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The importance of the conditional stage (which occurs after the signing of the contract but before the contract becomes unconditional) cannot be overlooked as it is during this stage that the buyer under a contract can elect not to proceed with a purchase, usually without penalty, so long as they can demonstrate that a condition of the contract has not been met.
There are four stages that cover the breadth of the conveyancing process:
The importance of the conditional stage (which occurs after the signing of the contract but before the contract becomes unconditional) cannot be overlooked as it is during this stage that the buyer under a contract can elect not to proceed with a purchase, usually without penalty, so long as they can demonstrate that a condition of the contract has not been met.
As a matter of law, this is an example of a “condition precedent” as the condition must be met, unless its failure to be met is excused, before performance under a contract becomes due and before any contractual duty exists.
The most common examples of such conditions are set out below.
Under the Property Occupations Act, a buyer may, within a five business day period commencing on the day that they receive a copy of the contract signed by the seller, terminate the contract but will be subject to a 0.25% termination penalty.
The Finance Condition sets out whether the contract is subject to finance, whether the buyer is free to seek finance from any financial institution, what finance amount is required to meet the condition and when the Finance Date is due. Where the contract has a Finance condition the contract is conditional on the buyer obtaining the financial assistance required to settle and the buyer may elect not to proceed if they cannot do so.
However, you should note that the standard REIQ contract specifies that unless Finance Amount, Financier and Finance Date are all completed then the contract is NOT “subject to finance” and failure to be able to pay for the purchase is not a ground for termination.
There is no termination penalty payable here.
The Building and Pest Condition provides that the contract is conditional on the buyer receiving a satisfactory report from a Building and Pest inspector on the state of the property being purchased but again it is important to note that if the Inspection Date is NOT “subject to Building and Pest” and issues that would not be covered by such an inspection are not grounds for termination.
There is no termination penalty payable here.
However, these conditions are not a “general” power to get out of a contract because the buyer has changed their mind.
Other conditions can be included in a contract and it is for this reason that it is important that you consider the need for such conditions before signing the contract.
One such condition, whose power is frequently overlooked, is a Due Diligence condition that a buyer may seek and is the right to terminate the contract if their investigations reveal a matter that causes them sufficient concerns to want to do so.
The buyer must, by 5:00 pm on the due date determined pursuant to the contract, advise you or your solicitor that:
Failure to do so does not mean that the buyer loses their right to terminate but it does give you the right, until the buyer provides one of the above advice, to terminate the contract.
However, the buyer’s deposit would be refundable.
You should ensure that you adequately protect yourself by undertaking the following important activities:
On many occasions, we are approached by sellers who are now unsure as to what they are able to do and as a result are exposed to the risk that the buyer may delay advising their decision in respect of a contract condition.
Selling a House will for most people be the most important financial decision that they make – we cannot recommend highly enough the importance of understanding all contract conditions and ensuring that you liaise with your solicitor around all due dates and promptly advise them if the buyer fails to provide the required advice by the expiry date.
Read our previous article on the Pre-Contractual stage of the conveyancing process for sellers.
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