Due to the commercial imperatives of property dealings, parties
may try to 'lock' in an agreement by signing letters of
offer or heads of agreement. In a strong competitive property
market, contracts may also be signed and exchanged via email. While
each case will depend on its circumstances, there are a number of
'rules of thumb' that property developers and investors
should keep in mind when trying to secure a transaction under a
DON'T ASSUME THAT INFORMAL AGREEMENTS ARE BINDING EVEN IF
THEY SAY THEY ARE:
There is a presumption by the Courts that such informal
arrangements are not binding. They will often not comply with
specific State-based property law requirements such as mandatory
disclosure, which may give rise to rescission rights. If you wish
to lock in a deal, then don't count on your informal
arrangement to be legally binding.
IF YOUR AGREEMENT CONTAINS:
the words 'subject to formal contract', then the court
is likely to find the agreement is not binding.
DOES THE AGREEMENT CONTAIN ALL MATERIAL TERMS?
For pre-contract arrangements to be binding, not only must the
parties state their intention that they are binding, but they must
contain all essential terms of the agreement including the correct
names of the parties, the property description, price, settlement
date and any special conditions.
HAS A DEPOSIT BEEN PAID?
For an agreement to be binding, it is likely that a deposit will
be required to be paid.
IT'S BETTER TO SIGN AND EXCHANGE CONTRACTS PERSONALLY:
While emails allow parties to enter into contracts almost
instantaneously, there is no substitute for signing contracts in
person. Problems have arisen when emails have not been received,
parts of documents have gone missing or are not identical or when
only execution pages have been sent (not complete contracts).
EXCHANGING CONTRACTS VIA EMAIL:
When it is not possible for parties to meet in person,
electronic transactions legislation introduced in each of the
States have made it possible for business to be carried out
electronically. When emailing documents, the parties should state
in their document that contract exchange and communications may be
effected electronically. Importantly, electronic exchange of the
whole contract should be made.
If you wish to enter into a binding agreement before finalising
a formal contract, then you should consider entering into an
exclusive dealing arrangement. These arrangements do not have to
comply with statutory requirements for the sale of property but
require the parties to deal exclusively with one another during an
agreed period. A breach of the agreement can give rise to damages
claims. Finally, documents should correctly reflect the intention
of the parties, particularly whether they intend to be bound or
not. If parties wish to be bound, then they should ensure that the
documents are correctly drafted. If essential terms have not yet
been agreed, then parties should consider other binding
arrangements such as an exclusive dealing arrangement.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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