Quick summary:
The contract of sale is an essential legal document in any property transaction, but processing it could be a little confusing and a cumbersome process. Failing to understand your rights and obligations under the contract can leave you vulnerable to expected issues, delays and potential disputes. This guide will walk you through the basics of selling the contract, from who prepares it to who is included. You’ll learn the most critical steps after signing, the importance of a cooling-off period, and how to identify and address any problematic pieces.
What is a contract of sale?
A contract of sale is a legal agreement between a buyer (purchaser) and a seller (vendor) to transform ownership of a property. It defines conditions such as purchase price, closing date and conditions.
Obligations and responsibilities of the customer:
- Pay the agreed purchase price.
- Secured finance (if applicable).
- Conduct appropriate research (surveys, thematic research, etc.)
- Closing costs (transfer taxes, legal fees. etc)
- Get the right insurance
Responsibilities and obligations of the seller:
- Provide a clear and marketable title.
- Disclose any known errors or issues.
- Deliver the property in an approved condition.
- Process paperwork to prove ownership.
- Comply with applicable laws and regulations.
- Fees/tax associated with the sale must be paid.
Who prepares the contract of sale?
In Australia, a contract of sale is usually drawn up by the seller’s solicitor or conveyancer. They are responsible for drafting the agreement that outlines the terms and conditions of the sale.
The basic steps in creating a sales contract are:
- Title search: The solicitor/conveyancer will conduct a title search to verify the seller’s property ownership and identify any encumbrances or caveats.
- Contract drafting: Using a standard contract template, the solicitor/conveyancer will draft the contract, including terms such as purchase price, settlement date, attachments and any special terms.
- Document disclosure: The solicitor/conveyancer will also prepare the necessary disclosure documents, such as Form 1 (in South Australia) or a seller’s statement (in Victoria), which will provide the buyer with important information about the property.
- Contract exchange: Once the seller has reviewed and approved the contract, it will be forwarded to the buyer’s solicitor/conveyancer for review. This is what allows the exchange of agreements signed between the parties.
It is significant to note that while the seller’s solicitor/conveyancer prepares the initial contract, the buyer’s legal representative will carefully review and consider the details to protect the buyer’s best interest. Read this article to understand what does a conveyancer do.
What is included in the contract?
A contract for the sale of property in Australia generally contains the following key elements:
- Property description: This section lists the complete address, legal description, and any other required description of the property being sold (e.g. lot number, plan number).
- Purchase price: The agreed purchase price for the property, plus any deposit and payment terms.
- Inclusion and exclusion: A list of all fixtures, fittings and other items included in the sale (e.g. white goods, window coverings, garden sheds) or exclusions from within (e.g. personal effects).
- Settlement date: The closing date of the sale is the balance of the purchase price.
- Special conditions: Any other terms or conditions relating to the sale, such as the seller obtaining approval from a third party or the buyer obtaining financial approval.
- Warranties and disclosure: Statement made by sellers regarding the property’s condition, disputes, or other material facts of which the buyer should be aware.
- Notices and titles: Information regarding any notches, claims, or encumbrances that affect the property’s title.
- Standard clauses: Boilerplate provisions on issues such as GST, foreign resident capital retention and dispute resolution.
How long is a contract of sale valid for NSW?
Depending on your state, a standard contract for land sale in NSW (New South Wales) is generally valid for 2-5 days from the date the contract is signed and exchanged between the buyer and seller.
These days there is a cooling-off period that applies with a contract in which the buyer has the right to terminate (withdraw) the contract for any reason by giving written notice to the seller’s representative.
However, it is essential to note that the cooling time can be eliminated or reduced in some cases, like:
- If the buyer obtains independent legal advice before signing the contract, the cooling-off period can be waived.
- When the property is sold at auction, there is no cooling-off period.
- The parties may agree to reduce the cooling-off period to 1-working day as long as stated in the contract.
At the end of the cooling-off period, the contract remains in effect and binds both buyer and seller until the settlement date, usually about 6–8 weeks from the contract date.
If the buyer fails to complete the purchase by the settlement date, their deposit may be forfeited, and the seller may take legal action to force the sale or seek compensation for any loss.
What happens after signing the contract of sale?
Once you sign a contract of sale, there are several basic steps, including:
- Contract exchange: Once the two parties (buyer and seller) sign a contract, it is “exchanged”. This means that the seller receives a signed copy of the contract from the buyer, and the buyer receives a signed copy from the seller. This formally complies with the contract of sale.
- Cooling-off period: In most Australian states, there is a cooling-off period of approximately 2-5 working days after exchanging contracts. This gives the buyer the right to make a final inspection and to withdraw from the sale if they change their mind, although the penalty is usually paid.
- Deposit payment: A deposit, typically 10% of the purchase price, must be paid by the buyer within a few days of exchanging the contract. These investments are held in trust until they are resolved.
- Searches and inspections: The buyer’s solicitor or developer will then conduct various surveys and inspections of the property, such as property surveys, council searches and building inspections. Any discovery may result in the customer terminating the contract.
- Financial approval: When a buyer obtains a mortgage, they must formally apply and get lender approval at this point.
When should you ask for a contract of sale?
As a prospective buyer, you should request a copy of the property sale contract as soon as possible to purchase the property. Ideally, you should do this before making any payment.
The ideal time to request a copy of the contract of sale is as quickly as making a decision to continue with purchasing a property. In fact, you are supposed to ask for the contract of sale:
- Immediately after expressing interest in the property: As quickly as you’ve decided you want to buy a specific property, you should request the contract of sale from the vendor or their real estate agent.
- Before making any deposit or signing any documents: It’s crucial that you procure the contract of sale earlier before setting down any money or signing any papers related to the purchase.
- During the initial negotiations: Asking for the agreement in advance, even earlier than a proposal is ordinary, gives you and your legal representative to review it early in the procedure.
Moreover, there are several main reasons why you should get a sales contract in advance. It further includes:
- Review terms and conditions: Reviewing the contract allows you and your solicitor/conveyancer to thoroughly review all the terms, conditions, and fine print before committing to sell. This helps you identify any issues or unacceptable terms.
- Conduct due diligence: A contract gives your legal representative the right to conduct necessary investigations and monitor the property, such as inspection and council inquiries. This due diligence can identify potential problems.
- Negotiate changes: If you find something unacceptable in the contract, you can contact the seller to exchange the terms before signing. It is much easier to do this before contracts are exchanged.
- Get financial approval: Lenders often want to review the sales contract before approving your mortgage. Getting a deal faster can speed up the financing process.
- Understand your rights: The contract includes essential terms such as a cooling-off period, which gives you the right to withdraw from the sale within a certain period.
Also, by requesting a contract of sale immediately, you can make an informed decision and avoid unpleasant surprises down the road. Your solicitor/conveyancer can also advise you on the appropriate time to sign the contract.
Final Rundown
A contract of sale forms the basis of any real estate transaction in Australia. Understanding the terms of this significant legal document will allow you to navigate the buying and selling process with understanding and confidence.
Remember that the contract of sale outlines the rights and responsibilities of the buyer and seller. A careful review of its terms, exceptions, and special circumstances is essential to protect your interests and avoid costly surprises.
Using the knowledge you gain from this guide, you can work closely with your solicitor or conveyancer to ensure the contract meets your needs. You shouldn’t be afraid to negotiate any disagreements before changing contracts.
Staying on top of the basic steps after signing a contract, such as the cooling-off period and the settlement process, will significantly protect your position and rights as a buyer or seller.
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