name another person or entity (the "nominee") to complete the purchase instead of themselves. While it seems straightforward, the original buyer usually remains responsible if the nominee fails to settle, making it a crucial point to understand for anyone buying property, especially under the REIWA Contract.

2. The Danger Zone: Buyer's Risk

• Continuing Liability: Even if you nominate someone else, you, as the original buyer under the REIWA Contract, typically remain fully liable for the purchase if your nominee defaults. This means if they don't settle, you're on the hook to complete the sale or face significant penalties.
• Deposit Forfeiture: Should your nominee fail to complete the purchase, the seller can often retain your initial deposit, potentially tens of thousands of dollars, as per the terms of your Western Australia property contract.
• Stamp Duty Implications: While a nominee clause can sometimes be used to avoid double stamp duty, incorrect execution or timing can lead to both the original buyer and the nominee being liable for separate stamp duty payments in Western Australia, significantly increasing your acquisition costs.
• Financing Hurdles: Lenders often assess the original buyer's financial position. If you nominate a new buyer with weaker financials, the original finance approval may become void, leading to delays or even contract termination.
• Seller's Consent: Many REIWA Contracts require the seller's explicit consent for a nomination. If the seller refuses, you cannot proceed with the nomination and are bound to complete the purchase yourself, adding a significant buyer's risk.
• Tax Consequences: For investors, using a nominee clause without proper legal and tax advice could trigger unforeseen capital gains tax or other tax liabilities for the original buyer, even if they never took possession.

3. Real-Life Western Australia Scenario

Wei, a Chinese-Australian investor keen on a development site in Canning Vale, signed a REIWA Contract with a standard nominee clause. He planned to nominate his newly formed development company after securing finance. However, his company's finance approval was delayed, and the seller refused an extension. Wei, as the original buyer, was still legally obligated to settle. Unable to secure the funds personally within the required timeframe, Wei forfeited his substantial $80,000 deposit. The lesson here is that a nominee clause doesn't automatically absolve the original buyer of their primary obligations and significant buyer's risk.