Buying interstate is a good way to diversify your portfolio, but make sure you understand how to go about the buying process. Steven Sidorovski explains
Against the backdrop of historic low interest rates, a progressively improving post-GFC economy, and a steadily growing population, the housing market has seen signs of life over the past year or two. Demand for residential land has been on the rise, which puts pressure on land prices. This encouraging environment has prompted landowners to turn their minds to subdividing their land and selling the lots to capitalise on profits. If you’re looking to diversify your portfolio and buy either in NSW or Queensland, note that there are differing practices and procedures in these states, particularly with respect to contracts for sale, which can cause uncertainty in relation to the rights and responsibilities of the purchaser.
What is required for a valid contract?
In NSW, contracts are prepared by the vendor’s solicitor, and to comply with the regulations they must include certain documents known as ‘prescribed documents’, such as:
- A warning in relation to smoke alarms, swimming pools and important information for vendors and purchasers in relation to signing the contract;
- A Section 149 Certificate from the local council which specifies the zoning of the land for permitted use;
- A sewer diagram (if available) from the relevant authority that shows the location of the sewer main in relation to the land;
- A property certificate (or title search) and a copy of the plan for the land issued by the Land and Property Management Authority;
- Copies of all dealings registered on the title search, such as easements, restrictions on use and positive covenants, that may give interests in the land to another party;
- Strata or community property – a title search for the common property; any dealings registered on the title search and the strata or community plan.
These documents assist the purchaser in ascertaining certain matters affecting the property, and in the event that a prescribed document is not included in the contract, the purchaser may have the right to rescind (cancel) the contract, whereby the contract would be at an end and they would be entitled to get their deposit back.
In Queensland, contracts are usually prepared by the selling agent, and to comply with the legislation must be accompanied by the following documents when given to the proposed buyer:
- A warning statement in relation to signing the contract, and a statement to buyer directing the buyer’s attention to the documents accompanying the contract;
- Body corporate (strata) property – an information sheet in relation to purchasing a property that is part of a body corporate, and a disclosure statement containing information about the specific body corporate, including the amount of annual contributions payable by the owner;
- A Pool Safety Certificate (if applicable), which confirms that the swimming pool on the property complies with the regulations/legislation;
- Copies of any applications or orders (if applicable) under the legislation relating to trees affecting the property that is the subject of the contract.
As with NSW, should the above documents not accompany the contract, the purchaser may have the right to terminate (cancel) the contact, whereby the contract would be at an end and they would be entitled to get their deposit back.
How does a contract become unconditional?
In most cases, a purchaser would make an offer to buy a property via a real estate agent, and if it was accepted they would pay a small deposit and sign the contract to secure the property.
In both NSW and Queensland, the contract for sale is subject to a statutory cooling-off period of five business days to permit a purchaser to obtain legal advice on the terms of the contract. Should the purchaser decide not to proceed with the purchase within the cooling-off period, they have the right to pull out of the contract, in which case 0.25% of the purchase price is forfeited to the vendor.
Generally speaking, this is where the similarities end. It is common knowledge that a purchaser needs to make other enquiries with respect to the property they are purchasing before the contract becomes binding for both parties.
In NSW, the cooling-off period is not only for the purpose of obtaining legal advice on the contract but also for the purchaser to arrange their pre-purchase enquiries and obtain finance approval.
Pre-purchase enquiries include pest and building inspections, a body corporate inspection, a survey, and council compliance certificates, and may include other searches depending on the type of property being purchased.
In the event that the purchaser has obtained finance approval and is satisfied with their pre-purchase enquiries, they will then pay the deposit balance (usually 10%) to the real estate agent, and from 5pm on the fifth business day after the contract date both parties are bound and the contract becomes unconditional.
In the event that the purchaser has not completed their pre-purchase enquiries or obtained finance approval prior to expiration of the cooling-off period, they may request an extension of the cooling-off period for such further period as required. It is at the vendor’s discretion whether to grant an extension or not; however, if they decline the request or the purchaser is otherwise not willing to proceed with the purchase, the purchaser may decide to rescind (cancel) the contract prior to expiration of the cooling-off period, whereby, although they would forfeit their 0.25% deposit, they would no longer be bound by the terms of the contract, which would be at an end.
In Queensland, additional searches are undertaken during the cooling-off period, including a title search, plan of the land, registered dealings, flood search, contaminated land search and council enquiries, as these are not provided for in the contract.
Most contracts are conditional upon obtaining satisfactory fi nance and pest/building inspections within a specified time. However, this must be nominated in the contract prior to signing. As soon as the purchaser is satisfied with their finance and inspections, they notify the vendor in writing and the contract becomes unconditional (as long as it is after five business days). The purchaser then pays the deposit balance (usually 10%) to the real estate agent within the time specified in the contract.
In the event that the purchaser has not completed their pest/building inspections or obtained finance approval prior to dates nominated in the contract, they may request an extension to the inspection condition or finance condition for such further period as required. However, granting of the extension is at the vendor’s discretion.
If the purchaser is not satisfied with the pest/ building inspection (on reasonable grounds) or has not obtained finance approval by the dates nominated in the contract, the purchaser may terminate (cancel) the contract, whereby they are entitled to retrieve their deposit and are no longer bound by the terms of the contract, which would be at an end.
If the purchaser does not waive, satisfy or terminate in accordance with the finance and/or inspection conditions in the contract prior to the nominated dates, and does not obtain an extension to these dates, the vendor may thereafter terminate the contract, whereby the contract would be at an end. If, however, the vendor does not terminate the contract, the purchaser’s right to waive, satisfy or terminate in accordance with the finance and/or inspection conditions continues up until settlement unless the vendor terminates prior to the purchaser’s waiver, satisfaction or termination of the contract conditions.
In relation to the cooling-off period, it is important to note that, in both NSW and Queensland, this is only for the benefit of the purchaser, and the vendor is bound by the terms of the contract from the contract date unless the purchaser rescinds/terminates or otherwise breaches their obligations to the vendor under the contract.
Contracts exchanged without a cooling-off period, such as at auction or when accompanied by a certificate from a solicitor, waive the cooling-off rights of the purchaser, whereby the contract becomes unconditional upon signing by both parties.
Major differences in contract terms
1. Time of the essence
In both NSW and Queensland, the settlement date is set by the contract. In most cases NSW settlements are 42 days from the contract date and Queensland settlements are 30 days from the contract date. There are different ramifications in the event that a party is not in a position to settle on the scheduled settlement date.
In NSW, in the event that the purchaser is not in a position to settle on the settlement date, generally the vendor can charge penalty interest for each day that settlement is delayed and also issue what is commonly known as a Notice to Complete, giving the purchaser an additional period of time (usually 14 days) to settle, thereby making time essential.
In the event that the purchaser is not able to settle by that further nominated date, the vendor may be able to terminate the contract and (among other remedies) keep the purchaser’s deposit. In the event that the vendor is not in a position to settle, the rights of the purchaser are fairly limited in that they can issue a Notice to Complete, giving the vendor an additional period of time (usually 14 days) to settle, failing which the purchaser may terminate the contract and (among other remedies) retrieve their deposit. Penalty interest is not usually payable by the vendor for delay.
In Queensland, time is essential with respect to all contract dates. This means that in the event that the purchaser is not in a position to settle on the settlement date, the following day the vendor can potentially terminate the contract and keep the purchaser’s deposit (among other remedies).
Likewise, in the event that the vendor is not in a position to settle on the settlement date, the following day the purchaser can potentially terminate the contract and (among other remedies) retrieve their deposit. In most cases the defaulting party will try to negotiate to extend the settlement date; however, it is at the discretion of the other party as to whether they grant an extension.
Keeping the property insured against risk is an important aspect for both parties in the transaction. In NSW, the risk of the property remains with the vendor until settlement, so the purchaser arranges their insurance from settlement date onwards, however in Queensland the property is at the purchaser’s risk from 5pm on the first business day after the contract date, meaning the purchaser needs to arrange their insurance policy immediately following receiving notification that the contract has been dated and becomes a relevant contract.
Your solicitor will guide you through the process of purchasing property and give you advice based on the specific property and terms of your contract, which may vary from the standard form. You should also ensure that your solicitor is competent in the practice and procedures of property transactions in different states, or otherwise contact your local Law Society for contact details of practitioners that are familiar with the practice in those states.
Steven Sidorovski is solicitor director at Zenith Legal.
This feature is from Your Investment Property Issue #88. Buy the copy to read more!
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