Preparing a Contract for Residential Property Sale
1. a) To sell a residential property, it is advisable for one to start the process by appointing a solicitor or a lawyer to represent him in all the legal procedures required under law. Once that has been done, the owner would instruct the representative to prepare a contract of sale for the property. The reason for appointing a solicitor is because buying and selling a residential estate requires adherence to many laws and would require a person who can understand them well. It is the reason why the legal representatives rightly play an important role in the process. Under section 149 of the Fair Trading Act 1986 (FTA), the contract of sale must include a copy of the documents containing the title, current zoning certificate, and drainage diagram as provided under s149.[1] The zoning certificate is provided by the local council.[2] Additionally, if the property has a spa or a swimming pool, then other different certification forms need also to be attached. Moreover, if the owner of the property fails to attach any of the required contractual documents to the sale contract, the purchaser might be permitted to cancel the sales agreement within 14 days of exchange, the payment has taken place.
b) Section 47 of the Property, Stock and Business Act 2002 requires a real estate agent acting for a client in a sale or purchase of a property to disclose certain relationships and benefits they may get in connection to the sale, client or a buyer when providing the service.[3] An agent must make such disclosers to their client and to the prospective buyers where possible. What the agent need to disclose is whether the client is their family member, business associate, he will receive an consideration such as money and the value of such benefits among others.
c) The reason why a vendor must ascertain whether the property has any adverse affection is because any defect in title affects the seller’s ability to pass an unencumbered title to the property during sale. It also include those matters that detract the vendors right to have a say on the estate he has accepted to sell or the issues which prohibit the seller from conveying his title free of encumbrance. It was evident in the case Dormer V Solo Investments (1974).[4]
d) It would be unwise to rely upon a three-year-old s149 Certificate because since February 2009, section 149 certificates have had effective progressive changes and what was there three years ago may not be effective now.[5]
2. i) Once a contract has been signed and exchanged, a vendor is locked into the sale of his property under the contract agreement terms.[6] It is very difficult for a seller to back out of a contract after the contract has been signed even if you receive a higher offer. In many cases, the law allows the buyers to back out but not the seller. However, even if you have signed and exchanged the contract, if the contract contingencies principle, then there are still room for wiggling. Contingencies help in covering the obligations that both the buyer and the seller must meet before closing the transaction. For instance, if a buyer fails to the agreed deadline, a seller may be legally able to terminate the sale. Additionally, the vendor could use the higher offer as a backup. Though not guaranteed to work out in favor of the seller, it is worth trying. The seller can try to challenge the first seller when it comes to fixing of the inspection items. The aim of the vendor would be to make the buyer with first offer to back out willingly by failing to meet the inspection contingency requirements. Once the initial buyer backs out, the seller could then move on to the higher offer.
Duties of Disclosure in a Property Sale
However, the major danger with this option is that once the first buyer goes, the second purchaser may even ask for extra repairs or even back out. However, if a vendor decides to continue with the higher offer, he must immediately tell the initial buyer and refund the deposit that had been paid according to the original agreement.[7] Other than that, the vendor could allow the primary buyer to present a counteroffer. In this case that buyer may not want to, and instead could just take his deposit and sue the vendor. On the other hand, the seller only has one day cooling-off period, which also includes Saturday to exit the contract. For the vendor to take up the cooling-off period, he must provide the agent with a notice of recession that is signed by all the customers by 5pm on that day of cooling-off.
ii) In a residential contract, when a contract has been exchanged the process of buying a home is legally complete. However, up to this point the contract is not usually binding and either the buyer or the seller has the right to change their decision. In New South Wales buying a residential property has a five business cooling-off period after the exchange of a contract. Cooling-off period is the time given to a buyer to fully investigate the property before he commits himself. During this period, the buyer can get out of the contract as long he gives out a written notice. This period starts off immediately after the exchange and ends on the fifth day at 5pm. However, the cooling-off period is not applicable if the buyer bought the property at auction or make an exchange of the contract on the same day of the auction after it is passed. If the buyer uses his cooling-off under Conveyancing Act 1919 to withdraw from the contract, he will have to pay the vendor 0.25% of the buying price.[8]
Additionally, the buyer may use the advantage of sellers’ market to organize for a quick contract exchange. Doing so will reduce the possibility of someone defeating the offer and getting the buyer’s building and pest inspections taking place during the cooling-off period. It is also possible is to back out if the property has been found to have a defect during inspection.
3. With regards to Real Property in New South Wales, there must be certainty of agreement.[9] In the case of Trev, Penny and Sue, Trev got into an agreement with two different buyers making them pay the 10% deposit for the purchase of property.[10] Penny got into the contract first, but unfortunately the property got sold to Sue who came last and had a better offer than Penny. Trev hands over the Certificate of Title to Sue, as well as, the signed transfer after Sue completes the payment for the property. Therefore, the issue in this case is who between Penny and Sue is rightfully entitled to the property.
According to the New South Wales Fair Trading, exchanging contracts is necessary to legally complete the process of buying property.[11] Nonetheless, the process is not usually binding and the buyer and the vendor have a right to change their minds. There must be copies of the sale contract – one copy remains with the vendor while the other copy is given to the buyer. Upon this exchange, the buyer is expected to pay a deposit to the vendor to confirm that he is serious with the purchase of the property. However, the contract is made and becomes legally binding after the exchange of contracts and payments of deposits. Once this is done, pulling out is not required. Any party that pulls out after the exchange of the contracts is punishable by law.[12]
When Sue got into the agreement with Trev, she knew nothing about the first buyer. This implies Sue was acting in good faith when buying the property from Trev. She had no bad intention to the other buyer. Besides she followed the right procedure because she signed the contract, paid her 10 percent deposit, completed her payment as agreed with the vendor and finally Trev gave her the Certificate of Title and the signed transfer of ownership. On the other hand, Penny just got into an agreement and paid the 10 percent deposit of the property. As such, Sue serves to be rightfully entitled to be the owner of the property because all her actions were in good faith and she also followed the correct procedure.[13] Besides, she already has the certificate of title from Trev showing she owns the property.
However, Penny has a right to claim for the damages caused to him by Trev. The two individuals had a written agreement on the purchase of the property. This shows that they both had a duty to one another to remain faithful and fulfill their obligations as signed in the contract.[14] Since Penny remained loyal to Trev, but Trev breached their agreement, Trev is said to be liable and must be answerable to the law. He is, therefore, expected to return Penny’s deposit with interest which is said to mark the cancelation of his registration of contract with Penny.
Contracts_And_Deposits (2018) Fairtrading.nsw.gov.au https://www.fairtrading.nsw.gov.au/ftw/Tenants_and_home_owners/Buying_property/Contracts_and_deposits.page
The Tenancy Handbook (Office of Fair Trading, 2006)
The_Sale_Process (2018) Fairtrading.nsw.gov.au https://www.fairtrading.nsw.gov.au/ftw/Tenants_and_home_owners/Selling_property/The_sale_process.page
Air Great Lakes Pty Ltd v K S Easter (Holdings) Pty Ltd (1985) 2 NSWLR
Bushwall Properties Ltd v Vortex Properties Ltd [1976] 1 WLR 591
Dormer v Solo Investments Pty Ltd (1974) 1 NSWLR 428
Conveyancing Act 1919 No 6.
New South Wales Fair Trading Act 1986
Property, Stock and Business Agents. Act 2002 No 66.
Conveyancing (Sale of Land) Regulation 2010 (NSW).
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