Mistakes made in property contracts are unfortunately a common occurrence. These “Contract Sins” can often be very costly to correct or may be used terminate the contract or litigate aspects of the transaction. Whether selling or buying a property – buyers, sellers and agents should take care when drafting or signing the contract. The 7 most frequently made property contract deadly sins include:
1. Not disclosing Title Encumbrances registered on the Title.
Any encumbrances on a Title that will carry forward to the new owner must be disclosed on the contract (other than mortgages of the Seller). These can readily be obtained by obtaining a Title Search as part of the listing process. If they are not disclosed, any Buyer may terminate and may seek costs against the Seller. If you are at fault for not having disclosed the encumbrance, you may be liable to the Seller for those costs as well as causing the sale to fall through.
2. Not disclosing Unregistered Title Encumbrances.
Unregistered Title Encumbrances include manholes, sewer lines, certain covenants which might restrict the use of a property and lines or pipes for utilities for other properties or utility corporations which pass through the Property. Dial Before You Dig searches will show most unregistered encumbrances. Additionally, the Seller should be requested to provide details of any rights to third parties which might affect an owner’s future use of the property.
3. Not having a Disclosure Statement signed by the Seller prior to contract – Community Title Contacts.
Where a contract is entered into prior to the Buyer being provided with a signed Disclosure Statement, the Buyer will typically be entitled to terminate the contract at any time prior to settlement. Ideally, the Disclosure Statement should be signed by the Seller. If you are to sign the disclosure statement on behalf of the Seller, you should obtain a written authorisation of the Seller to do so.
4. Not listing a tenancy on the contract.
The failure to list a tenancy can be fatal to the sale and may allow a Buyer to terminate. If it is the case that a tenant is presently in the property and vacant possession is required, it is recommended that you list the tenancy and insert a special condition that settlement is subject to the tenant vacating the property prior to settlement. This will avoid the Seller being in breach of the contract in the case of a tenant who refuses to vacate the property.
Any special condition which makes the contract subject to the tenant vacating the property, may also contain a Clause which enables settlement to be extended to enable the Seller to force the tenant to vacate the property. See our Conveyancing Manual for suggested special conditions.
5. Not ensuring correct buyer/s name/s.
When preparing a contract, you should ensure that the Buyers have obtained any necessary legal, accounting or financial advice regarding the name/s to be inserted on the contract. For example, if after signing a contract, a Buyer obtains financial accounting advice that the contract is best placed in the name of a company or trust, the Buyer may wish to terminate the contract. Ensuring that the Buyer/s have ascertained the correct names will avoid a situation where a Buyer is looking for ways to terminate the contract. It may also avoid delays and costs associated with receiving one contract and creating another. When a Buyer shows genuine interest, you should suggest the Buyer turn his or her mind to the correct name on entity to be listed as Buyer.
6. Not complying with owner/builder disclosure requirements.
When selling a Property which is the subject of the owner/builder disclosure requirements, it is necessary that disclosure requirements be conducted before the contract is signed. A Title Search should reveal any contracts to which owner/builder disclosure obligations apply as QBCC will register a notation on the Title. See the DBL Conveyancing Manual online for the Owner Builder disclosure steps.
If a Seller does not perform his or her disclosure obligations, then the Seller is effected in the position of the insurer for QBCC purposes. Conversely, if the contract is one in respect of its owner/builder disclosure obligations applying and the requirements are met, the Seller is not the effected insurer. If it is the case that you prepare the contract and you fail to make the relevant disclosures, then you may be in a position where you face liability to the Seller.
7. Not clearly identifying included Chattels and excluded fixtures.
To avoid any disputes in the future, especially just prior to settlement, the contract should be clear as to any chattels which are included and any fixtures which are excluded. The contract lists improvements which are automatically included such as stove, hot water systems, fixed carpets, curtains, blinds and other fittings. Items of contention can often include:
- Wall mounted TV’s;
- Entertainment Systems;
- Pool cleaning equipment;
- Gym Equipment;
- Garden furniture and small sheds;
- Large potted plants;
- Plumbed Fridges;
- Washing Machines; and
More information on drafting contracts and commonly used clauses are available in our Conveyancing Manual.
Should you need advice or assistance with property contracts or conveyancing, please contact us.