By Russell Cocks, Solicitor
First published in the Law Institute Journal
It is relatively common for a purchaser of land to want to nominate an additional or substitute purchaser to complete the purchase. Most commonly this arises in a family situation where one spouse or family member has signed the contract and desires to add another spouse or family member or in a commercial situation where the named purchaser would prefer to complete the purchase in the name of another associated entity.
In such circumstances the nomination takes place in what might be described as ‘innocuous’ circumstances. The named purchaser is not seeking to make a gain or profit, simply adjusting the purchase to better suit its purposes. In such circumstances a vendor ought to have no concern as the purchaser remains responsible for performance of the contract and the vendor retains all contractual rights against the purchaser in the case of a default. The vendor is entitled to be provided with a written direction, signed by the named purchaser and confirmed by the nominated purchaser, authorizing the vendor to transfer the property to the nominated purchaser and thereupon the vendor fulfils its contractual obligations by handing over a Transfer of Land in favour of the nominated purchaser at settlement. It is true that this exercise does require the vendor to consider one further, relatively simple, document in the conveyancing process – the form of nomination – but the exercise hardly seems sufficient to justify a claim for additional costs when taken in the context of a conveyancing transaction generally. Such transactions do not involve the named purchaser receiving any ‘additional consideration’ and do not attract additional duty. It is for the nominated purchaser to satisfy the SRO by statutory declaration that no additional duty is payable and just as the vendor has no obligation to determine how much duty, if any, a purchaser is liable to pay, so too the vendor has no obligation to determine how much additional duty, if any, the nominated purchaser is liable to pay. The vendor need not concern itself with the duty declaration and is only obliged and entitled to be satisfied that the form of nomination has been signed and accepted.
Sometimes a nomination may take place in ‘commercial’ circumstances. A purchaser may have secured a bargain and proposes to on-sell the property to another party without completing the contract. Such transactions involve ‘additional consideration’ and are structured so that the named purchaser receives a premium or reward for nominating the new purchaser. Such transactions are truly described as ‘on-sales’ and additional duty is payable, but again it is not the responsibility of the vendor to ensure the payment of duty – this is a matter between the nominated purchaser and the SRO. Indeed the nominated purchaser may well accept that additional duty is payable and will complete the transaction on that basis. Again the vendor, despite any personal disappointment with the turn of events, is only entitled to be satisfied that the form of nomination is in order and need not be concerned with any duty issues.
The copyright contract recognises the purchaser’s right to nominate, but places two restrictions on it (GC5). The words ‘and/or nominee’ must be used and the nomination must be made at least 14 days before settlement. The new 2008 contract removes these restrictions and recognises an unrestricted right to nominate, as does the common law. A purchaser under the current copyright contract may avoid these restrictions by simply relying on the unrestricted common law right rather than the restricted contractual right and purchasers under the 2008 copyright contract will enjoy a similar unrestricted contractual right.
A practice does exist of inserting special conditions that ‘complicate’ the nomination process. Such conditions serve no useful purpose and those that require a purchaser to pay costs in respect of the nomination appear to be in breach of s 42(3) of the Property Law Act. This section states that ‘no contract of sale relating to land shall contain a clause or condition stipulating for the payment by the purchaser to the vendor or to the legal practitioner of the vendor any costs or expenses’ except certain stipulated exceptions, such as costs arising from default. A purchaser who wishes to nominate but is confronted with one of these restricting conditions ought to simply point out that the purchaser is not seeking to nominate pursuant to the contract but rather is exercising the unrestricted common law right to nominate. Further, any condition that seeks to impose a monetary penalty on nomination is in breach of s 42(3).
It is to be hoped that the arrival of the 2008 copyright contract, which gives an unrestricted right to nominate, will encourage participants in the conveyancing process to recognise that nomination can be a simple exercise and that its unnecessary complication brings the practice of conveyancing into disrepute. After all, vendors are generally totally oblivious to these issues and the whole exercise smacks of an attempt to complicate a simple process for the purposes of inflating costs.
Tip Box
Whilst written for Victoria this article has interest and relevance for practitioners in all states.