The Conveyancing Contract – Part 2
The key document in any conveyancing transaction is the contract. In Queensland, the most common contract for houses and residential land is the REIQ Contract for Houses and Residential Land, now in its tenth edition. If you are purchasing a unit or townhouse, the REIQ Contract for Residential Lots in a Community Titles Scheme (now in its sixth edition) will apply.
This is the second article in a two part series that explains each part of the Contract for Houses and Residential Land. The Community Titles Scheme contract is very similar but contains extra parts relating to body corporate issues. Those extra parts will be explained in a later article.
The first article walked through the reference schedule of the contract. This article will examine the standard terms and conditions of the contract.
This clause contains definitions of certain terms used throughout the contract. It is important that definitions be included in a contract to avoid any uncertainty that may be generated by the use of particular words in a clause.
2. Purchase Price
This clause sets out when the deposit is payable, to whom it should be paid and who is entitled to the deposit. Further, this clause details how the balance purchase price is to be paid and outlines the method of calculating adjustments to the purchase price so that any outgoings, such as rates, water and body corporate levies, are apportioned fairly between the parties to the contract on settlement. Finally, this clause also provides that unless otherwise specified, the purchase price includes any GST payable on the supply of the property.
If the finance particulars are fully completed in the reference schedule of the contract, the contract will be subject to the buyer obtaining satisfactory finance approval by the finance date. The buyer must take all reasonable steps to obtain approval – this includes making an application for finance approval with the buyer’s nominated financial institution. If the buyer is unable to obtain satisfactory finance approval by the finance date, the buyer may terminate the contract and the deposit shall be refunded to the buyer. If the buyer fails to notify the seller whether or not he/she has obtained satisfactory finance approval by 5.00pm on the finance date, the seller may terminate the contract. This is the seller’s only remedy for the buyer’s failure to give notice when required under this clause.
4. Building and Pest Inspection Reports and Pool Safety
If the building and pest inspection particulars are completed in the reference schedule of the contract, the contract will be subject to the buyer obtaining a satisfactory building and pest inspection report from a licenced inspector. The buyer must take all reasonable steps to obtain the reports. If the buyer is not satisfied with the results of the building and/or pest inspection report, the buyer may terminate the contract and the deposit shall be refunded to the buyer. The buyer must act reasonably when determining whether or not a report is satisfactory (ie, trivial matters will not suffice, there must be some real defect with the property) and if requested following termination of the contract by the buyer, the buyer must provide the seller with a copy of the inspection reports. If the buyer fails to notify the seller whether or not they are satisfied with the results of the building and pest inspection reports by 5.00pm on the inspection date, the seller may terminate the contract. This is the seller’s only remedy for the buyer’s failure to give notice when required under this clause.
If the property has a swimming pool and the swimming pool does not have a Pool Safety Certificate, the contract will be subject to the issue of a Pool Safety Certificate for the pool by the pool safety inspection date. The buyer will be responsible for arranging a pool inspection by a licenced inspector at their own cost. If the inspector issues a Pool Safety Certificate during the inspection, this clause will no longer apply. If the inspector issues a notice of non-compliance, the buyer may terminate the contract and the deposit shall be refunded. The buyer must act reasonably under this clause. If the buyer fails to notify the seller whether or not the inspector has issued a Pool Safety Certificate for the pool by 5.00pm on the pool safety inspection date, the seller may terminate the contract. This is the seller’s only remedy for the buyer’s failure to give notice when required under this clause.
This clause sets out when and where settlement must occur and outlines what the seller must provide to the buyer (including vacant possession, transfer documents, certain tenancy documents and keys) at settlement in exchange for the balance purchase price.
This clause provides that time is of the essence of the contract. This means that both parties must strictly comply with any timeframes in the contract (such as paying the deposit when required or being in a position to settle on the settlement date). Failure to do so will result in a fundamental breach of the contract – please see Clause 9 below for an outline of the consequences of default under the contract. This clause also provides for a suspension period of the parties’ settlement obligations under the contract in the event of a natural disaster preventing a party from being able to complete its settlement obligations. This clause sets out the circumstances in which a party is entitled to a suspension of its settlement obligations as a result of a natural disaster and if so, for how long.
7. Matters Affecting the Property
This clause provides that the property is sold subject to the rights of the crown and that it is sold free from all encumbrances (i.e., the seller’s mortgage) unless the encumbrance is noted as a title encumbrance on the reference schedule of contract (such as an easement). This clause also contains a number of warranties provided by the seller in relation to their ability to sell the property and matters affecting the property such as judgements and notices.
Further, this clause sets out the parties’ rights in relation to:
- errors in the description of the boundary of the property;
- encroachments onto the property;
- requirements of authorities (such as Council requiring work to be performed on the property);
- the property being adversely affected (ie, a notice to resume the property has been issued); and
- dividing fences.
8. Rights and Obligations Until Settlement
This clause provides that the property is at the buyer’s risk from 5.00pm on the first business day from the date of the contract. As such it is essential that the buyer takes out insurance on the property from this date, even though settlement has not yet occurred, in case the property is damaged (ie, by fire, flood or storm etc). This clause also sets out at when the buyer may gain access to the property prior to settlement (ie, for inspections). Further, should the seller grant the buyer possession of the property prior to settlement, this clause outlines the conditions on which such possession is granted.
9. Parties’ Default
This clause sets out the consequences of either party failing to comply with an essential term of the contract. Should the buyer default under the contract, the Seller may choose to any one or more of the following:
- affirm the contract and sue the buyer for damages and/or specific performance;
- resume possession of the property;
- terminate the contract;
- forfeit the buyer’s deposit;
- resell the property; and
- sue the buyer for damages (including any loss suffered due to the resale price being lower than the original purchase price, the costs of reselling the property including advertising and agent’s commission, legal fees and default interest).
Should the seller default, the buyer may do any one or more of the following:
- affirm the contract and sue the seller for damages and/or specific performance;
- terminate the contract;
- recover their deposit;
- sue the seller for damages (including default interest and legal fees).
This clause sets out general provisions relating to the following matters:
- the Agent;
- Foreign Investment Review Board approval;
- transfer duty;
- giving and receiving of notices;
- business days;
- rights after settlement;
- further acts to be done to give effect to the contract;
- severance of any invalid terms;
- interpretation; and
- the parties.
A contract is a legally binding document and the consequences of breach of contract can be severe. As such, it is important that you not only read the entire contract but also understand your rights and obligations under the contract before you sign.
Ordinarily, the Seller’s agent will prepare the contract however before signing (whether you are a buyer or a seller) we recommend that you have the contract reviewed by a lawyer. To get advice from our expert conveyancing lawyers, please call Certus Legal Group on 07 3106 3016 or contact us using the form on this page.
This article does not give legal advice and should not be relied upon as such. It is intended to provide general and summary information on legal topics, current at the time of first publication. You should seek professional legal advice before acting or relying on any of the content contained herein.
The images of the REIQ Contract for House and Residential Land Tenth Edition are the copyright of the REIQ.