Finding the perfect property can be a long, frustrating and difficult process. You may end up investing a lot of time, energy and emotion and this can become very draining. Consequently when you do find “the property”, it is very easy to submit to the temptation of signing on the dotted line as quickly as possible to make sure that you secure the property and end a search that has been fruitless up to that point.
Worst still, signing a contract also creates a legal obligation that must be honoured. The most substantial obligation that a purchase must honour is to pay the agreed purchase price on the due date within the contract. If you have signed a contract without finalising your finance (whether it be a loan agreement or savings or relying on mum and dad), there may be some serious adverse financial implications. If you cannot complete a contract because your money is not ready (or for any other reason), then you face ALL of the following:
- Losing your deposit (typically 10% of the purchase price);
- Losing the property; and
- Have the vendor demand compensation from you for loss of bargain in the event that the property is subsequently sold to another purchaser for less.
To avoid all this, it is important to have a solicitor review the contract for you so you sign it with eyes wide open and also ensure that your finance is ready.
Although you may have the benefit of exiting a contract during a statutory “cooling off period” (see below section), walking away from a contract during a cooling off period also involves some cost and it may not always be available to you, particularly if you purchase the property at or on the day of an auction sale.
When buying “residential property” in NSW you may have a statutory right known as a “cooling off period”. The cooling off period allows the purchaser 5 business days to change its mind for any reason whatsoever. This period may be extended in writing if agreed by the parties.
The property must be “residential property”. This term has a specific meaning and you should be satisfied that the property you are buying is residential. A solicitor can advise you what is and what is not residential property.
All contracts for the sale of “residential property” have a cooling of period EXCEPT:
- If your solicitor provides a section “66W certificate” waiving or reducing the statutory right;
- The property is sold by public auction;
- the contract is made on the same day as the property was offered for sale by public auction but passed in; or
- the contract is made in consequence of the exercise of an option to purchase the property,
It is important to note a formal written “notice of rescission” must be served on a vendor or vendor’s solicitor in order to exit the contract before the cooling off period expires. If no notice is served then the contract becomes binding in that respect and the cooling off period simply lapses.
If the cooling of right of rescission is exercised by serving the notice, then the purchaser forfeits 0.25% of the purchase price of the property to the vendor.
The basic elements of a conveyance (purchase) are as follows:
- Obtaining finance;
- Reviewing the contract;
- Doing your due diligence;
- Obtaining any precontractual searches (e.g. building, pest and survey reports but this is by no means definitive or exhaustive);
- Entering into the contract and paying the deposit;
- Conducting post contractual searches;
- Arranging payment of stamp duty;
- Liaising and arranging loan with your mortgagee if you have one (wouldn’t it be nice not to need to borrow money);
- Having the transfer executed.
- Attending settlement.
Not all conveyances are the same and additional matters, searches and issues may need to be taken into account. For example buying off the plan or a strata unit will involve more things.
Finally a conveyance is more than a transaction. Clear unencumbered title needs to be passed to the purchaser. Simply following the transaction steps may not lead to this outcome. A solicitor has the requisite knowledge and experience to know what to look for.
Like most things in life, preparation is very important in a conveyancing transaction, particularly where you are buying. You need to have your ducks in order both from a financial and legal perspective. If these 2 things are done right, then you can hopefully look forward to a stress free purchase.
So if you find yourself at a Saturday morning auction for a property you really know little about, the contract for which you have not seen and you expect to see a mortgage broker first thing Monday morning, then you are leaving yourself exposed to unnecessary stress and financial risk.
Although more often than not, a conveyancing transaction will end up fine, it is better not to leave anything to chance. The only way to do this is to ensure that everything is done in a definite order.
It is also worth noting that stamp duty is a significant cost on top of the purchase price and should also be addressed prior to signing any contract.
The conveyance is completed (this is referred to as “settlement”) on the day:
- the balance of purchase money is paid to the vendor strictly in accordance with their instructions; and
- The vendor has handed over all documents necessary to enable the change of ownership to be recorded with the Land and Property Information Office.
There are certain matters which need to be satisfied before the money is paid over, particularly ensuring:
- The title is not encumbered by unexpected mortgages, charges or other dealings which will continue to burden the property and may likely become your problem.
- The relevant documents including the original certificate of title, transfer form and (more often than not) discharge of mortgage are received from the vendor.
- Your bank is satisfied with the arrangements so that it will hand over the loan money to be used on settlement.
It may surprise people that legal title of the property DOES NOT pass at settlement. Legal title is only perfected on the registration of the transfer of the property from the vendor to the purchaser. If you have a mortgagee who has lent you money against the security of the property, they will insist on controlling this process so that they can also register the mortgage granted to them over the property and also hold the certificate of title once the transfer is registered.
If you are fortunate enough not to need to borrow money to buy the property, then the transfer of the legal title should be attended to at the earliest possible opportunity as there may be consequences if that process is delayed.
Various notices also will be sent to the local council and water authority to register the change of ownership.