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The Four Stages of a Conveyancing Transaction – Part 2 Sellers

The Four Stages of a Conveyancing Transaction – Part 2 Sellers

CONDITIONAL STAGE – SELLER

INTRODUCTION

There are four stages that cover the breadth of the conveyancing process:

  1. Pre-Contractual Stage;
  2. Conditional Stage;
  3. Unconditional Stage; and
  4. Settlement/Post Settlement Stage.
CONDITIONAL STAGE

The importance of the conditional stage (which occurs after the signing of the contract but before the contract becomes unconditional) cannot be overlooked as it is during this stage that the buyer under a contract can elect not to proceed with a purchase, usually without penalty, so long as they can demonstrate that a condition of the contract has not been met.

As a matter of law, this is an example of a “condition precedent” as the condition must be met, unless its failure to be met is excused, before performance under a contract becomes due and before any contractual duty exists.

Types of Conditions

The most common examples of such conditions are set out below.

Cooling Off

Under the Property Occupations Act, a buyer may, within a five business day period commencing on the day that they receive a copy of the contract signed by the seller, terminate the contract but will be subject to a 0.25% termination penalty.

Finance

The Finance Condition sets out whether the contract is subject to finance, whether the buyer is free to seek finance from any financial institution, what finance amount is required to meet the condition and when the Finance Date is due. Where the contract has a Finance condition the contract is conditional on the buyer obtaining the financial assistance required to settle and the buyer may elect not to proceed if they cannot do so.

However, you should note that the standard REIQ contract specifies that unless Finance Amount, Financier and Finance Date are all completed then the contract is NOT “subject to finance” and failure to be able to pay for the purchase is not a ground for termination.

There is no termination penalty payable here.

Building and Pest

The Building and Pest Condition provides that the contract is conditional on the buyer receiving a satisfactory report from a Building and Pest inspector on the state of the property being purchased but again it is important to note that if the Inspection Date is NOT “subject to Building and Pest” and issues that would not be covered by such an inspection are not grounds for termination.

There is no termination penalty payable here.

However, these conditions are not a “general” power to get out of a contract because the buyer has changed their mind.

Other conditions can be included in a contract and it is for this reason that it is important that you consider the need for such conditions before signing the contract.

One such condition, whose power is frequently overlooked, is a Due Diligence condition that a buyer may seek and is the right to terminate the contract if their investigations reveal a matter that causes them sufficient concerns to want to do so.

Application

The buyer must, by 5:00 pm on the due date determined pursuant to the contract, advise you or your solicitor that:

  1. they have received a satisfactory finance offer/inspection report or waive the condition and that they wish to proceed with the contract; or
  2. they have not been able to obtain a satisfactory offer of finance/inspection report and are electing to terminate the contract; or
  3. they are requesting an extension of the due date for the relevant condition, although the seller is under no obligation to grant such requests.

Failure to do so does not mean that the buyer loses their right to terminate but it does give you the right, until the buyer provides one of the above advices, to terminate the contract.

However, the buyer’s deposit would be refundable.

Important Lessons for Sellers

You should ensure that you adequately protect yourself by undertaking the following important activities:

  1. ensure that the periods set out for conditions in the contract, whilst sufficient to allow buyers to conduct all necessary investigations, including making their finance application and organising a building inspection, are not so long as to expose you to undue delays that prevent you from moving on confident that the sale will eventuate; and
  2. ensure that you act quickly upon the specified period if the buyer has not advised their decision on a condition, including whether to want to proceed or terminate the contract.

On many occasions, we are approached by sellers who are now unsure as to what they are able to do and as a result are exposed to the risk that the buyer may delay advising their decision in respect of a contract condition.

Conclusion

Selling a House will for most people be the most important financial decision that they make – we cannot recommend highly enough the importance of understanding all contract conditions and ensuring that you liaise with your solicitor around all due dates and promptly advise them if the buyer fails to provide the required advices by the expiry date.

Read our previous article on the Pre-Contractual stage of the conveyancing process for sellers.

pre-contractual selling - the four stages of conveyancing

 

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The Four Stages of a Conveyancing Transaction – Part 1 Sellers

PRE-CONTRACTUAL  STAGE – SELLER

INTRODUCTION

The Four Stages of a Conveyancing Transaction – Part 1 Sellers:

  1. Pre-Contractual;
  2. Conditional;
  3. Unconditional; and
  4. Settlement/Post Settlement.

Each of these stages offers its own risks.

PRE-CONTRACTUAL STAGE

The importance of this stage, which occurs before the signing of a contract, is often overlooked with clients signing the “standard” Real Estate Institute of Queensland (REIQ) contract without really reading the document fully. Brisbane Property Conveyancing requires expert care to get right.

A standard REIQ contract can be divided into the following parts –

1. Reference Schedule

This part covers important details such as:

  • Real Estate Agent;
  • Buyer (and their Solicitor);
  • Seller (and their Solicitor);
  • Property Address; and
  • Price (including deposit amounts and when these are payable).

Yet you would be surprised how many errors we find when we receive contracts signed by clients – this is an important legal document but common errors include:

  • Spelling errors;
  • Wrong property;
  • Incorrect contact numbers; and
  • Confusion as to what fixtures are excluded and what chattels are included.

Next are three key matters – the Finance and the Building and Pest Inspection dates and terms and the Matters Affecting the Property.

The Finance Condition sets out whether the contract is subject to finance, whether the buyer is free to seek finance from any financial institution, what finance amount is required to meet the condition and when the Finance Date is due.

Please note that the standard REIQ contract specifies that unless Finance Amount, Financier and Finance Date are all completed then the contract is NOT “subject to finance” and failure to be able to pay for the purchase is not a ground for termination.

The Building and Pest Condition sets out when the inspection is to be performed and again it is important to note that if the Inspection Date is NOT “subject to Building and Pest” and issues that would be covered by such an inspection are not grounds for termination.

The Matters Affecting Property provides the place where the seller of the property is able to disclose:

  1. encumbrances on the property that will remain after settlement; and
  2. details of tenancies on the property – please note that leases less than three years will not show up on a title search on the property.

The Reference Schedule then shows details of compliance with Pool Safety, Electrical Safety Switch and Smoke Alarm requirements.

Finally, the Reference Schedule shows any Special Conditions that apply to the contract.

2.Terms of Contract

This is the ‘fine print’ of the contract and in an article of this size, we cannot provide a detailed commentary on each term. However here are some key terms of which you should be aware:

  • Term 1 – Definitions – “business days” – this is a key term given that many conditions are expressed as due within x business days.
  • Term 2 – Purchase Price – whether the price includes GST and what adjustments can be made to the Purchase Price.
  • Terms 3 and 4 – Finance and Building and Pest Inspection Reports and Pool Safety – notice requirements and termination rights.
  • Term 5 – Settlement – times within which settlement must occur and arrangements for handover of keys at settlement.
  • Term 6 – Time – this reinforces that where something is to be done by a certain time it is vital that this timeframe is strictly followed.
  • Term 7 – Matters Affecting the Property – Seller warranties and how issues with encroachment and survey matters do not necessarily give a right to termination.
  • Term 8 – Right and Obligations Until Settlement – that the property is at the risk of the buyer from 5 pm on the first business day following the signing of the contract and how any requests for early (before settlement) possession will be handled.
  • Term 9 – Parties Default – this covers each party’s rights if the other party is in default of the contract.
  • Term 11 – Electronic Settlement – this is a relatively new initiative that will be covered in a later article.
CONCLUSION

Selling a House will for most people be the most important financial decision that they make so we cannot recommend highly enough the importance of reading the contract fully and ensuring that you satisfy yourself on all matters before you sign the contract.

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The hidden costs of property investment that nobody talks about

Are you considering investing your money into an investment property and becoming a property investor?

If yes, you need to know what costs are involved and how to establish the best ownership structure for your asset. As many newcomers find out – it is not always a simple process to make an investment, especially in property, and it can be even more challenging to find the best ownership structure that fits your needs and requirements whilst minimizing your long-term costs.

To avoid any unpleasant surprises, it is advisable to do some research first and become well aware of the hidden costs that nobody talks about:

  • If you have never invested in any kind of real property before, it may come as a surprise that you will need to have financial means to cover more than just the price of the property.
  • There are certain  costs that must be managed by you, as the investor, so you need to be prepared. The lender’s mortgage insurance is one possible cost, if you are intending to obtain a loan to cover a high percentage of the property’s price.
  • There is also the loan application fee, which may be a few hundred dollars, and the stamp duty and registration fees, which is probably one of the largest fees you will need to pay and will possibly amount to thousands of dollars.
  • Other costs may include building inspections, pool inspections, pest inspections, accountancy fees, a property manager, maintenance and insurance, and hiring a trustworthy and experienced solicitor to help you with the legal part of the purchasing process.
Considerate planning.

There are some items in the checklist which need your careful consideration when you are planning to invest in property and work out affordability.

When deciding to proceed with investment in property, you should also think about the structure of the ownership. Again, the choice depends very much on your set goals, ability to take risks, financial strength, and other aspects. So, you need to put in balance several options and see which one suits you.

Get advice and guidance.

Matters such as your ownership structure offer quite a few options to consider. Individual or joint ownership, ownership through a company, partnership, or trust, or ownership via your Self Managed Superannuation Fund each carry associated risk and reward profiles.

Each structure has pros and cons for your unique scenario, so you will need to look at each option and make the correct choice for you. Doing this in the correct manner right from the start will help you manage your risks and will get you closer to the investment goals you want to reach. Since investing in a property involves a considerable amount of money, you are well advised to do things the right way from the start.

In all this process, there is one part that is often very challenging for most investors. Even if you are an excellent business person and have great management skills, the legal chapter may be hard to tackle. That’s why you need an experienced property lawyer you can trust.

Aylward Game is a Brisbane legal practice with a great reputation and key knowledge in the property law area. Our professional staff are experienced in all aspects of buying and selling a property, both commercial and residential.

Speak with us today on 1800 217 217.

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AYLWARD GAME LOGO LIGHT
1800-217-217
For more information on selling, buying and vendor finance please visit our Brisbane law news section.
To speak with an expert in the area, contact 1800 217 217 to arrange a consultation.

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Can you really buy without banks?

vendor finance eBook
vendor finance eBook

Have you found a property you want to buy, but don’t have enough deposit (or sufficient credit history) to finance it? Or do you have a property that you would like to sell but the buyers who are interested are finding it difficult to get finance? Are you thinking of assisting your children to buy a property and want some security?

Many people think that banks are the only option for finance for purchasing a dream home or investing in a property. But many people are unaware that there are other solutions which can be more suitable for them than a bank loan, more flexible and less rigid when it comes to getting the financing you need. So don’t let the lack of funds or complex contract terms and conditions bring you down and ruin your dream of buying a home or property, because you may be about to get the answer you were looking for with a vendor finance agreement.

Vendor Finance definition

In simple terms, Vendor Finance is monies offered by a seller (a Vendor) to finance the sale of goods, services or real estate to the buyer (a Purchaser). This is a legal way of selling property without the involvement of a third-party financier for the buyer. Through these contracts, the seller agrees to finance the transaction, while the buyer agrees to make regular payments until the entire sum for the property is paid – allowing you to buy without banks. This way, the costs of third-party banks or money lending institutions for the buyer is minimised. Sometimes the buyer is asked to make a small deposit, to show the seller that they are serious about making the purchase. The buyer will become the registered owner of the property only after the entire contract sum is paid.

Why should you consider Vendor Finance contracts?

If you are a seller, such contracts can be extremely attractive to those buyers who cannot access traditional property mortgages, which can be due to a variety of reasons. Property investors can also use this method to their advantage, because it allows them to keep the investment to a minimum, while increasing their real estate footprint. If you are a parent looking to assist a child to buy a property this can also be an alternative way of achieving that whilst also protecting any funds that you invest.


DOWNLOAD OUR eBOOK ON VENDOR FINANCE
PAYMENT OPTIONS

Payment terms can be flexible, so if you are looking for a contract with such a feature, Vendor Finance contracts may be what you need.

Vendor Finance contracts are an option for commercial transactions as well which includes the purchase of businesses or commercial premises.

Are there any drawbacks to this approach? As with all real estate transactions you should obtain legal advice to confirm that you fully understand the terms to know which is right for you. Vendor Finance contracts are different to the traditional approach and you need to consider them carefully before deciding whether this is the best option in your case. Legal advice should be followed to avoid exposure.

If you want to find out more about vendor finance arrangements and see what your options are, contact Aylward Game Solicitors. We can provide all the information, advice and documents required to enable a transaction to proceed, for both buyers and sellers.

Aylward Game Solicitors are experienced in both commercial and residential vendor finance transactions and complex property law matters throughout Queensland.  

Don’t forget to download our eBook on Vendor Finance here.

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AYLWARD GAME LOGO LIGHT
1800-217-217
For more information on selling, buying and vendor finance please visit our Brisbane law news section.
To speak with an expert in the area, contact 1800 217 217 to arrange a consultation.

Contact

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