13. The Contract

DECISION 8. – WHAT TERMS AND CONDITIONS DO WE REQUIRE?

DECISION 9. – DO WE ACCEPT, REJECT OR AMEND BUYER’S TERMS?

The law of contract requires an offer and an acceptance. In some jurisdictions the contract is part of a standardised series of documents that must be presented to the buyer in a specific order to form a valid contract. In other jurisdictions the seller’s solicitor is required to prepare the contract for sale.

Buyers (other than at auctions) normally have a cooling off period, during which time the buyer can renege from the contract. Buyers can also reject a contract based on building and pest inspection, finance condition or other specific conditions that might be in the contract.

Sellers have very little flexibility to terminate a contract, unless specific conditions have been added.

Contract Terms & Conditions

An auction is an unconditional sale, so apart from the reserve price, there are no conditions restraining the sale (apart from tenant rights). In private treaty sales, the terms and conditions that commonly appear in residential property contracts are:

  • Sale price.
  • Deposit amount and date of payment. Sometimes the deposit is paid in two instalments, the first on signing the contract, the second on or before the date specified.
  • Subject to Finance. The buyer may be required to borrow to finance the purchase, and this condition allows the buyer to terminate a contract if they cannot obtain finance.
  • Date of Finance Condition (if applicable). A common period is 21 days after signing of Contract.
  • Subject to Building & Pest Inspection. This condition allows a buyer to terminate a contract if a building inspection finds termites, vermin, structural problems or other problems with the building that are significant. The buyer may want to negotiate to have repairs undertaken, or a reduction in price as an alternative, if the problem is serious but not enough to terminate. Some building inspectors make the smallest problem seem like a huge issue. They do this to cover their Professional Indemnity Insurance obligations.
  • Date of Building and Pest Condition. A common period here is 14 days after signing of Contract.
  • Subject to Satisfaction with Body Corporate Searches. With a unit in a Body Corporate complex, the buyers can terminate the contract if they are unhappy with any aspect of the Body Corporate information revealed in searches by their solicitor.
  • Subject to Sale of Property. The buyers can terminate the contract if they cannot sell their own property. Usually the seller, if they agree to this, will put a time limit, which allows them to negotiate with other buyers.
  • Subject to ongoing tenancy. If the property is tenanted, the tenants have certain rights including remaining for their lease duration when a property changes hands.
  • Subject to vacant possession. Again, if a property is tenanted, the buyer may require the tenants to vacate the property. As the lease has precedence, this would require the seller to negotiate with the tenants to vacate.
  • Subject to Due Diligence. This is a catch-all clause that solicitors for buyers will put in to allow the buyers to terminate a contract for any reason up until a specific date. Get your solicitor to advise if you see this clause.
  • Special Conditions. The buyer may impose special conditions of a wide variety. For example, an overseas investor may need to obtain Foreign Investment Review Board approval, so the contract would be subject to such approval. Your solicitor needs to provide the wording for such clauses. Do not allow your agent to write in a special condition, or it may be rejected.
  • Date of Settlement. This is often 30, 45 or 60 days after signing of Contract but it can sometimes be 90 days or longer, or shorter.

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The Deposit

The buyer’s Deposit is normally held in trust by the Real Estate Agency responsible for listing the property, in a Trust Account for that purpose. The amount of Deposit may be limited by law and will normally be sufficient to cover the agent’s commission and possibly marketing expenses. Any residual will be returned to the seller at settlement, or if the deposit is insufficient, additional funds will be distributed to the Agency at settlement.

Unconditional Stage

A Contract is “Unconditional” when it is no longer subject to any of the conditions that were imposed in the Contract. The buyers (or occasionally) sellers notify their solicitor whether the relevant “subject to” clauses are fulfilled. If they do not advise their solicitor by the due date, then the clause is considered to have been satisfied.

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Settlement

By the signing of the Contract, the buyer and seller will both have appointed solicitors to act on their behalf, to facilitate the transfer of title (known as “conveyancing”) from the seller to the buyer. The sale is finalised at “settlement”, when representatives from both solicitors’ firms get together and swap documents and cheques for the relevant monies to change hands. The solicitors take out their own fees, the real estate agent’s commission if necessary, and distribute the amounts owing in terms of rates and taxes for the government, before returning the remaining funds to the seller as the proceeds of the sale.

Prior to settlement, your solicitor will send you papers to sign, and advise you on the settlement proceeds.

 

Insurance

Make sure that the insurance cover on your property is retained until settlement has been effected.