ByLawyers News and Updates

A full description of the sale and purchase process – Conveyancing – NSW

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By Lawyers is pleased to announce the publication of new reference materials within our Conveyancing Guides which provide a full description of the conveyancing process for both sale and purchase. These descriptions provide details on the procedure to follow when conducting a sale or purchase, using the precedents available in the By Lawyers Conveyancing (NSW) Guides, together with LEAP and InfoTrack.

The full descriptions follow the typical progression of a residential sale or purchase and include screen shots to assist with the procedural aspects of running the matter in LEAP. These descriptions are not intended to be a substitute for our comprehensive Conveyancing commentaries, or the detailed Matter Plans and To Do lists provided in our Guides – rather they are intended to be complementary, providing the user with more detailed explanations on the very practical aspects of running a conveyancing matter from start to finish.

Areas covered include:

  • How to open a file;
  • How and when to order quality and title searches;
  • How to create the contract with the correct order of documents;
  • How and when to enter matter information into LEAP;
  • Arranging an exchange;
  • Completing settlement figures and directions – adjusting council rates, water, sewerage, strata.
  • Preparing for settlement – both paper and electronic.
  • Post-settlement procedure.

While these new resources are ideally suited to those with little or no hands-on experience with conducting conveyancing matters, they will also be of benefit to those unfamiliar with running conveyancing matters in LEAP, or who need to step in and conduct a conveyancing file for another team member who is on leave.

Another great advantage provided by these full descriptions is the ability to delegate conveyancing tasks to junior staff and have them understand the conveyancing process without having to direct them every step of the way.

Like all of the practical resources in the By Lawyers Conveyancing Guides, these new reference materials provide firms not currently taking on conveyancing work the ability to do so easily.

TAS – transfer duty concessions

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New commentary and forms have been added to the Purchase of real property (TAS) Guide in relation to the availability of new transfer duty concessions for first home owners purchasing an established home and also pensioners downsizing to an established home.

First home transfer duty concessions – Established home

A 50% discount is available on transfer duty for first home buyers of established homes which have a dutiable value of $400,000 or less. The discount is available for purchases of established homes that settle within the period 7 February 2018 and 6 February 2019. The eligibility requirements are set out in full in our commentary. A link to the SRO form Section 46E Concession from duty -Transfer to first home buyers of an established home has been added to the matter plan.

Transfer duty concessions for pensioners downsizing

This concession provides a 50% discount on transfer duty for eligible pensioners who sell their existing home and downsize to another home (not vacant land) with a dutiable value of $400 000 or less (and also less than that of the former home). Both homes must be in Tasmania and the new home must be an established property.

The concession is available where:

  • the sale of the former home settles within the period 10 February 2018 and 9 February 2019; and
  • the purchase of the new home settles within six months before or after the transfer of the former home.

The eligibility requirements are set out in full in our commentary.

A link to the SRO form Sections 46N & 46O Concession from duty -Transfer to pensioner/s downsizing home has been added to the matter plan.

Purchase – VIC – Additional foreign purchaser land transfer duty exemption

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Information on this new exemption has been added to the Purchase commentary and 1001 Conveyancing Answers (VIC).

From 1 July 2018 additional duty will only apply to a contract or transaction for residential property for a foreign transferee where the following exemption criteria is not met:

  • The purchase of the residential property is completed jointly with a spouse or domestic partner who is an Australian citizen, permanent resident, or New Zealand citizen who holds a special category visa; and
  • The property will be used as their principal place of residence for a continuous period of 12 months, starting within 12 months of them becoming entitled to possession of the property.

This exemption is available for transfers from 14 June 2018.

 

GST withholding – how does it work?

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The new GST withholding obligations are discussed in detail in the By Lawyers Purchase commentaries for each state, under the heading ‘Withholding payment of GST on purchase of certain real property’.

By way of summary, from 1 July 2018 purchasers of new residential premises or potential residential land are required to withhold an amount of the contract price and pay this directly to the ATO as part of the settlement process.

This does not affect the sales of existing residential properties, or the sales of new or existing commercial properties. However, for all residential premises or potential residential land, if the the vendor is registered, or required to be registered, for GST then they must notify the purchaser as to whether or not GST withholding applies – even if it does not apply.

Where withholding applies, purchasers need to:

  • split the amount of GST from the total purchase price;
  • pay the GST component directly to the ATO as a disbursement at settlement;
  • pay the GST exclusive purchase price to the vendor.

The liability for the GST remains with the vendor and there are no changes to how vendors lodge their business activity statements.

Subdivision – Off the plan sales – Sunset conditions

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By Russell Cocks, Solicitor

First published in the Law Institute Journal

Off-the-plan sales are a common feature of Victorian conveyancing. The fact that the contract cannot be settled until the plan of subdivision is registered at Land Victoria means that the settlement date is uncertain. Sunset conditions in off-the-plan contracts are meant to bring some certainty to the settlement date.

Section 9AE(2) Sale of Land Act allows a purchaser to end an off-the-plan contract if the plan of subdivision is not registered within 18 months of the date of the contract. This is consumer protection legislation designed to allow a purchaser to end a contract which may have, objectively, gone too long. A purchaser may not, 18 months after signing a contract, still wish to proceed with the purchase. However, it is important to recognise that this is a right, not an obligation so the purchaser may choose to continue with the contract, and that the statutory right is limited to the purchaser and does not extend to the vendor.

The Act recognises that the 18-month sunset period is a statutory default period and allows the parties to agree to a different period, however it has been held that the vendor cannot unilaterally alter that sunset period (Solid Investments Aust. P/L v. Clifford [2010] VSCA 59). Contracts often provide a longer sunset period, sometimes up to 60 months, and regularly give to the vendor the contractual right to end the contract, in addition to the purchaser’s statutory right, which cannot be removed.

The purchaser has very little control over the plan approval process and must adopt a largely passive role, awaiting the happy news (hopefully) from the vendor that the plan has been approved and that settlement is due 7,10, 14 or 21 days after approval, depending upon the formula adopted in the contract. On the other hand, responsibility for obtaining approval of the plan falls almost entirely upon the vendor and this, by default, means that the vendor is able to influence the timing of registration and hence the time for settlement. If only the purchaser had the right to terminate if the plan is not registered within the sunset period, then the conduct of the vendor would be less likely to be particularly significant, but the practice of granting the vendor the contractual right to terminate if the sunset date passes opens up the possibility that the vendor can affect the outcome of the contract by action, or more particularly, inaction.

By definition, there will be a delay between contract and settlement, sometimes a considerable delay. As a consequence, market forces may have had an effect on the value of the property and in a rising market, as we have enjoyed for two decades or more, this means that the property is likely to be worth more, sometimes remarkedly more, when the sunset period expires. The temptation for the vendor to allow the sunset date to pass and then terminate the contract may in such circumstances be strong as the vendor will then remain the owner of a property which is much more valuable than the contract price. The flip side is that the purchaser misses out on a property that they have long waited for.

New South Wales has recently responded to a number of examples of vendors ending contracts in these circumstances by requiring the vendor to seek consent, either from the purchaser or the Court, before ending such a contract. Victoria, on the other hand, has relied on a firmly recognised obligation of “best endeavours” on the part of the vendor to ensure that vendors are not able to unscrupulously take advantage of the unexpected delay in obtaining approval of the plan of subdivision beyond the sunset date. This obligation was firmly established in Etna v. Arif [1999] VSCA 99 where, upon it being proven that the vendor had effectively stopped trying to get the plan approved during the sunset period, the Court order specific performance of the contract notwithstanding that the sunset period had expired when the vendor finally did obtain approval.

This view was confirmed in Jessup v. Fremder [2001] VSC 100 where a purchaser was able to obtain an order for specific performance even where no particular sunset date was referred to in the contract, the Court finding that a ‘reasonable period’ was to be implied. Joseph Street P/L v. Tan [2012] VSCA 113 held that a vendor might even be required to enter into a s.173 Agreement to secure registration of the plan so that the sunset period could be satisfied, notwithstanding that construction (if applicable) had not been completed. In an unreported interlocutory judgment in April 2018 the Supreme Court imposed an injunction on a vendor who sought to terminate upon the expiration of the sunset period where the purchaser alleged that the vendor had failed to use best endeavours to obtain approval of the plan.

These decisions do not mean that a vendor will never be able to rely on the expiration of the sunset period to terminate, but they do indicate that the vendor bears a heavy burden to prove to the Court that the vendor has used best endeavours and that the sunset period has expired notwithstanding those best endeavours.

Tip Box

•purchasers have a statutory right to avoid if the sunset period expires

•vendors may have a contractual right to avoid, but must use best endeavours to achieve registration

A brief explanation of the move to e-conveyancing – PEXA settlements

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Electronic conveyancing is coming

The conduct of a sale and purchase up to and including exchange can and will remain unchanged for some time as practitioners adapt to conducting matters electronically using emails and software that is currently being introduced into the market.

It is in fact possible today to prepare, submit, negotiate, sign and exchange contracts without the use of paper. Those practitioners interested in joining this move away from paper will find the means to do so within the By Lawyers conveyancing guides.

Electronic settlement has already arrived

However, the focus of this explanatory paper is the electronic settlement process – currently available via PEXA, but soon also via SYMPLI, a joint venture of Infotrack and the ASX.

So, how does PEXA work?

The PEXA process that follows exchange requires all participants in the transaction to have been identified, be registered and have a PEXA digital certification that entitles them to transact electronically in what is known as a ‘workspace’.

A workspace in the electronic conveyancing platform is opened by the vendor, or failing the vendor any other party, for each transaction and a date and time for settlement is entered. When the workspace is created the vendor ‘invites’ all other parties to the workspace via PEXA.

The workspace is where the transaction occurs. As the transaction progresses, each party can add, remove or amend their information in the workspace.

Whilst such matters as requisitions and settlement adjustments are completed outside the workspace, they can be uploaded to the workspace and made visible to a party of choice. For instance, a discharge authority might be made visible to the vendor’s discharging mortgagee only.

The vendor and purchaser sign a paper Client Authorisation allowing their practitioner to sign for them, as it is the practitioner who has the authority through their Digital Certificate to sign for clients. Therefore, the Client Authorisation is a critical document and must be retained for 7 years as they may be audited.

Outgoing and incoming mortgagees make their arrangements for settlement without input from practitioners. Payment directions are communicated by entry into a Financial Settlement Schedule which contains tabs for Source Funds and Disbursements.

Each party to the transaction completes their tasks prior to the nominated settlement time and for settlement to take place as planned, the Settlement Schedule must balance, the source funds must be available, and all documents must be signed.

How does settlement occur?

The workspace is locked automatically once everything is ready. This triggers title verification and movement of the source funds into a holding account. A final search is not required as the workspace will not lock if there are title impediments to registration.

Settlement occurs exactly as scheduled and title documents are lodged and registered, and the settlement funds disbursed in accordance with the Financial Settlement Schedule. The settlement process is automatic and completed in about 15 minutes which sees cleared funds transferred and title registered.

Note settlement can be cancelled at any time prior to the locking of the workspace.

The way of the future

 

The electronic settlement process is remarkably efficient and easy once you get used to it. As it seems inevitable that electronic settlements – and ultimately electronic conveyancing – will become standard practice, it is well worth becoming familiar with it and its really not so hard to do. By Lawyers conveyancing guides can assist you.

Electronic conveyancing – Are you ready?

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As the timeline towards mandatory electronic conveyancing marches on, By Lawyers continues to make changes to our matter plans and precedents to make sure that you are ready and that completing your matters electronically is as easy as possible.

Our matter plans have been split after ‘Mid transaction’ into ‘Paper transaction – Through to settlement’ and ‘Electronic transaction – Through to settlement’.

Precedent letters have been updated and where necessary new precedents included to cover electronic transactions.

By Lawyers helps you make a seamless transition to the new regime.

Conveyancing – GST withholding – additional commentary, amendments to contracts and precedents

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The requirement for purchasers to withhold and remit GST on taxable supplies of certain real property under subdivision 14-E Schedule 1 Taxation Administration Act 1953 comes into force on 1 July 2018. This applies to all contracts that settle after 1 July. The transitional arrangements are that contracts entered into prior to 1 July 2018 and settle before 1 July 2020 are exempt from the withholding regime.

The sale and purchase commentaries in all states have been updated, the By Lawyers contracts in NSW and VIC have appropriate new provisions and precedent letters are being updated.

Deposit – Forfeiture of deposit

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By Russell Cocks, Solicitor

First published in the Law Institute Journal

A vendor may forfeit a deposit if the contract is ended but there are some circumstances where relief against forfeiture may be granted.

There are two basic principles in property law that generally co-exist but are capable of coming into conflict:

  • a deposit is an earnest paid to secure the performance of the contract; and
  • the law will not enforce a penalty imposed for breach of contract.

These two principles are usually able to co-exist as a result of the law recognising that a payment that constitutes a genuine pre-estimate of a vendor’s losses upon default by the purchaser is not a penalty and that a deposit of 10% of the price is an acceptable pre-estimate of such losses.

It is therefore fair to say that, in circumstances where the purchaser has paid a 10% deposit, a vendor who seeks to forfeit that deposit as a result of the purchaser’s breach of contract will be on safe ground. Section 49 Property Law Act confers on the court a discretion to grant the purchaser relief against forfeiture but it is generally accepted that the purchaser must show exceptional circumstances to justify the exercise of that discretion in circumstances where the deposit is 10%.

An example of such exceptional circumstances may be where the purchaser has taken possession of the property with the agreement of the vendor and has expended money on the property such as to have increased the value of the property. A court might find that the vendor is not entitled to retain the benefit of the funds expended as well as the deposit. But, as a general rule, the vendor can forfeit a deposit of 10% that has been paid by the purchaser. Equally, it will be rare for a vendor to be entitled to retain a deposit of more than 10%, as such a payment exceeds a reasonable pre-estimate of the vendor’s losses and amounts to a penalty.

Often, the deposit is expressed as being ‘10% payable as to $X on signing the contract and balance in 7 days’. Such a formula recognises that a purchaser might not always have a full 10% deposit available at the point of signing the contract and may require a short period of time to arrange for the balance to be available. If the purchaser breaches the contract the vendor needs to call upon the assistance of the court to recover the unpaid deposit and the spectre of a penalty arises. However, it has long been accepted that a vendor is entitled to recover any unpaid part of a 10% deposit notwithstanding that the contract has been ended – Bot v Ristevski [1981] VicRp 13 adopted as recently as Melegant & Sundrum P/L v Zhong [2017] VCC 1868.

However, where the deposit is expressed as some amount less than 10%, the court will not assist the vendor to recover 10%. This has been the situation in NSW for some time and now also applies in Victoria following Simcevski v Dixon (No 2) [2017] VSC 531 were the contract provided for a deposit of 5% and the court rejected a claim by the vendor for a further 5%.

In that case the vendor sought to rely upon a condition in the contract that provided that, if the contract was ended by the vendor, 10% of the price was to be forfeited to the vendor, whether it had been paid or not. Whilst the amount (10%) bore a resemblance to a deposit, the contract provided that the deposit was 5%, so the court had no hesitation in finding that any amount beyond the specified deposit was a penalty and thereby unenforceable, whether supported by a contractual right or not. It may therefore be concluded that any attempt to impose a liability beyond the specified deposit will be an unenforceable penalty.

One formula that has not as yet been scrutinised by a court is ‘deposit of 10% payable as to 5% on signing and the balance of 5% at settlement’. The 10% deposit will not be a penalty and the delay in payment should mean that the vendor is able to recover the full 10% in accordance with Bot v Ristevski.

Tip Box

  • the law will not enforce a penalty for breach of contract
  • a 10% deposit is not a penalty
  • a vendor cannot recover more than the specified deposit

Whilst written for Victoria this article has interest and relevance for practitioners in all states

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