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Nov 08
conveyancing

Didn’t pay the deposit on time? All could be lost

By Article, Property Conveyancing

All too often we see buyers a little tardy in paying the deposit, resulting in a technical breach of the contract. Most lawyers and agents don’t get too concerned as buyer and seller are keen to proceed and 9 times out of 10 its paid and people get on with the deal.

Sometimes, things don’t go so well. Here’s a brief set of hypothetical facts to explain the real teeth in the contract.

The facts

Through his agent, Donald Slump entered into a contract to sell his house to Malcolm Turnstile for $1 million on a 30 day contract, 10% deposit payable within 2 working days of contract date, subject to finance and pest and building within 14 days.

Turnstile was a little slow out of the blocks and by business day 3, the deposit had still not been paid. Bill Shortbread, also keen to buy, made an offer through a rival agency to buy for $1.1 million and otherwise identical terms.

On the morning of day 3, Slump’s lawyers, noting the lack of deposit, wrote to Turnstile’s lawyers demanding immediate payment of the deposit, and reserving Slump’s rights (Turnstile was now in breach of contract, entitling Slump to terminate). The first agent was copied in. Turnstile’s lawyers hadn’t received a copy of the contract by this stage, and playing catch up, only managed to call and leave a message with Turnstile to call them back at around 2PM that day.

Meanwhile, the first agent, understandably furious, called Turnstile at around 10:30 AM that day, leaning on him to pay the deposit ASAP or the deal would be lost. Turnstile, also irritated at Shortbread’s actions, immediately arranged for an EFT payment into Slump’s lawyer’s trust account for the $100,000 deposit.

Everyone breathed a sigh of relief.

The next morning Slump’s lawyers gave notice of termination of contract and forfeiture of the $100,000 deposit for breach of contract, being Turnstile’s failure to pay the deposit on time. They then immediately arranged for Slump to enter into another contract with Shortbread for $1.1m.

Turnstile’s lawyers threatened Armageddon but they knew the fight was lost.

The lesson 

Failure to pay the deposit on time will not be cured by a late payment (unless the Seller agrees to waive their rights).

As the market starts warming up, we’ll probably see more buyers doing this. So set your buyer’s expectations on the deposit and get it into trust asap, and ensure the buyer’s lawyers are aware of what is going on as there may be other options available to the buyer to keep the deal alive or better protect their position.

Jan 05
Purchasing Property in Paradise

Purchasing Property in Paradise

By Article, Property Conveyancing

A guide to buying real estate in the Whitsundays

The Whitsundays has more than most to offer. Encompassing four unique townships, the region offers an ideal mix of stunning natural surroundings, a relaxed lifestyle and economic growth through development, tourism, agriculture and resources.

Airlie Beach, the hub of tourism in the Whitsundays, is home to an industry that last year contributed over $253 million to the regional and Queensland economy. In the past few months, several of the more prominent islands – including Hamilton Island, Lindeman Island and Long Island – have announced multi-million dollar refurbishments, fuelling rumours of a tourism boom. Collinsville, the mining town at the tip of the Bowen Basin, already has two major coal mines, with three new mines – Drake, Jax and Sarum – at varying stages of development. Holding up the final pillar of the Queensland government’s plan for economic growth, is the cane farming town of Proserpine, just 25 minutes from the coast, and the rich agricultural land surrounding Bowen, renowned for its fresh fruit and vegetables.

In a region that has it all, it’s no wonder the population is predicted to swell approximately 64 per cent by 2031, from 35,500 people to 55,500. Despite population growth forecasts, recent figures have shown a steady decline in house and land values across the Whitsundays. As a result, property experts are predicting a strong return to growth as buyers and investors take advantage of the current levels of affordable housing. From June 2007 to 2012, median house prices decreased from $400,000 to $320,000, with the value of land also sliding by a median of $60,000 over the five year period.

With little that can go wrong in choosing to buy or invest in the region’s real estate, it’s important to ensure the legal process of purchasing runs as smoothly as possible. For instance, if you assume something is ‘automatically included’ in a contract, and it is not there at settlement, you may be left with few options. To make sure you’ve got all your bases covered, we’ve developed a simple guide to buying real estate in the Whitsundays.

To download your copy, simply click here: BUYING REAL ESTATE IN THE WHITSUNDAYS.

 

Dec 10
Mortgagee sales – what’s in store for buyers

Mortgagee sales – what’s in store for buyers

By Article, Property Conveyancing

How they work

We’ve all heard about these. Sometimes called ‘mortgagee in possession’ sales, or ‘mortgagee auction’ sales, even ‘foreclosures’, the result is the same: a property owner defaults under the mortgage, and the bank sells the property up. The image conjures up phrases like ‘rock bottom price’, ‘take it or leave it’ and ‘as is where is’, some of which are pretty accurate, others not so much. What you can be sure of is that the sale conditions are different.

Sales under the hammer

Although you can buy the property outside of the auction environment, the most common method of mortgagee sale is at auction, so it’s important to understand your legal position before you bid.

TIP: note if a property has already been passed in after auction, you can negotiate a deal with the mortgagee through the agent. That is, the deal does not have to be concluded only at auction.

What a steal!

None of us want to pay more than we have to, but it’s not quite true that mortgagees will sell at just any price, or at a price sufficient to clear just what they’re owed. The law requires that they sell at market value (best established via auction), and account to the defaulting borrower for any proceeds above what is owed under the mortgage. Also, banks don’t want to engage in fire sales: fire sales lose money, adversely affect banks’ balance sheets, share prices, and investor confidence!

So your offer needs to be reasonable. The upside is that you’re certainly unlikely to be paying premium, and a key reason for this is that the mortgagee will have changed a number of the standard conditions, discussed below.

The conditions: as is where is:

Use

  • Buyers need to satisfy themselves that the use to which they want to put the property is lawful. They’re also expected to have satisfied themselves with the condition of the property, quality, fitness for purpose, existence and lawfulness of access, issues regarding resumptions by any authority (eg resumptions by Main Roads dep’t), existence of any approvals or licences, and environmental protection related notices.
  • Common sense will frequently answer a lot of these questions when it comes to buying residential land, but if buyers are considering a commercial application, it may pay to speak with us, or a planning consultant, or Council (or all of the above) first.

Adjustments

  • Some mortgagees require settlement to be effected even if there is outstanding land tax payable, which is often the case.
  • Although the mortgagee may still be required to pay, you might not be able to demand it be paid at settlement.

GST

  • Usually the sale price in a contract is expressed as GST inclusive.
  • Sometimes (especially if a mortgagee is selling development stock), the price may exclude GST, and you could be required to pay this on top.

Assignment of warranties

  • If a building is new or relatively new, a mortgagee might exclude the assignment of any builder’s warranties that might otherwise be assigned.
  • Similarly, any warranties under a tenancy agreement (and the agreement itself) will not be available for assignment or delivery at settlement.

Boundaries

  • You can’t terminate or claim compensation if lot boundaries are inaccurate.
  • Also, if you establish (for example) an encroachment on to or from the property during the contract, you’ll not be able to terminate or claim any compensation.
  • If the mortgagee owns adjoining lots (eg balance developer stock), it’s likely that they’ve removed their obligation to contribute to fencing costs (under dividing fences legislation).

Removal of reserved items

  • If the property consists of improvements, the mortgagee may remove any obligation on it to clear away all items not included in the sale (such as abandoned goods), leaving these items for you to deal with post settlement.

Extensions

  • The usual process in a conveyance is for a seller to ask a buyer to agree to extend and the parties then negotiate. In a mortgagee transaction, the mortgagee can often extend settlement unilaterally, for a several months.
  • This may impact on your financing, timing, moving out of other properties etc.

No warranties

    • The mortgagee will warrant nothing, and exclude warranties written into the standard terms, such as being able to settle on time, or at all, that there will be no unsatisfied judgments or writs attaching to the title at settlement, or existing issues under environmental protection legislation.
    • It will often exclude any obligation to deal with any notices from any authority (eg a council notice to clear an overgrown allotment or remove illegal structures
Where does this leave the buyer?

These amendments don’t mean you’ll have to settle without clear title, as that remains assured. Rather, it just means you’re not allowed to carry out as many checks as you otherwise could. Remember also that some mortgagees are negotiable, so don’t be afraid to ask. Common sense usually prevails and mortgagees may bend a little on some issues they have control over.
As indicated, this is general information, and not legal advice. Every contract is different and requires contract specific advice, which we’re happy to give.

If you’d like more information on any of the matters raised here, or if you’d like us to look at your mortgagee sale conditions just give us a call.

Nov 25

Buying off the plan – the detail

By Article, Property Conveyancing

Off The Plan

The term ‘off the plan’ is not so much a legal term but rather an industry one, referring to all types of units and land being sold (but not settled) before legal title actually exists. Below are some of the essential elements of off-the-plan contracts, along with some things to consider before signing up.

The Developer

Like any popular tourist destination, the Whitsundays has seen its fair share of developers, some successful and some otherwise. A little bit of research on your part via an agent to establish who it is that is building your product, and their track record to date might help in making an informed decision.

Conditions Precedent

Off-the-plan sales are often conditional upon the developer:

generating enough pre-sales to make the project viable so they can secure construction funding; and
obtaining satisfactory development approvals from the relevant authorities.
Usually, the developer cannot satisfy these conditions by certain date deadlines then it (not you) may elect to cancel the contract. Although you don’t usually have termination rights at this stage, you still you’ll still be refunded your deposit. In our experience, this is rare as developers generally have a reasonable idea as to the market and costing issues, before going to the market to sell their product.

Schedules of Finishes and Furniture Packages (units only)

Off-the-plan Unit contracts go into some detail about ‘quality fittings, tiles, tapware etc.’ to be included in the finished product. Similarly, if the unit is to be placed into a letting pool (where the unit is being let out to holidaymakers for example), then a furniture package will also typically form part of the purchase. These schedules and lists often refer to finishes and appliances in very general terms, allowing developers a bit of latitude in settling on the type and price of the finished product.

If you have any particular preferences regarding your finishes, or you thought the items were a particular model of a particular brand, then make sure this has been made clear. Otherwise, the general conditions of contract may let the developer supply and install whatever it can source at the time at the best price, though as long as it’s the same or similar quality.
Although that sounds reasonable, there’s little that can practically be done at settlement if you’re disappointed with the quality of your finishes. You’re generally not allowed to terminate, withhold money or delay settlement at all. In fact, you usually have to settle first and then prove that the alternative finishes you have been given are substandard. To prove this will mean at the very least some form of mediation or arbitration (after settlement), or worst case, court. Given the very cost prohibitive nature of court proceedings, this leaves buyers in a tough position.

Defects Liability Periods (units only)

Most off-the-plan contracts provide for a defects liability period of up to 90 days, and require a buyer to provide a list of defects to the developer within a specified period of time, failing which the buyer loses their right to have any defects rectified. This type of condition often goes on to provide that defects due to poor workmanship or poor materials will be rectified at the developer’s expense. All the documents

Statutory warnings, cooling off periods, disclosure statements … the list seems to be growing each year. in the interests of consumer protection, the law has evolved to a point where very stringent processes must be followed to ensure that a contract is valid and binding. Incorrect document preparation has led to many developers’ projects stall and fail as buyers’ lawyers continue to test legislation for loopholes.

Settlement

Off the plan contracts provide that Settlement is due 14 days after title to your lot issues. Title is issued by the titles office when the survey plan, signed by the local council, is lodged and registered. The local council generally won’t seal the plan until the developer has carried out all of the work to complete the development.

The developer has a statutory time frame within which to complete the development and settle on each contract with off-the-plan buyers. This is often referred to as the sunset date in the contract. If by this date title has not issued, contracts become automatically void and buyers have their deposits returned. This is subject to any rights the developer might have with respect to extending the Sunset Date.

Staged developments

Some off-the-plan purchases may form part of a development being completed in parts or stages. This is not unusual and generally does not affect you unless, for instance, you are buying a unit and proposing to enter it into a letting pool and construction works are continuing, which may result in low occupancy rates.

It can be problematic when purchasing a unit off-the-plan on the assumption that the unit being bought it will form part of a larger resort or development with all the amenities and benefits that follow. Almost always, developers’ contracts state that they are not obliged to continue with subsequent stages. If the developer fails to proceed with subsequent stages, a buyer of a stage 1 unit may be left without any subsequent stage amenities, benefits, increased value, or recourse to a developer for any losses sustained.

Coming Up With The Money

One major attraction for buying off-the-plan is that you do not need to come up with any major outlay beyond the initial deposit. Transfer duty, legal costs and the balance purchase price are all deferred until the unit is complete. As attractive as this sounds, it is unwise to enter into an off-the-plan contract unless you are certain you’ll have the money to complete.

Resales

A resale is when a buyer agrees to on-sell the unit or land they contracted to buy before they have actually settled. Typically both settlements occur simultaneously. Whether this is allowed depends on the contract terms. Some prohibit this, usually because developers do not want to be competing with buyers whilst trying to clear their original development stock. If you are not contractually prohibited and you decide to resell during the course of the construction of the development, you need to bear in mind that the resale price needs to be considerably higher than your original contract price before the transaction makes the risk of buying the property in the first place worthwhile (if indeed that is why you are buying it). You should take into account the following:

Tax – take advice from your accountant before you agree to re-sell. Remember that, under the current capital gains tax regime, you will be required to pay tax on the capital gain you make when you re-sell the property, at your marginal rate;

  • Agent’s commission – if an agent brokered the resale deal for you, then you will be liable to pay agent’s commission on the resale as well as the date for completion;
  • Stamp duty buying in – although it doesn’t seem that you actually own the property for any period of time, the law considers that you will, requiring you to pay stamp duty;
  • Additional legal fees – it is not a simple exercise for any lawyer to re-produce an off-the-plan contract. Additional costs are inevitable;
  • Net effect – the net effect of these deductions can result in a very marginal capital gain;
  • You remain bound – additionally, even though you have a buyer, if that buyer does not complete his contract with you, you are still bound to settle with the developer.
Nov 24
Distressed sales – has the price been cleared?

Distressed sales – has the price been cleared?

By Article, Property Conveyancing
Motivation to sell

More than ever, agents will need to be very attuned to clients’ reasons for selling. Rarely will a seller be inclined to candidly speak of their personal financial position, and understandably so. The irresistable conclusion is however that you must establish whether a seller’s motivation to sell is not so much their own, but rather brought upon them by their bank.

 

Pitfalls

These types of sales are, regrettably, on the increase, as are potential pitfalls not usually present in a regular conveyance.

Mortgage insurers and mortgagees are hard to budge once a deal is done. Sometimes, due to poor communication between mortgagees and defaulting sellers, some mortgagees expect to receive the full proceeds of sale. If the mortgagee has not taken into account commission to be deducted, it may refuse to release its mortgage. This can result in a seller being in default in an otherwise unconditional contract, the mortgagee refusing to move, and the sale falling over.

To limit this risk we suggest:

    • Confirm with the seller that they have sought clearance from the mortgagee on the ‘net’ amount available, after deduction of commission;
    • Ask them to get a confirmation email from their bank that they’ll settle for $X;
    • Ensure you’ve got enough deposit in trust to cover commission as it will be difficult to call for a cheque at settlement;

 

If the above can’t be sorted, call us for a special condition we can tailor for the deal to ensure that the seller is not in default on settlement day, and enable us both to work together to try to negotiate an acceptable result for the seller.

PD Law
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