Considerations and checks before signing the conditional contract, what happens at settlement date when being unable to settle and tips to avoid penalties or legal fees
Buyer’s Offer accepted
Conditional Contract or nothing
Attention before signing a conditional contract
As here illustrated — do not underestimate the key role of the seller’s agent for refusing or accepting your offer. It always pays off having the cooperation of the agent. He/she will be helpful as they are motivated for the commission they get if the house sells. But in terms of conditions, remember, you choose the conditions because it is “your” offer. If you are unsure at the time—don’t worry, add a clause similar like this and get an approval from your lawyer;
“This agreement is conditional on the Purchaser’s Solicitors’ approval in all respects.”
Avoid a dead-running offer
When completing the necessary information about price, deposit, and your conditions consider to include an expiration date (sun-set clause) similar to this;
This offer, if not accepted by the vendor will expire at 'time' and “date’.
The sun-set clause saves you the time to formally withdraw your offer, otherwise it could live for months.
If you have completed your part and passed on your offer to the agent, you will keep in touch with the agent to make sure you get a confirmation and sellers response. Remember – with the agents help you are less likely to miss out.
Tips for checking the conditional contract
The steps and order for making an offer are entirely up to you. If you look through my blog posts about due diligence, then you already know I do limit my time and costs before getting the offer accepted. When having the conditional contract I swing in action to sort everything step-by-step.
Why would you pay for those services (council, inspections, lawyer) and reports such as LIM, building report, etc and not even know whether your offer has been accepted or not? If you need to engage people, your due diligence clauses should give you sufficient time to complete all steps of investigation.
What would you check on the contract?
· Seller’s details—For instance with multiple owners and one owner’s details missing, not complete (for joint ownership, partnership, company and trust) the seller could keep a backdoor open to exit the contract.
· Property details (title description, size, easements on the title, etc), normally your lawyer would execute a title search and discuss those details.
· Possession—If the property is tenanted, you would normally take vacant possession, but if not you need to get copies of tenancy (lease) agreements
· Purchase details—Finally double check your payment details such as deposit, purchase price, GST included (or not), your conditions and also cash-back clause and penalty clauses (if included) .
· Multiple Buyers/Sellers—it is essential to make sure that all individuals have to sign the Sales & Purchase Agreement—or there is no Contract!
What happens when one party does not settle?
Risk Management— Don’t declare an agreement “unconditional” unless you are certain, able and willing to complete the purchase.
Common reasons for the buyer not to settle:
· Cold feet while the buyer changed his/her mind;
· Finance—problems with the bank or anticipated funding are not available. Or the purchaser found out problems with the title, building or believes that a disagreement hasn’t been settled (breach of conditions or contract).
· Seller has something misrepresented and the buyer wishes to cancel the agreement.
· Buyer’s pre-settlement inspection revealed seller’s breach of contract (e.g. Did not fulfilled obligations from the contract, chattels are replaced or missing, damage to the property)
Reasons for the seller to delay or not to settle:
· The bank does not release the mortgage (happened once to me)
Under normal circumstances if one party fails to settle the other party has rights under the penalty clause to claim compensation. It sounds easier as it really is and mutual agreements to get over sticky situations have always worked for me. I wish and hope this blog post helps you to avoid penalties and being lucky, too.
Investor’s & Landlord’s Blog
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Klauster Blogs lead to a real person, IT professional, investor, landlord and business owner with interests in technologies, properties and trading.
His passion, making experiences available and helping people like you, comes from extensive travelling and the principles of life—how to avoid pitfalls in unfamiliar territory when investing or forming relationships.
The philosophy to treat life, partnerships and hobbies as an investment has helped people in his circle. Life is a dream with a deadline, happiness comes from making the right choices and having realistic expectations.
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