What is a Contract of Sale?
A contract of sale, often referred to as “the contract”, lists all the relevant information pertaining to the sale of a property, including details of the title particulars, the conditions of the sale, and any inclusions or exclusions in the sale such as fixtures and fittings.
Contracts are normally formally exchanged between the potential buyer and the Vendor during purchasing negotiations, together with a Section 32 Vendor Statement, which provides the details pertaining to the land being sold. In most cases, the solicitor or conveyancer representing each side will exchange the executed contract and Section 32 Vendor Statement. Once the contract is signed by all parties, the buyer is legally bound to proceed with the purchase of the property, unless a special condition is breached that is listed in the terms and conditions of the contract.
Who Prepares a Contract for the sale of Property?
The contract should always be prepared by a qualified solicitor or licensed conveyancer and reviewed by a solicitor or conveyancer representing the other party. This is to ensure that both sides are protected in the transaction. We have seen many cases where we would have negotiated the terms and conditions of a contract differently had we been retained to advise the client on client on the contract before they entered the agreement, It is always worth the investment of having your lawyer review a contract and section 32 Vendor Statement for you before you agree to purchase a property.
What can be Negotiated in a Contract of Sale?
a) Cooling Off Period
A cooling-off period of three clear business days applies to private sales of residential and small rural property sales. The cooling-off period gives the Purchaser time to consider the offer. It begins from the date the Purchaser signs the contract, not from the date the vendor signs it.
While the cooling off period is waived when purchasing property at auction, the cooling off terms relating to private sales can be negotiated. They can be longer or shorter, or even removed from the terms of sale altogether. Many Vendors are now opting for the cooling off period to be waived.
From a buyer’s perspective, it is imperative that any legal advice, finance, and building inspections are carried out before the exchange of contracts. If the cooling off period is waived, a written certificate from the buyer’s solicitor is necessary indicating the nature and the effect of the terms.
b) Settlement Period
The property settlement period between the exchange of contracts and the exchange of ownership and title can also be negotiated between the buyer and the Vendor. The period can be shorter or longer to suit both parties. The settlement period will need to take into account all final legal checks. In Victoria, the average settlement period is 60 to 90 days, but it can be shorter or longer if agreed between the parties.
The amount of the deposit and the method of payment can also be negotiated before being added to the sale of contract. A Vendor generally asks for 10% of the purchase price, while the buyer may seek to pay less than a 10% deposit if the Vendor agrees. At auction, it is standard that a deposit of 10% must be paid by the Purchaser at the auction or shortly thereafter.
i) Consequences of failure to settle the purchase on the Settlement Date (Due Date)
When there is a failure by the Purchaser to settle on the due date, it is common practice for a vendor to allow a Purchaser more time to settle the purchase. However, care must be taken to ensure that time remains of the essence in respect of the new settlement date.
Protracted negotiations, and several agreed deferrals of the settlement, can result in the loss of time as an essential term of the contract. Therefore, in order to terminate the contract, time needs to be re-established as “of the essence”.
When is the property ‘sold’?
The property is sold when both the Purchaser and the Vendor have signed the contract of sale and the agreed deposit has been paid. All parties who sign the contract must be given a copy of the signed contract.
The sale is finalised at settlement when all checks have been made, the title and transfer documents exchanged, and the balance of the purchase price is paid.
Can a contract of sale be cancelled after the exchange?
There are occasions when a buyer has the right to cancel the transaction and get their money back, even when contracts have been exchanged and the cooling off period has passed or been waived in its entirety. The same applies for those properties sold via an auction. While this is rare, it can still happen. A contract could be terminated where the Vendor has failed to disclose certain restrictions imposed on the property such as individual rights of way or zoning rights.
Purchasers’ Rights if Vendor Does not uphold Contract
When a Vendor fails to fulfill their contractual obligations prior to completion, the Purchaser can either terminate the contract, or they may opt to complete the contract and later initiate court proceedings after completion seeking damages and losses caused by the failure to comply with the terms of the contract.
The Purchaser may be entitled to damages for the loss of value in the property due to the Vendor’s breach. The damages may be calculated as the difference between the contract price and the value of the property at the date the Vendor breached the contract.
A common dilemma facing Purchasers of property is what to do when the Vendor fails to fulfill their contractual obligations prior to completion.
Purchaser’s Right to Damages
Where a contract for the sale of land “falls through” by reason of one party’s default or breach, the remedies which may be available to the innocent party will depend upon the right infringed and will include rescission, termination, damages, or specific performance, as well as equivalent remedies under the Sale of Land Act 1986 (Vic) and the Australian Consumer Law (ACL).
Damages for breach of contract for the sale of land can be measured by the difference between the purchase price and the market value of the land at the date of completion, assessed at the date of the breach together with incidental expenses which have necessarily flowed from the breach, as set out in Cowan v Stanhill Estates Pty Ltd No 2 [1967]. Such incidental expenses would include the legal costs of a conveyancing transaction and the fees payable to an agent on any re-sale, rates, taxes and other outgoings incurred after the completion of the sale ought to have taken place, and interest on the price.
Where the Purchaser has a right to terminate the contract for breach but chooses to continue with the contract, the Purchaser may still be entitled to damages or compensation.
i) Specific Performance
Before the court will make an order for specific performance, the Purchaser must show:
- There is a binding contract which the Vendor is not entitled to rescind;
- A breach by the Vendor;
- That damages are not an adequate remedy. The usual example given is where the subject matter of the contract is a unique item. Land is always regarded as falling within this category; and
- The Purchaser has performed or is ready and willing to perform his or her contractual obligations.
The Vendor cannot simply change their mind, unless there is a Special Condition in the Contract of Sale which allows the Vendor to terminate the contract at will.
Obtain legal advice before you enter a Contract
If you are interested in selling or buying property, please ensure you consult Matthies Lawyers prior to doing so, so that we can ensure you are properly protected and advised, and so that we can negotiate any recommended changes to the Contract of Sale with the other side prior to you entering the Contract, to ensure your best interests are protected.
Chiara Nicolaci – Solicitor– Matthies Lawyers
Thus should you have any queries in regard to property law matters, please contact Matthies Lawyers for an obligation-free consultation or call +61 3 8692 2517 today.
Disclaimer: This article contains general information only and is not intended to be a substitute for obtaining legal advice.