Other Points - LVRs, loan terms & personal guarantees

The maximum dollar value for the loan is determined by applying 70% (or 50% in the case of marketable securities) to the market value of the property as at 1 July 2015 (or if the arrangement was established after 1 July 2015, then the market value of the property at the time the arrangement was established is to be used).  Once the maximum dollar value of the loan has been established, this amount cannot be exceeded.  It is irrelevant that the LVR at a later time may be exceeded (for example by a decline in the market value of the property).

The maximum term of the loan cannot exceed 15 years (or 7 years where the property is listed securities).  The maximum duration is measured from the actual date of commencement of the loan.  If the related party loan is replaced by a loan from a commercial provider, it seems that the 15 (or 7) year limit does not apply.  However, if the related party loan was replaced by another related party loan, then the current maximum loan period would continue to apply (and is not refreshed).

Providing higher and better security for the loan has no impact on the maximum permitted LVR.  Consequently it is not possible to argue in the case of a related party loan that as better security is being provided, a higher LVR can be justified (unless, of course, the higher LVR and the higher and better security – as well as the other elements of the arrangement can be benchmarked against a commercial credit provider terms).

For further information or assistance with restructuring LRB Arrangements, please call Julie Hartley, Townsends Business & Corporate Lawyers on 02 8296 6222.