Legal Q&A - What Needs to be in Every Contract of Sale

By
05/07/2013


Q I purchased a property in Western Sydney that is due to settle soon. A building inspection found items that needed to be fixed, but the vendor agreed in writing that he would sort them out by settlement. Now the vendor is saying that he’s not going to fix them. He says we should take it as it is or he’ll charge interest if we don’t settle. 

 

I suspect it’s because local property prices have gone up since we signed contracts, and he’s trying to get me to pull out of the deal. We have tried to negotiate holding a bit of money back to pay for tradespeople to fix the defects,but he is refusing. What can I do?

 

A Let’s look at what it takes to have an enforceable contract. 

 

A contract intends to formalise an agreement between two or more parties. In this scenario, I am using a Contract for Sale of Land. Typically, in order to be enforceable, a contract must involve the following:

 

A ‘Meeting of the Minds’or Mutual Consent

The parties to the contract have a mutual understanding of what the contract covers. For example, in a contract for the sale of land, the buyer is purchasing a particular property and the vendor believes he is contracting to sell that property for the agreed price.

 

Offer and Acceptance

The contract involves an offer to another party, who accepts the offer. 

 

Mutual Consideration 

In order to be valid, the parties to a contract must exchange something of value. In this case, the vendor receives a deposit, also  known as ‘consideration’, plus a contract signed by the purchaser,and the purchaser receives a contract signed by the vendor.

 

Performance

To be enforceable, the requirements of the contract must be completed. Where the purchaser and vendor have verbally agreed to fix various building issues before completion of the contract, details of work to be carried out by the vendor should be included in the contract, before exchange, by way of a special condition. This special condition would also include a remedy if the vendor failed to satisfy the terms of the special condition. Unless the contract includes a special condition that these issues will occur before completion of the contract, the buyer may not be able to enforce this verbal agreement between the parties.

 

An example of a special condition of this type may read:

“The vendor agrees to fix the broken tiles in the bathroom in a tradesmanlike manner at the vendor’s expense before completion. In the event that this is not carried out to the purchaser’s satisfaction, $1,000 will be withheld from the deposit until the works have been completed to the satisfaction of the purchaser. At such time, the purchaser will advise the agent and vendor’s solicitor/licensed conveyancer they are satisfied with the completed works and $1,000 will be paid to the vendor.” 

 

In a typical ‘breach of contract’ situation, the party alleging the breach will present that theyperformed all of their duties under the contract, whereas the other party failed to perform their contractual duties or obligations.

 

Good faith

It is implicit within all contracts that the parties are acting in good faith. For example, if the seller of a ‘Mustang’knows that the buyer thinks he is purchasing a car but secretly intends to sell the buyer a horse, the seller is not acting in good faith and the contract will not be enforceable.

 

Oral contracts 

The example of a verbal or oral agreement illustrates that it can be very difficult to prove that an oral contract exists. Without proof of the terms of the contract, a party may be unable to enforce it or may be forced to settle for less than the original agreement. So, even when there is not an opportunity to draft a formal contract, it is good practice to always to put something  inwriting, signed by both parties, to formalise the agreement. Each scenario should be treated independently and a prudent purchaser should obtain the advice of their solicitor or licensed conveyancer.

 

Geri Forsaith

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