Purchasing a property is likely to be one of the biggest investments you will make and so it is important to know what you are getting yourself into. Once you have found a property you wish to purchase, the first step is to review the Contract for Sale. Often, the contract will contain terms and special conditions regarding the sale of the property that are worded in such a way so as to benefit the vendor (seller). As a purchaser, it is important that you understand what those clauses and special conditions are, what they mean and what your rights and obligations are under the contract.
What are special conditions?
Special conditions in a property contract are additional conditions attached to the sale of the property outside of the standard conditions you would normally see in the contract. It is common practice to include special conditions, but they may differ from contract to contract, or may be worded slightly differently in each contract.
Special conditions provide that extra layer of protection to the vendor (and in some cases, the buyer) to account for extenuating circumstances where the sale may not go according to plan.
Given the way in which special conditions are often worded, it is always a good idea to have an experienced property lawyer review the Contract for Sale and advise on particular special conditions to ensure that you as the purchaser understand what you are signing and there are no surprises.
Common special conditions you may see in a Contract for Sale
You can often negotiate the special conditions with the assistance of a property lawyer and conveyancer so that you are not disadvantaged should any unforeseen circumstances arise during the settlement period. Some of the most common special conditions you may see in a contract can include:
- Penalty clauses - nearly all contracts contain provisions on what penalties apply if the purchaser does not settle on time. It may include interest charged at a particular rate or fees charged for delaying, cancelling and/or rescheduling settlement. Whilst the transaction may go through smoothly, it is still helpful to know what happens if settlement does not take place on time, as the purchaser will be liable to pay penalties if they are at fault for the delay in settlement. A property lawyer can often help negotiate the fees and interest rate down to reduce any potential costs you may incur, with the agreement of the vendor's solicitor or conveyancer.
- Release of deposit clauses - another common clause in the contract is where a deposit can be released to the vendor early (i.e. prior to settlement) to fund the vendor's subsequent deposit or stamp duty on a property purchase for themselves. It is important to look out for clauses like this so that your deposit is not used before settlement is finalised and without your authority.
- Incapacity clauses - contracts will often contain a clause which outlines what happens if the vendor or purchaser dies or is unable to conduct their own affairs. Some contracts will provide that either party has the ability to get out of the contract, some may only provide the other party the ability to get out of the contract, and others may only provide the vendor the option to get out of the contract if something happens to the purchaser. It is important to be aware of what option is provided in your Contract for Sale.
Key terms to consider
In addition to special conditions, there are a few standard terms that form part of the Contract for Sale that may impact you as the purchaser. These can include:
- Date for completion - the settlement period between exchange of contracts and settlement can also be negotiated with the vendor. The most common settlement period in NSW is 42 days, however this can be shorter or longer to suit both parties. If you are purchasing a property towards the end of the year, be aware that contracts may also contain a clause extending the settlement period if the settlement date falls during the Christmas and New Year period when businesses are closed.
- Inclusions and Exclusions - a list of inclusions is marked on the front page of the Contract for Sale which set out what is included with the property, such as built-in wardrobes and light fittings. Exclusions may also be noted, which alert purchasers that these are items that the vendor will be taking with them after the property is sold. It is important to make sure all inclusions are noted on the contract, no matter how insignificant it may seem. If an inclusion is not noted on the front page of the contract, the vendor has the option of taking this with them before settlement.
- Land tax adjustments - vendors who are selling an investment property and are paying land tax on the property may pass on some of their land tax obligations to the purchaser, who may not be required to pay land tax as they plan to live in the property after settlement. A land tax adjustment on settlement can add another few hundred dollars that a purchaser should not be required to pay.
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.