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CHANGES TO CONTRACT OF SALE OF REAL ESTATE

Word has spread that changes will be made to the Contract of Sale of Real Estate. A submission regarding the proposed re-making of the Estate Agents (Contracts) Regulations 1997 specifically in relation to the Contract of Sale of Real Estate and the Contract of Sale of Business has been commented by the Law Institute of Victoria (‘the LIV’).

In a letter dated 13 December 2006 addressed to Ms Malvena Braw of Consumer Affairs Victoria from the President of the LIV, Ms Catherine Gale, stated that the ‘LIV has completely reworked the Contract of Sale of Real Estate and is still revising the new version’.

The latest draft contract includes the addition of the following:

  1. ‘Vendor’s Warranties’ clause that will replace the purchaser’s right to requisition and make inquiries;
  2. ‘Identity of the Property’ clause which obliges purchasers to make their own queries regarding the description, measurements or area of the land because any mistake regarding such matters does not invalidate the sale of the land. Likewise, a purchaser will not be able to make requisitions, objections or compensation for alleged misdescription of the property and deficiency in the area of the land;
  3. ‘Liability of Signatory ‘ and ‘Guarantee’ clauses that relate to propriety limited corporation purchasers;
  4. ‘Consent’ clause for vendors to obtain the necessary consent and licence required for the sale of the property. If any necessary consent is not obtained by the vendor by settlement, the contract and any monies paid must be refunded back to the purchaser;
  5. ‘Stakeholding’ clause releasing the deposit to the vendor if a purchaser is provided with proof and is satisfied that any debts secured by the property do not exceed 75% of the purchase price. However, this is subject to all relevant conditions of the Sale of Land Act 1962 being satisfied and after 28 days has elapsed since the day of sale. Additionally, the stakeholder must pay the deposit and any interest on the property to the party entitled when the deposit is released, the contract is settled or when the contract has ended;
  6. ‘Notices’ clause that imposes a liability and responsibility on a purchaser when a notice, order, demand or levy is issued or made on or after the day of sale that does not relate to periodic outgoings (eg. council and park rates). A purchaser is given consent to enter the property to comply with their responsibility prior to settlement;
  7. ‘Builder Warranty Insurance’ clause that obliges a vendor to provide at settlement details of any current Builder Warranty Insurance relating to the property. This will be supplied upon a written request from the purchaser at least 21 days prior to settlement;
  8. ‘Release of Company Charge’ clause that obliges a vendor to provide at settlement a release of the property from any registered charge lodged under the Corporations Act 2001 upon a request in writing from the purchaser at least 21 days prior to settlement. A registration fee is charged on the vendor if either party requires registration of the release. However, the obligation to release the charge does not apply if the chargee is the proprietor of a registered mortgage over land;
  9. ‘Inspection’ clause enabling a purchaser and/or another person to inspect the property at any reasonable time during the seven days preceding and including the settlement day;
  10. ‘Adjustment’ clause that relates to periodic outgoings payable by the vendor and rent received in respect of the property to be adjusted on settlement depending on the parties’ entitlement and apportionment. It is worth noting that a purchaser is not required to contribute to any land tax resulting from a vendor’s status as a trust;
  11. ‘Interest’ clause that imposes an obligation to pay interest on any money owing under the contract during the period of default without affecting any other rights of the offended party;
  12. ‘Default Notice’ clause that requires a written default notice to be sent to the defaulting party that specifies the particulars of the default. Additionally it must also specify the offended party’s intention to exercise his/her rights until the default is remedied and the proper legal costs caused by the default and any interest payable are paid within 14 days of service of the default notice. The offended party can only sue for money owing once the other party is served and has failed to comply with a written default notice;
  13. ‘Default not Remedied’ clause stating the end of the contract and responsibilities of the defaulting party upon non-compliance of the default notice;
  14. ‘Services’ clause that deals with a purchaser’s responsibility for making enquiries in relation to the services to the property prior settlement and the connection of all services to the property after settlement. The vendor is not taken to have made representations to the purchaser that services to the property are adequate for the purchaser’s use of the property; and
  15. ‘Jurisdiction’ clause relating to the law governing the contract to be the law of the jurisdiction which the property is located.

The draft contract also includes amendments and/or additions to the existing clauses of the existing contract:

  1. An additional term obliging the purchaser to indemnify the vendor against all obligations under any lease that are to be performed by the landlord after settlement;
  2. Change of the title of the ‘Finance’ clause to ‘Loan’ clause but without any changes to its terms;
  3. Time is now of the essence in the draft contract;
  4. Manner constituting sufficient service of documents to the parties;
  5. Nominating a substitute or additional purchaser is no longer subject to the 14 day nomination prior to settlement;
  6. Separation of ‘Transfer and Settlement’ to separate ‘Transfer’ and ‘Settlement’ clauses;
  7. It has been added in the ‘Transfer’ clause that delivery of transfer is not acceptance of title. Likewise, the vendor must prepare any document required for assessment for duty and provide the purchaser a copy of the document at least three days before settlement;
  8. ‘Settlement’ clause added that settlement transactions should occur between 10:00 am and 4:00pm unless the parties agree otherwise;
  9. New terms regarding a purchaser’s right when he/she alleges one or more goods or if the property is not in their required condition have also been added; and
  10. There have also been a few additions to the ‘Terms Contract’ clause such as the adjustment of obligations by including a ‘Special Condition’ clause with the contract and the obligations of a purchaser when monies are still owing to the vendor.

It is worth noting that the draft contract does not incorporate the general conditions contained in Table A of the Transfer of Land Act 1958 nor its corresponding Third Schedule of the Property Law Act 1958 for general law land.  Ms Gale noted that “LIV considers that there are many deficiencies with the practical operation of those general conditions and we have therefore attempted to overcome the deficiencies by addressing those issues within the actual provisions of the standard contract.”

Currently, the LIV Property & Environmental Section sub-committee has been working on a new Contract of Sale of Real Estate to be available for use next year. The most notable change from the existing contract will be the consolidation of the contract note and the contract of sale into a single document. The use of a single document will enable the parties to have all the necessary conditions presented before them prior to completion of the contract. Likewise, the new Contract of Sale of Real Estate will incorporate the conditions contained in Table A into its general conditions. Moreover, it endeavors fairness between the parties to the transaction as well as extensiveness since it will be the used as an industry standard contract in conveyancing.

If you have any specific or general questions in relation to this article, please do not hesitate to contact us.
 
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