Common elements of a conveyancing transaction

29 Jan

Written By For Good Digital

The contract of sale is prepared by the vendor’s solicitor or conveyancer. It contains the terms of the purchase, the parties’ details, the purchase price, how it is payable, a description of the property and chattels, and the settlement date. Before you sign a contract of sale, you should seek legal advice.
Some estate agents will accept offers via email or text message, but most will:
- have the buyer sign the contract of sale with their preferred price, settlement date and amendments to any of the conditions;
- give the written offer to the vendor; and
- once the vendor has accepted the buyer’s offer, send copies of the signed contract to the vendor, the buyer and their solicitors or conveyancers.
When a buyer signs a contract, they are making an offer to the vendor. A buyer is bound by the offer once the vendor accepts it by countersigning the contract.
At an auction, a vendor’s acceptance is immediate. If a property is sold by private treaty or agreement, the vendor may accept the written offer immediately or they may take a few days to accept the offer.
It is recommended that the buyer set a timeframe within which their written offer is valid (this is usually three clear business days from the day the buyer signs the contract).
A deposit can be paid in a lump sum, or as an initial deposit and balance. The deposit should be the smallest sum the buyer can negotiate. It is generally 10 per cent of the purchase price and paid when the vendor signs the contract, but the buyer may negotiate a longer timeframe (e.g. once any finance or building/pest conditions have been satisfied).
The SL Act requires the vendor’s agent, solicitor or conveyancer to hold the deposit in their trust account pending settlement. It is a criminal offence for the person holding the deposit to use it for their own purpose.
If the vendor wishes to receive the deposit before settlement, a section 27 statement must be given to the buyer (see ‘Section 27 statement’, above).
If the vendor breaches the contract, the deposit must be returned to the buyer. In contrast, if the buyer breaches the contract, the vendor keeps the deposit.
If both the vendor and buyer agree, the deposit can be paid into an interest-bearing account in their joint names. This is usually only done for very long settlements.
Another option that may be desirable for a buyer where there is a longer settlement is a deposit bond (see ‘Guarantees and deposit bonds’, above).
Sometimes a contract states that the deposit must be paid directly to the vendor’s solicitor for investment in an interest-bearing account until settlement. Agents cannot arrange these accounts. When this is the case, the buyer needs to provide their tax file number to the vendor’s solicitor.
If a property is purchased by more than one individual, each of them is required to note in the contract their respective interests, or how the property title is to be shared (e.g. Mickey: 40 per cent; Minnie: 60 per cent); this is known as ‘the manner of holding’.
Buyers need to choose one of four options:
1. The property is held jointly – each individual has an equal share in the property (if one owner dies, the surviving owners receive equal portions of the deceased’s share, regardless of any contrary provision in the deceased’s will);
2. The property is held as tenants in common – each owner has an equal share in the property (individuals can choose who receives their share in their will);
3. The property is held as tenants in common – each owner has an unequal share in the property (individuals can choose who receives their share in their will); or
4. The property is held by an entity (e.g. a company or trust).
The different manners of holding can be combined. For example, two couples purchase a holiday house together. Each couple holds a 50 per cent share jointly with their partner. These two 50 per cent shares are held as tenants in common with the other couple. This means that if one person died, their share of the property passes to their partner, not to the other couple.
Once the vendor accepts the buyer’s written offer, some buyers choose to lodge a caveat on the title. This protects the buyer’s interests under the contract by preventing the vendor from dealing with the title except for settlement. Caveats must be lodged electronically via an electronic conveyancing platform, such as Property Exchange Australia (PEXA), by a solicitor or conveyancer who is a PEXA subscriber and incur additional charges. If a buyer’s caveat is registered in the names of the buyers who are ultimately put on the title, the caveat automatically lapses when the transfer of land is lodged at settlement.
In general, the risk of damage to a property remains with the vendor until settlement. However, it is important for the buyer to take out their own building insurance from the day the contract is signed unless the building is insured through an owners corporation (see above). This is in case the vendor is underinsured, and because the buyer’s lender will want to see proof of insurance.
Buyers who are purchasing a property with common property should ensure that the common property and shared services are insured by the owners corporation; this includes a minimum of $20 million public liability insurance (see Chapter 6.5: Owners corporations). Two-lot subdivisions and subdivisions without common property are exempt from the requirement for common property insurance (note that ‘accessory’ or car park lots are not considered to be separate lots).
Buyers should always examine the certificates that are commonly found in a vendor’s statement:
- a planning certificate from the Victorian Government Department of Planning or the local council;
- a VicRoads certificate about plans to build or widen nearby roads;
- an information statement from the relevant water authority showing rates, usage charges, easements and other information;
- a certificate from the SRO showing the taxable value, arrears of land tax and land tax payable. Note that vendors are not entitled to adjust land tax against a buyer at settlement unless the purchase price is $10 million or more;
- an information certificate from the local council showing rates, road charges and other municipal records;
- building orders and/or notices from the local council (Building Regulations 2006 (Vic));
- an encumbrance certificate from the water authority showing unregistered encumbrances in its records (if applicable);
- the planning and/or building permits, certificates of occupancy/final inspection, any owner builder defects report and any insurance for homes built or renovated in the previous seven years; and
- an owners corporation certificate or prescribed information relating to the active owners corporation under the Owners Corporation Act 2006 (Vic) (if applicable).
If any of the above certificates are not included in the vendor’s statement, the buyer should conduct their own searches of these certificates. They can be applied for online for a fee.