Detailed Report: Loan Contract and Commercial Lease Advice

This report offers legal advice to Mr. and Mrs. Wang regarding a loan contract and commercial lease for a property in Alexandria. It clarifies the confusion between different interest rates, explains prepayment options, and outlines the mortgagee's rights in case of non-payment. The report also addresses the mortgagor's obligations for property repairs. Furthermore, it discusses the implications of using a residential property for commercial purposes and analyzes the rent review method in the lease agreement. The report also provides information on exercising lease options and potential issues with lenders or councils regarding commercial use of the property. Finally, it explains the 'Authority to Complete & Undertaking' document and the client's rights in case of misuse. Students can find similar solved assignments and past papers on Desklib.

Date: 10/03/2019
To
Mr and Mrs Wang
Subject: Advice regarding the loan contract and commercial lease
Respected Sir/Madam
We have come to know that you have made arrangement for finance to purchase the
property located at 282 Lawrence Street, Alexandria. We would initially like to advise you in
relation to the confusion regarding the 4% and the 6% interest rate. The financial table of the
loan document provides that Annual interest rate is 4.00% per annum percentage rate.
However if you make a delayed payment you have to provide for a arrears fees which is $50.
In addition the default rate at any time equals the annual percentage rate at that time plus a
margin of 2 % per annum. At the disclosure date, it is 6.00 % per annum. We would also like
to advise you on whether the mortgage allows u to make extra payments of principal or
interest in the event that you have extra funds available. The loan contact provides that you
may prepay any part or all of the balance at any time. If you do, you must pay the bank any
applicable fees and charges payable under the National Credit Code on the day you do so.
Therefore prepayment is allowed under the contract. We also came across you question that
whether the mortgagee would be able to take possession of the property, sell it and then
recover any shortfall from your end in case of non-payment even if you did not come across
the terms in the memorandum. Under the relevant sections of the Consumer Credit Code it is
provided that the credit provider can take possession of the property to sell it, if it has the
court’s approval or the written consent of the occupier which is given after the occupier is
informed in writing. It is also an implied terms in the mortgage contract that the mortgagee
would be able to take possession of the property, sell it and then recover any shortfall from
your end in case of non-payment of debt. We would like to draw your attention to the
question that whether you have any specific obligations in respect of the state of repair of the
property. Under the third paragraph of the memorandum it is your responsibility as the
mortgagor to during the continuance of this security, whether the mortgagee shall or shall not

have entered upon and taken possession of the mortgaged land, make such repairs as may be
necessary for keeping the buildings now or hereafter to be erected on the mortgaged land in
good and tenantable repair, order and condition, and in particular will, whenever the
mortgagee considers it necessary, paint in a proper and workmanlike manner to the
satisfaction of the mortgagee such parts of the mortgaged premises as are usually painted and
Will, on being required by the mortgagee so to do, forthwith amend every defect in
the repair and condition thereof. The purpose of the loan is to assist you with the purchase of
residential premises at 282 Lawrence Street, Alexandria NSW 2015. This means that you
may not be able to get a loan if the bank is informed that the premise is to be used for a
commercial purpose. Thus this needs to be negotiated with the bank and the term needs to be
clarified.
In relation to the lease agreement we would like you to firstly know about the rent
which arises out of the lease. Through the agreement it can be ascertained that the rent will
not remain the same for the rest of the lease. The present rent which is to be paid is $18,000
per year at monthly instalments of 1500. The method of rent review which has been selected
for the rent increase is method 2 also known as consumer price method. The way in which
this method works is provided under clause 5.8 of the agreement. The lessor must calculate
the new rent after each review date and give the lessee written notice of the new rent. In
relation to the option, you will only be able to exercise it if you serves on the lessor a notice
of exercise of option not earlier than the first day stated in item 12D in the schedule and not
later than the last day stated in item 12E in the schedule. Further if you want to depart from
the lease after exercising an option you would be required to the rent for the entire year. We
would also advise you on any issues that might arise with our lender and/or the council
regarding part of the Alexandria property potentially being leased in the future. As we
already discussed earlier, the lender is providing us loan to purchase a residential property in
addition the council also would not allow to carry on business in a residential property
without proper approval and licence. Thus, it might be a problem in the present situation to
carry out business activities in the residential premises. The area to be leased by the company
should be identified as a commercial area. We understand your concern in relation to the
AUTHORITY TO COMPLETE & UNDERTAKING document. The document allows the
bank to complete all documents relating to this transaction as required and to insert any

information in such documents to enable them to be registered in the appropriate office.
However, if they misuse this authority we have the right to challenge them for unfair terms or
misrepresentation.
I hope we have been able to resolve your doubts in relation to the mortgage and lease
contract. If you have any further queries feel free to contact us.
Yours Sincerely
ALAM
Top Notch Conveyancing.