Australia: The binding nature of Australian real estate contracts – you like it, you signed it, you are bound

Last Updated: 13 December 2015
Article by Murray Thornhill

Many foreign purchasers of land in Australia are surprised by the unforgiving nature of Australian real estate contracts. Whereas in some parts of the world you can back out of a real estate contract quite late. There are also circumstances in Australia where you can find yourself bound to a real estate contract even if you think you haven't properly entered into one because the formalities haven't been complied with. While we Australians are internationally renowned for our laid back attitude, our real estate contracting laws aren't necessarily so. Crikey!

Below are some important points foreign purchasers to consider before entering into negotiations to buy land in Australia.

  1. Torrens System of Land Title Registration
    Under Australia's federal system, the laws of each State and Territory regulate Australia's real property law. However, the fundamental principles of land law are universal and are based on the Torrens system of registration of title. That is, whereby legal interests in real estate may only pass to another person upon the registration of a transfer document. A hallmark of the Torrens system is the principle of 'indefeasibility of title'. That means, generally once a legal right to particular land has been registered, it cannot be defeated and is superior to all other claims.
  2. Elements Of A Binding Real Estate Contract
    To purchase real property in Australia, a contract for sale must be in writing and signed by the owner or his/her authorised agent. Therefore, oral contracts for real property are unenforceable. As long as a party has capacity to enter into contract and intends to enter into that contract, the contract becomes binding upon being signed and exchanged between the parties. However, this is not as simple as it seems.
  3. Stellard Pty Ltd & Anor v North Queensland Fuel Pty Ltd [2015] QSC 119 ("Stellard")
    This recent case involving an email exchange between the agents of a defendant-vendor and plaintiff-buyers highlight how you may be bound to a real estate contract during so-called pre-contractual negotiations and without even signing anything.

In this case, the buyer wanted to make an offer for the vendor's land marketed for sale so it requested the terms of sale from the vendor. The vendor attached a draft contract of sale to an email which also informed the buyer that it would sign a contract of sale if certain conditions were met. The buyer confirmed its offer by email, "subject to contract and due diligence as previously discussed," and requested acceptance of the offer with a view to exchanging contract "next Monday". Shortly after, the vendor emailed back saying "we accept the below offer which we understand will be subject to execution of the Contract provided (with agreed amendments) on Monday".

A few days later the vendor received a higher offer from another party and notified the buyer that it was terminating the negotiations on the basis that the latest draft contract did not contain a particular condition which was contained in the original draft contract. Subsequently, the buyer sought declaratory relief where the Court ultimately found that the vendor was bound by a valid contract for sale with the buyer.

  1. Email Exchange Forms Binding Contract
    The Stellard case demonstrates that electronic offers or acceptances are sufficient to meet the "in writing" requirement for a valid real estate contract. This means pre-contractual negotiations communicated over email could unwittingly constitute a binding contract if the parties have agreed to the essential terms.
  2. An Offer Or Acceptance "Subject To Contract" May Still Be Binding
    As in Stellard, stating that an offer or acceptance is subject to the execution of a formal contract may not be enough to avoid entering into a binding contract.
  3. Implied Signature
    Despite the statutes indicating that there cannot be a valid contract for the sale of land without a signature, Stellard demonstrates that this is not always so. In this case the vendors argued that it did not consent to an implied signing of the contract and that the emails communicating the vendor's acceptance were not capable of implying a signature because it did not sufficient identify an author. However, the Court looked at all the prior electronic communications between the parties and their respective agents to find a signature should be implied.
  4. Scotland
    Contrast the Australian experience with Scotland's binding real estate contracts. In Scotland, parties to the sale of land must exchange formal letters (known as missives) before an offer can be finalised. Up until this point, it is possible for parties to withdraw without penalty. Forget the controversy surrounding electronic pre-negotiations because not even faxing missives cannot constitute a binding real estate contract (Thomas Park & Anor, Petitioner [2009] CSOH 122). Instead, the original signed document must be delivered to the other contracting party to be binding.
  5. Cooling-Off Periods
    While some States in Australia have a cooling-off period of 5 business days, Western Australia has no mandatory cooling-off period for the purchase of residential property at all. However, such narrow windows for a change of mind are common in Western countries. In fact, most States in the U.S. have a 3 day cooling-off period or less. By contrast, those purchasers prone to suffering from 'buyer's remorse' may like to start looking into Turkey. A purchaser of residential property in Turkey has the statutory right to withdraw from a valid contract without any penalty and without having to provide any reasons within 14 days after the execution of the contract.
  6. Australian Real Estate and "Foreign Persons"
    In addition to the above, "foreign persons" are subject to further regulation when purchasing Australian real estate. Under the Foreign Acquisitions & Takeover Act 1975 (Cth), a "foreign person" includes:
  1. a natural person who is not ordinarily resident in Australia;
  2. a corporation in which a natural person not ordinarily resident in Australia, or a corporation incorporated overseas, holds 15% or more of the corporation;
  3. a corporation in which two or more of those persons, or corporations, hold 40% or more of the corporation;
  4. the trustee of a trust in which a natural person not ordinarily resident in Australia, or a corporation incorporated overseas, holds a beneficial interest of 15% or more of the assets or income of the trust; or
  5. the trustee of a trust in which two or more of those persons, or corporations, hold a beneficial interest of 40% or more of the assets or income of the trust.
  1. Laws Applied to Foreign Persons
    Foreign persons may, depending on the circumstances of the transaction, need to notify the Australian Government of their proposed acquisition of real estate, which will need to be approved by the Treasurer. On the advice of the Foreign Investment Review Board, the Treasurer will either permit or prohibit a proposed investment depending on whether it is in the 'national interest'. Usually, this requires weighing up the economic benefits of foreign investment against Government policies, national security, competition, who the foreign person is, and the general concerns of too much international ownership of Australian assets.

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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Authors
Murray Thornhill
 
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