From Contract to Completion – How Do You Get There?

 

Although buying and selling real estate is something that many people aim to and/or actually do, there is a lot of confusion and lack of understanding about steps must take place between signing a Contract and money and keys being exchanged.

A conveyance refers to the process that takes place to have real estate transferred from a Seller to a Buyer.  Understanding the basics of what is involved in this process is of great assistance if you actually want to know what is going on with your contract, what you are paying your lawyer or conveyancer for, why some parts of the process take time and what sorts of things can become major issues so should be dealt with as early as possible. 

Laws governing the purchase and sale of land are State based, meaning that the conveyancing process is different in each State.  The differences in the conveyancing process do vary quite significantly, so it is absolutely vital to get the correct information for the State in which you are buying or selling the real estate.

An example of how different the process can be is that in New South Wales generally a purchaser undertakes their due diligence investigations and arranges finance approval before signing a contract to buy a property whereas in Queensland these steps are usually only undertaken after the parties enter a contract of sale.  Therefore unlike its Queensland counterpart, the standard form contract of sale in New South Wales does not include terms and conditions about the contract being subject to the buyer obtaining finance approval, being satisfied with a building and pest inspection on the property or being satisfied with the outcome of a pool safety certificate inspection.

 

Conveyancing  – Queensland Style

The major steps in a standard conveyance in Queensland after the contract has been signed by both parties are:

Calculation of Dates

  1. The fully signed Contract is provided to the nominated solicitors for each party.  The solicitors calculate the dates when conditions are due under the contract and confirm the due dates with each other to ensure everyone is on the same page.  The most common usual due dates are:
  • Date for the cooling-off period to expire;
  • Dates that special conditions noted in the contract require particular actions to be taken by.  Examples of these may include the date by which the Buyer must pay deposit monies, the date by which the Buyer has to notify if they wish to terminate the contract because they are not satisfied with a building and pest inspection conducted on the subject property, or the last date by which the Buyer can terminate the contract if they have not obtained satisfactory finance approval;
  • Date that settlement of the sale is to take place.

          Satisfaction of Conditions 

The Buyer undertakes due diligence investigations on the subject property and makes application for finance approval (if borrowing money to purchase the property).

 The Buyer is responsible for arranging any building and pest inspection to be conducted on the property.

The Buyer’s solicitors normally provide a list of searches that the Buyer can nominate to be undertaken regarding the property with various local authorities and in relation to the Seller to check for any matter that might affect the ability of the Seller to be able to transfer the property to the Buyer (for example, that the Seller is not bankrupt).

 In relation to finance approval, in Queensland usually a financier will not finalise a decision whether to grant the particular loan until after the contract has been signed and a copy given to the financier.  Commonly it will be at this point that the financier will arrange for a valuation of the property to be undertaken to assess if it is worth sufficiently more than the amount being borrowed so that the financier could get its loan money and costs back if the borrower failed to repay the loan.  If finance is formally approved then loan documents will need to be sent to the Buyer, signed by the Buyer and returned to the financier and then the financier will need to certify all the returned documents before being ready to actually release the loan funds.

 

Arranging Release of Encumbrances

The Seller must take all necessary steps to ensure that at settlement they can transfer the subject property to the Buyer free of all encumbrances.

 An encumbrance on the title of a property refers to a registered interest of a party other than the registered owner on the title of a property.  One of the main effects of an encumbrance on the title of a property is that the registered owner cannot transfer ownership to another person unless the encumbrance is formally released by registration of the relevant documents with the Titles Office.

The most common type of encumbrance on the title of a property is a registered mortgage.  If at the settlement date there is a registered mortgage on the title of the property being sold then the Seller must ensure that at settlement the Buyer receives the release of mortgage document.

The usual process for obtaining a release of mortgage document is that:

  • the Seller must make a written request to the financier holding the mortgage for the mortgage to be released;
  • The financier advises of the conditions that need to be satisfied before it will provide a release of mortgage document.  Most commonly the condition will be that some or all of the loan owed to the financier is repaid.;
  • If the Seller does not agree with the conditions of release provided by the financier then it is up to the Seller to sort this out with the financier;
  • The Seller must ensure that at settlement the financier receives any funds and documents it requires to provide the release of mortgage.

 Production and Execution of Transfer Documents 

The Seller must sign transfer documents to transfer his or her interest in the property to the Buyer.  Usually the Buyer’s solicitors draft transfer documents for the Seller to sign and return before the settlement date.  The Buyer’s solicitors are responsible for ensuring that the transfer documents are signed on behalf of the Buyer and that the correct stamp duty notation is imprinted on to the transfer documents.

Settlement Figures

The Buyer and Seller must agree on the balance purchase price to be paid by the Buyer at settlement.

The balance purchase price is the contract price for the property less the deposit monies paid by the Buyer and adjusted as required by the Contract.  The most common adjustments are for the following items:

  • the cost of agreed outgoings such as the rates, water and body corporate fees (if the subject property is a unit) for the day up to and including the settlement date;
  • division of rent if the property is leased;
  • the fee to register any documents that must be registered with the Titles Office before the transfer to the Buyer can be registered (such as the Release of Mortgage for any registered mortgage against the property owed by the Seller); and
  • any negotiated deduction amount  (for example, because the Buyer discovered after obtaining a building inspection that the property required some repairs).

The solicitors for the parties will calculate the settlement figures usually around a week before the settlement date.

 Settlement Arrangements

A time and place must be agreed upon for where settlement is to take place.

Usually it is the choice of the Seller as to where settlement will take place, and if there is a mortgage registered against the title to the property then settlement will normally take place at the office nominated by the releasing financier.

The settlement time and place must be booked both with the releasing financier and with the Buyer’s financier if the Buyer is borrowing money to complete the purchase.

In practice financiers will only take a settlement booking once all their requirements such as receiving the relevant loan or release of mortgage authority from the customer have been satisfied.

Cheque Details

The balance purchase price must be paid by bank cheques, but the Seller has to tell the Buyer how many cheques to bring and who they are to be in favour of.  If there is a mortgage secured against the property being sold then usually one of the settlement cheques will be in favour of the financier for the amount owing on the loan by the Seller.  Because interest continues to accrue on loan amounts then very commonly the releasing financier will not have the accurate payout figure required until the day before or day of settlement.

 Stamp Duty

The Buyer is responsible for ensuring that the necessary stamp duty is paid regarding the transfer of property by the settlement date.

Stamp duty is the tax the Queensland Government imposes on the transfer of property, and normally it is the Buyer who pays this tax.  The amount of stamp duty payable depends on the value of the property being transferred and if any exemptions or concessions apply to the particular transaction.

 Usually the Buyer’s solicitors will arrange for the Buyers to sign any necessary declaration form if a concession or exemption is being claimed, and will also arrange for the relevant notification of the transaction to be made to the Office of State Revenue and for the transfer documents and contract to be imprinted with the required stamp duty notation.  The transfer documents cannot be lodged with the Titles Office unless they have the appropriate completed stamp duty notation affixed.

 Settlement

Settlement takes place.  This refers to the meeting between the parties and their financiers where the Seller receives the cheques for the purchase price and the Buyer receives the necessary documents to allow the property to be transferred to the name of the Buyer.

 Registration of Documents to effect Change of Ownership]

The Buyer or their financier (if they have borrowed money to complete the purchase) takes the transfer document and any other necessary documents to the Titles Office so that the Buyer can be registered as the owner of the property;

 Notification of Change of Ownership

Notifications of the change of ownership are made to the relevant local council and water authority by the Titles Office once the transfer documents are registered.

 

As can be seen, conveyancing is complicated and there are many steps involving many different parties.  It is vital to give instructions to your solicitor regarding due diligence searches to be ordered as soon as possible as some searches can take ten to fourteen working days to be received, and to sign and return all documents associated with applications for finance approval and releasing of mortgages as soon as possible.  At the end of the day if a Buyer or Seller is not ready to settle because their financier is not ready then it is the party and not the financier who is at risk of being sued by the other party to the contract.

It is also really important that you engage a law firm to assist with your conveyance who will give you all the necessary information and advice in a clear and thorough manner, and that you are able to easily contact and communicate with the solicitor or paralegal managing your matter.

At Schubert Law your conveyance will be undertaken by solicitor Alicia Schubert directly.  If you would like assistance with a purchase of real property or have further questions then please contact our Alicia Schubert on 3711 2709 or send us an email.

Pre-Contract Tips for Buyers

Useful Tips For Buyers – Houses and Units

Are you considering buying a house or unit?   Many people spend a lot of time researching where they would like to buy, but the actual process of entering a contract once you have found that perfect property can be confusing.  There can also be a lot of pressure to enter a contract quickly, so we have compiled some useful information and tips for buyers:

1.     Auction Purchases

If you buy a property at an auction it is vital that before you attend the auction you have:

  1. obtained a copy of all the relevant information regarding the property from the Agent;
  2. ideally undertaken any due diligence searches;
  3. undertaken a pest/building inspection on the property; and
  4. have your finance unconditionally approved.

This is because if you are the successful bidder at the auction then:

  • that contract of sale will not be subject to you being satisfied with the outcome of your application for finance approval;
  • the usual cooling off period provisions applicable to residential contracts do not apply; and
  • you will not be able to terminate the Contract if you are unhappy with the condition of the property.

 

2.     House and Unit Purchases for constructed dwellings

If an Agent is involved in the sale then the most common way that a contract is formed is that the Agent completes a contract in accordance with the terms of the offer the Buyer wishes to make and submits this to the Seller.  There may be some negotiations regarding contract terms and if both parties are satisfied then both parties will sign the Contract.

Tip #1:  Decide who will be the purchaser of the property

Before you start seriously looking for a property it is recommended that you obtain advice from your financial planner and/or accountant regarding whether it is best for you to purchase the property in your individual name, in the individual names of yourself and your partner (if you have a partner), in the name of a company or in the name of a trust.

Once a Contract is signed by both parties then it is not possible to change the name of the purchaser or remove a purchaser – agreement would need to be reached with the Seller to terminate the Contract and enter a new Contract, which can have costs and stamp duty implications.

Tip #2 – The deposit amount to be paid by the Buyer should generally always be less than 10% of the total purchase price.

If the deposit amount is 10% or greater of the purchase price then this can change the rights between the parties regarding ownership of the property before settlement and have stamp duty implications for the Buyer.

It is possible to include that a small initial deposit amount be paid upon signing the contract and a balance deposit amount be paid at a later stage such as when the Buyer’s finance condition is satisfied.

Tip #3-  If there are items that are not permanently fixed to the property that are to remain with the property after settlement then these should all be listed in the Contract as “Included Chattels”.

Common examples of items listed as Included Chattels are dishwashers, air conditioners, furniture, curtains, blinds, light fittings and pool equipment.  If a moveable item is not listed as an Included Chattel then the standard terms of the REIQ contract of sale allow the Seller to take all moveable items at settlement.

Tip #4  – Building and Pest Condition

It is always recommended that Buyers require the Contract to be subject to their being satisfied with the outcome of a building and pest inspection on the property;

Tip #5 – Finance Condition

Unless you actually have sufficient cash on hand to pay the full purchase price, stamp duty and other costs of sale at the time they sign the contract then it is always recommended that you require the Contract to be subject to obtaining satisfactory finance approval.

Also be aware that pre-approval of finance from a financier is not the same thing as unconditional finance approval.   Usually the financier has a right to refuse to approve the finance if not satisfied with the valuation of the property, which will only be undertaken after a Contract has been signed;

Tip #6 – Body Corporate Due Diligence Condition

It is always recommended for unit purchases to have a special condition included on the Contract making it subject to the Buyer being satisfied in their discretion with the results of searches conducted on the body corporate records;

Tip #7  – Risk

The standard terms of sale on the REIQ contracts for houses and units provide that the property being purchased is at the risk of the Buyer from 5pm on the Contract Date (which is the date the last party signs the Contract).  It is recommended to Buyers that a special condition be included in the Contract to provide that the property remains at the risk of the Seller until settlement has been effected (i.e. until the Buyers have actually paid for the property).  If no such special condition is included on the Contract then Buyers do need to obtain insurance for the property as soon as possible after the Contract has been signed by both parties.

Tip #8 – Improvements on the Property

If you are aware that a property has had improvements made to it such as extensions, addition of a deck, pergola or car port then unless the Seller can provide a copy of the relevant final approval certificate from the local Council that has jurisdiction then it is recommended that a special condition be included to make the Contract subject to the Seller providing a copy of that certification to you.

Tip #9 – Subject to Prior Sale

If you will be relying on the sale of a property you own to provide funds for the purchase of the new house or unit then it is extremely important that special conditions be included on the Contract so that you are able to terminate the Contract if your sale does not proceed for any reason and that the timing of the settlement of the purchase is such that cleared funds from the sale will be available for use in the purchase.

 

3.     Off The Plan Contracts for Houses and Units

  • These contracts normally are to purchase houses or units that are either not yet constructed or in the process of being constructed.  Very commonly at the time the buyer enters the Contract the plan for the land or unit Lot being purchased has not yet been finally approved by the relevant local Council and so technically the Lot being purchased doesn’t actually exist;
  • These contracts of sale normally contain many special terms and conditions, and the Seller often has up to eighteen months from the Contract Date to arrange for the plan of the Lot to be approved by the relevant local Council and registered with the Titles Office before the Buyer has a right to terminate the Contract;
  • It is extremely important if you are considering entering an off-the-plan contract that you obtain legal advice before executing the Contract so that you are aware of the effect of the terms and conditions.

 

Every purchase is unique, and it is recommended that if possible Buyers obtain some legal advice before committing to a contract of sale.  If potential mistakes on the Contract are avoided and appropriate special conditions included then this can save much time, money and stress for parties at later stages of the matter.

If you would like assistance with a purchase of real property or have further questions then please contact our Alicia Schubert on 3711 2709 or send us an email.