At the end of July, The Real Estate Institute of Queensland (REIQ), in consultation with the Queensland Law Society (QLS), released the 4th edition of their Commercial Land & Buildings Contract. This new edition, whilst containing some necessary improvements on its predecessors, ultimately marks a continuing trend in property exchange – the dismantling of Caveat Emptor.
What has changed?
The following are the pertinent changes that any party to the Commercial Land and Buildings Contract must be aware of:
Terminology and References:
New definitions have been added (i.e. 'Deposit Holder', 'Financial Institution', PPSR'), and some previous definitions have been updated and renamed (i.e. 'Purchaser' is now referred to as 'Buyer').
References to legislation have been updated in accordance with the current and relevant statutes and provisions.
Definition of a "Business Day":
A "Business Day" as defined within the contract has been altered to exclude any day within the period of 27 to 31 December.
This is in addition to the previous exclusions of weekends as well as public holidays.
Settlement Time and Place:
Settlement must now take place 'between the hours of 9:00am and 4:00pm AEST on the Settlement Date'. This replaces the previous 5:00pm in previous editions.
A section has also been added to the contract providing where the Seller does not nominate a location for settlement, then settlement is to take place at the nearest land registry office.
Payment of the Deposit:
Previously, the Deposit had to be paid to the Deposit Holder immediately upon the formation of the Contract. However, now the Buyer may elect to pay the Deposit either on the date of singing the Contract, or on another date entirely, where specified within the Contract and agreed upon by the parties.
The latest edition also includes an allowance for the bank details of the Deposit Holder's trust account to be inserted.
Changes have been made to the Notice clause, allowing for the use of faxes as well as emails as forms for providing notice. Additionally, posted notices are now treated as being delivered three days after they were sent. These modifications provide a much needed modernisation in the means in which parties communicate with one another.
However, it is the conceptual amendment in clause 21, 'Adversely Affected Property', that is the most cause for concern.
Adversely Affected Property
The fundamental rationale of the "Adversely Affected Property' clause is as follows:
Where there are adverse interests affecting the Property, the Seller must disclose these interests to the Buyer; failure to do so permits the Buyer to terminate the contract.
Clause 21 is not a new addition to the Commercial Contract – rather, this edition has introduced new inequitable and onerous requirements on the Seller, which could lead to worrying ramifications where the duty is not met.
Previously, it was required of the Seller to disclose to the Buyer any critical adverse interests affecting the property (such as pending land resumption notice or if the property formed part of the World Heritage List), and authorise the Buyer to inspect all records held by the Local Government.
The inspection and discovery of all other adverse interests (whether they be registered or unregistered) was to be the duty of the Buyer, and no part of the section required the Seller to assist in the Buyer's inquiry.
However, the restructuring of the clause carries with it onerous duties on the Buyer to:
- Disclose all unregistered interests in the Property;
- Provide copies of further details where those previously given cease to be accurate;
- Provide copies of all Security Interests relating to the property OR provide details of Security Interests so that the Buyer can undertake a search of the PPSR (when requested by the Buyer); and
- Disclose critical adverse interests (such as those mentioned previously).
Where the Seller fails to meet any of these requirements, the Buyer may terminate the contract at least two days before Settlement. The requirements of the Buyer are now merely to inspect the records provided by the Seller, and in some instances undertake a search of the PPSR on the details provided by the Seller. Evidently, between these editions there has been a clear and marked shift of onus.
The disappearance of Caveat Emptor
The historical principle of Caveat Emptor (or "let the buyer beware") is that in a contract, the onus lies on the Buyer to inquire into the subject matter of the contract and they subsequently accept any responsibility for their disappointment in a poor bargain. This is an active duty on the Buyer in a contract to personally inquire into the subject property.
Caveat Emptor has been a central tenet of common law jurisdictions since the early 18th century. However, through gradual court decisions and legislative regulations, red tape constraints have been introduced, and the onus of inquiry has subsequently been shifted from the Buyer and onto the Seller. The publication of this edition of the Commercial Contract exhibits even greater departure from the core principle of Caveat Emptor.
By demanding Sellers of real property to provide any and all copies of interests or information that the Buyer requests and requiring of the Buyer the bare minimum in regards to personal investigation and inquiry into the contract property, the concept of Caveat Emptor has been demolished in real property exchanges. This deviation from the principle results in an imbalance of duties between the two parties in the contract, and creates a critical contractual obligation on the Seller (or the Seller's Solicitor) to ensure that all information and copies of registered and unregistered interests relating to the property are wholly disclosed to the Buyer, lest the contract be terminated.
What these changes mean for you
Whilst this latest edition does contain some modifications aimed to improve the Commercial Contract, it is a rapid departure from Caveat Emptor, and a cause for great concern for any party planning to sell their property through the REIQ contract. Sellers must now ensure they disclose any unregistered interests, critical adverse interests as well as provide copies of all Security Interests in the property (or at least enough information to permit the Buyer to conduct a search).