Buyer beware

[neddy]

When buying a domain name, you pay the money (whether directly or some form of escrow); and a simple Change of Registrant process is all that happens.

The domain is then yours. Or is it?

If it is a high value domain, what if the seller has borrowed money against the domain name, and the lender has a fixed / floating charge against all the assets of the company that "owns" the domain name?

I reckon you could be in trouble unless you have a clearance from the lender.

With the advent of the new Personal Property Securities Register (PPSR), you can now check out if there are any liabilities. They have also migrated over all the old "charges" from ASIC.

And a search is so cheap - I did one over the weekend for $3. I reckon that's a small price to pay for peace of mind.

Here is a prime example:

The registrant of Vouchers.com.au is Vouchers.com.au Pty Ltd. A quick check showed me that the N.A.B. has a couple of "security interest's" over all the assets.

So even if you bought the name super cheap, there may be a hidden surprise awaiting you down the track.

Now I'm not a lawyer, but there are possibly a couple of other ramifications out there. e.g.

• What if the seller sells a high value domain through an aftermarket platform or forum marketplace? COR goes through - and then lender makes a claim. Any potential liability to the "marketplace owners"?
  
  
• What if a domain "drops" and good money is paid for it - and there is a liability owing? I imagine a lender would do everything to try and recover the name once they found out?

I'd be interested in what Cooper Mills might think? Or others?

P.S. When you buy a car you should do a check that there is no money owing on it. When you buy a house, the conveyancer does a title search to check on any encumbrances.

Should a high value domain be any different? Food for thought.

 

[Data Glasses]

I think it is a headache to be avoided, thanks for sharing

 

[Chris.C]

Thanks for the insight Ned it's a very interesting notion. Whilst I'm sure 98% of domains are unencumbered, when you start investing $X,XXX it definitely would pay to have piece of mind.

Should a high value domain be any different? Food for thought.

I think the short answer is, no.

What if a domain "drops" and good money is paid for it - and there is a liability owing? I imagine a lender would do everything to try and recover the name once they found out?

This would indeed be a tricky one. My instinct would be that unless the domain is trademarked they wouldn't have any rights to it given that it's a lease not permanent ownership.

That said if the domain you bought on NF's expiry auction was actually sold via the AMA and required a COR it could be a whole different situation.

 

[ScottNugent]

Great article Ned! Thanks for the insight!

 

[neddy]

As I said, I'm not a lawyer, and I don't know the law about this, and any of the possible ramifications.

But to me, commonsense dictates that if you're going to be spending $10k plus on a domain, try and find out if there are any encumberances on it.

I talked to Erhan about this, and he said that if there are "encumberances", the simple thing to do is try and get a clearance or waiver from the security holder (in writing of course). Then you would be fine.

 

[goldnugget]

Its an interesting angle and worthy of discussion.

I would think that if the domain is dropped and reissued as available by the governing authority that any entitlement to the domain would have gone with it.

If however it was sold privately (as example using Vouchers.com.au Pty Ltd) if any assetts were sold while under administration by parties other than the controlling administrator (or governing body) then it could be a breach (and hornets nest) as far as ownership rights goes (they can recall the the assett if they want to, but there is a timeframe as far as I know in which they can do this...the ins and outs of this, I have no idea).

Disclaimer: Opinion based on limited knowledge, seek specialist advice if you have concerns.

Buyers Beware I guess.

Jay

 

[Lorenzo]

As a domain is never really owned, comparing a car to a domain is in my view incorrect.

Once it drops, the previous registrant and the rights connected to that domain, should be gone.

I assume that any finance on such domain would not affect the new registrant...but it will be interesting to hear from a lawyer.

 

[goldnugget]

As a domain is never really owned, comparing a car to a domain is in my view incorrect.

I think this would be correct in reference to a car.

In relation to property (land) however that is leased from 'the state', this can be (and is) a tradable asset in normal circumstances, it all depends on the financial status of the person (or entity) that sells them.

In the 'state own land' case where someone fails to pay the lease fees, the government re-lease it to someone else then its a new lease with no prior leans to the gov or anyone else (dont take my word for it) but if the lease forms part of the entity and an administrator has controlling rights they can divest the lease to another party..if the price doesnt cover whats owed, they continue to chase the first party for the diference (same in realestate as well as car finance etc), the new buyer wouldnt owe on the shortfall.

It all depends on the status of the entity selling them (in receivership or not) and whether the domain is deemed as an assett (which is another reason why I asked the taxation questions).

Each case will be diferent, a safe bet though if the selling individual/party isnt in receivership, they should be safe.

The other question is what to do with a tainted domain that is aquired???

Jay

 

[neddy]

As a domain is never really owned, comparing a car to a domain is in my view incorrect.

That's a good point that you raise Lorenzo - and I think that if a domain "dropped" then a buyer should be safe. Having said that, banks / lenders are never gun shy when it comes to threatening litigation!

But let's take the scenario I originally proposed (which was the purchase of a high-value domain name).

Would you go ahead with a private aftermarket sale and pay the current owner of vouchers.com.au say $10,000 for the domain if you knew that the N.A.B. had a charge over the assets of the company that owned it ?

Wouldn't you want to get a clearance or release from the security holder first - or would you just take the word of the seller that everything was fine?

And getting back to the thrust of my original point, how many of us would even think to check on something like this in the first place?

 

[findtim]

interesting thread, great info ned, thanks

i have previously thought about this and i came to my conclusion ( non lawyer) that "the ownership of a domain is an asset and as such will be treated like one in the instance of liquidation or bankruptcy"

private sale: i think you need to use the "buy a car" rule, so great link ned, thanks.

however, i am torn on the "drop" instance, my opinion is that a "drop is a drop and thats it".

I think it would be good for the AUDA to clarify this.

tim

 

[findtim]

how many of us would even think to check on something like this in the first place?

NONE, until now

thats the KEY message to take from this thread, CHECK.

i've bought some big domains this year and it didn't even cross my mind.

tim

 

[goldnugget]

I think it would be good for the AUDA to clarify this.

I Second that.....anyone here in the loop able to get a ruling on this?

Would you go ahead with a private aftermarket sale and pay the current owner of vouchers.com.au say $10,000 for the domain if you knew that the N.A.B. had a charge over the assets of the company that owned it ?

In the case of Vouchers.com.au ....I wouldnt touch it simply because it sounds like there is going to be a lot of multiagency interest in it as time goes on. Other companies though...well most will have some sort of charge over company assetts, so where do you draw the line?

 

[neddy]

i've bought some big domains this year and it didn't even cross my mind.

Bearing in mind that we are talking high value domains, I should make the comment here that there are some sellers that I would absolutely trust (without the need for any encumberance checks).

These include individuals and companies.

But if I'm not sure about someone; or haven't dealt with them before; or if they hadn't been recommended as "good guys" by people that I trust and respect, then I would do the checks!

 

[acheeva]

I am not aware of any PPSR services that cater for domain names at this stage (although I am sure they would if a special request was made)

However I have set up an account for doing our own searches and it was relatively painless

 

[Honan]

As a domain is never really owned, comparing a car to a domain is in my view incorrect.

Once it drops, the previous registrant and the rights connected to that domain, should be gone.

I assume that any finance on such domain would not affect the new registrant...but it will be interesting to hear from a lawyer.

Yes you are spot on, Lorenzo. Because an .au domain cannot be owned. .au domains are therefore very different to other kinds of property.
I am thinking any action would be taken against the registrar rather than the registrant.
Same result though.
Registrant loses their money and the domain.
A lawyer once told me to always talk on the phone to someone selling a domain before handing over any money, even if using escrow service.

 

[DomainNames]

When buying a domain name, you pay the money (whether directly or some form of escrow); and a simple Change of Registrant process is all that happens.

The domain is then yours. Or is it?

If it is a high value domain, what if the seller has borrowed money against the domain name, and the lender has a fixed / floating charge against all the assets of the company that "owns" the domain name?

I reckon you could be in trouble unless you have a clearance from the lender.

With the advent of the new Personal Property Securities Register (PPSR), you can now check out if there are any liabilities. They have also migrated over all the old "charges" from ASIC.

And a search is so cheap - I did one over the weekend for $3. I reckon that's a small price to pay for peace of mind.

Here is a prime example:

The registrant of Vouchers.com.au is Vouchers.com.au Pty Ltd. A quick check showed me that the N.A.B. has a couple of "security interest's" over all the assets.

So even if you bought the name super cheap, there may be a hidden surprise awaiting you down the track.

Now I'm not a lawyer, but there are possibly a couple of other ramifications out there. e.g.

• What if the seller sells a high value domain through an aftermarket platform or forum marketplace? COR goes through - and then lender makes a claim. Any potential liability to the "marketplace owners"?
  
  
• What if a domain "drops" and good money is paid for it - and there is a liability owing? I imagine a lender would do everything to try and recover the name once they found out?

I'd be interested in what Cooper Mills might think? Or others?

P.S. When you buy a car you should do a check that there is no money owing on it. When you buy a house, the conveyancer does a title search to check on any encumbrances.

Should a high value domain be any different? Food for thought.

funnily enough placed an offer on that name recently and was surpised at the very few low bids... that may be the reason why! http://www.netfleet.com.au/Vouchers.com.au

 

[findtim]

there are some sellers that I would absolutely trust[/B] (without the need for any encumberance checks).

These include individuals and companies.

YES, good point, lets not tarnish everyone with the same brush.

tim

 

[neddy]

funnily enough placed an offer on that name recently and was surpised at the very few low bids... that may be the reason why! http://www.netfleet.com.au/Vouchers.com.au

I think you may be right!

Any prudent buyer should do a check of the PPSR and contact the security holder (NAB email address is on there) before parting with money.

But the sad thing is that someone may make an offer which gets accepted by the "seller". The buyer will think it is their lucky day and that all their Christmases have come at once
(because it seems such a bargain). And then they get a New Year surprise!

Imho.

 

[StuartB]

Hey Ned. What is the impact of this on Domainers?

http://ventraip.com.au/blog/announcements/changes-to-au-domain-name-eligibility-policies/

 

[neddy]

Hey Ned. What is the impact of this on Domainers?

http://ventraip.com.au/blog/announcements/changes-to-au-domain-name-eligibility-policies/

Hey - you're the new auDA Demand Class Director - you tell us!