The Four Stages of A Conveyancing Transaction – Buyers Part 1 Pre-Contractual
PRE-CONTRACTUAL STAGE – BUYER
There are essentially four stages that cover the breadth of the conveyancing process:
- Pre Contractual;
- Unconditional; and
- 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 contract, is often overlooked with inexperienced property buyers signing the “standard” Real Estate Institute of Queensland (REIQ) contract without reading the document fully.
A standard REIQ contract can be divided into the following sections:
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:
- encumbrances on the property that will remain after settlement; and
- details of tenancies on the property – please note that leases less than 3 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
That 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 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 part is in default of the contract.
Term 11 – Electronic Settlement – this is a relatively new initiative that will be covered in a later article.
Buying 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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