If you agree to sell your property to someone and then let them
move into the property before they have paid the whole of the
purchase price, you have what is known as a "terms
Special rules apply to terms contracts under the Sale of Land
Act 1970 which make these contracts particularly risky.
These are some of the risks you should be aware of if you are
thinking of allowing a purchaser to move into your property before
being paid the purchase price in full:
If the purchaser is paying off the purchase price by
instalments and then defaults, they may end up getting to stay in
the property for at least 28 days rent-free which is the minimum
period of notice you have to give before you can evict them.
We have come across cases where a would-be developer offers to
purchase land in anticipation of a planned subdivision, pay a
portion of the contract price and pay the balance once the planned
subdivision and development is complete. Meanwhile, unless there is
a definite date for final payment specified in the contract, they
end up staying in the property indefinitely and rent-free, without
paying the balance of the purchase price. If the planned
development then fails for whatever reason, you may find yourself
stuck with an unwanted guest permanently unless you make an
expensive Supreme Court application to remove them.
If a payment is delayed and you need access to additional
finance, you will not be allowed to mortgage any part of the
property without the buyer's prior written approval, even
though their failure to pay you is the reason you need
If, despite these risks, you do still decide to enter into a
terms contract, these are some of the ways you can protect
Investigate the prospective purchaser's financial means
before committing yourself.
Insist that the contract provide for payment of a substantial
Make sure the contract sets a definite due date for final
payment and allows you to terminate it if the buyer does not pay
you on time.
Make sure the contract includes a written authority from the
buyer allowing you to mortgage the property so that you don't
find yourself at the buyer's mercy if you need to access
additional finance after the contract is signed.
Consider inserting into the contract, a liquidated damages
clause which prescribes the rate per day that the buyer has to pay
to you in compensation for overdue payments.
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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Warranties can be risk-shifting mechanisms when the party giving the warranty is not the party at fault for the defect.
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