By Russell Cocks, Solicitor
First published in the Law Institute Journal
The prescribed Contract of Sale of Real Estate has now been in use for 12 months. The contract was prescribed pursuant to the Estate Agents (Contracts) Regulations 2008, which came into effect on 28 September 2008.
These regulations bind estate agents but not other participants in the conveyancing industry, such as lawyers and conveyancers. However the regulations have been the traditional vehicle for establishing a standard form of contract that has wide acceptance across the industry. Both the Law Institute and the Real Estate Institute have produced versions of the prescribed contract, as have most proprietary conveyancing software programs. Thus the new contract has been widely adopted in the first 12 months, and its widespread use is likely to extend into the future.
One significant structural change was the elimination of the Contract Note. Previous regulations had allowed for two forms of contract: the ‘full’ Contract of Sale and the shorter Contract Note. The current regulations do not include the shorter version. Another structural change was to abandon the tool of incorporating conditions into the contract by reference to Table A and including all of the standard conditions in the printed document.
The Law Institute of Victoria form of contract follows the regulations and includes the signing clause on the front page. The Real Estate Institute of Victoria form moves the signing clause to the back of the document. There is no particular significance in this difference. The signing clause includes provision for any person signing the contract to also print that person’s name after the signature. This was designed to assist with identification of signing parties but experience to date indicates that most people are not going to the trouble of printing names. This is perhaps a product of the heady environment in which contracts are signed, with participants in the process riding a wave of emotion rather than calm reflection.
The Particulars of Sale page contains all of the specific information that needs to be inserted in relation to the transaction. The second half of this page has room for inclusion of information relating to GST, settlement, sale subject to lease, terms contract, sale subject to mortgage, special conditions and finance, generally in a ‘fill in the box’ format. Many contracts do not require some or all of this information and it is permissible to delete reference to boxes that do not apply to the particular transaction. For instance, the sale of a typical residential property does not require any information about GST, registration of a plan, lease, terms contract or subject to mortgage and it is permissible to delete all reference to these possibilities.
If this method is adopted the contract becomes a much simpler document and it is possible to include all of the Particulars of Sale on one page. Whilst it is permissible to leave in all the boxes, or strike them out if inapplicable, it is also quite acceptable to delete them altogether if they are not relevant.
The General Conditions (1 to 28) appear to have been well received. General Condition 2 replaces the old procedure of delivery of requisitions with contractual warranties and most practitioners appear to have caught on that requisitions are now a thing of the past. General Condition 2.1 warrants that the General Conditions are in the prescribed form and so it is inappropriate for any of the General Conditions to be amended. The General Conditions can be changed, but this must be by Special Condition and in this way changes will be transparent.
Many lawyers are married to their Special Conditions and unfortunately some lawyers have simply adopted the habit of inserting all their old Special Conditions into the new contract. Most of these Special Conditions were a waste of time in the old contract. For instance, it is not necessary to say that the deposit will be held in accordance with the Sale of Land Act because that is what the Act requires. Inserting those Special Conditions into the new contract is an equal waste of time. Special Conditions that refer to Table A (no longer applicable to the contract) merely show that the lawyer has not thought about the contract and belittle the profession.
One Special Condition that agents like to see in a contract is an Auction Condition. But the conduct of an auction is governed by Act and Regulation and the procedure to be followed is not a matter between vendor and purchaser. Auction Conditions are unnecessary and probably unenforceable anyway.
One glitch appears at General Condition 12 in relation to stakeholding. This condition is aspirational, in that it cannot override the stakeholding provisions of the Sale of Land Act. It was designed to facilitate release of deposit in situations where there is no mortgage and to establish a benchmark of 80 per cent debt as being a reasonable maximum below which purchasers should agree to release of deposit. The condition requires 28 days to have elapsed since the day of sale but it probably should have required 28 days from service of details (which will be the same if there is no mortgage, as notice of that is given by annexing a title search showing a clear title). Release of deposit remains a vexed question and a terrible waste of resources but will only be cured by legislative change.
General Condition 24 is a new provision designed to isolate minor disputes arising in relation to the state of the premises at settlement. Some lawyers exclude it by Special Condition but, by and large, it appears to have been accepted.
Tip Box
Whilst written for Victoria this article has interest and relevance for practitioners in all states.