Every transaction involving the sale and purchase of real estate must be documented properly in order for the matter to proceed to a satisfactory completion. Often for those unfamiliar with buying or selling property, the legal requirements and language can be daunting and confusing.
Real estate veteran and KR Peters director Peter Nicolls has dealt with thousands of property deals over his 45 year career and has a few simple tips when it comes to understanding the fine print and knowing what to look out for in the documentation of such matters.
At the top of the list as the most important document in real estate transactions is the Contract of Sale (the COS).
A COS embodies the particulars of the transaction which the parties have agreed upon. It can be prepared by a solicitor, conveyancer or real estate agent and describes the parties to the transaction, price and terms including settlement date, a description of the property (title particulars), the chattels sold with the property and the conditions involved such as whether the sale is subject to the purchaser obtaining finance and how the matter is to proceed leading up to and including the settlement.
Mr Nicolls advises that buyers should pay close attention to the Special Conditions and check for onerous (and sometimes draconian) conditions that may not be in their best interests.
The COS usually also includes a number of General Conditions.
These may include -
* Default Clause - the rate of penalty interest charges in the event of a late settlement.
* Nominee Clause - the time permitted prior to settlement to nominate.
* Guarantee Clause - in the event that you intend to purchase under a company, the requirement of the execution of the personal guarantee of the directors of the company. This is a standard requirement for all company purchases.
* GST clause - is the buyer liable to pay or reimburse the vendor for any Goods and Services Tax the seller is required to pay? This applies only to new properties not established.
* Foreign Investment Review Board clause - this would apply to temporary residents or foreign investors purchasing a property.
The list of chattels should also be looked at closely. “Avoid the words 'All existing fixtures and fittings as inspected' as this is too vague," Mr Nicolls warned. "Check inclusions AND exclusions because if a chattel that you’ve inspected is not referred to in the COS the vendor may remove it from the property before settlement.”
It’s important that any verbal promises made by the agent are in writing in the COS. For example, if the agent says an apartment is sold with two car spaces make sure that is written in the COS.
The COS should also clearly state that the property will be cleaned before settlement and that the gardens are in good condition at time of sale and at settlement the grass will be cut.
Similarly, all appliances and electrical equipment are in working order at settlement.
Another important document which accompanies the COS is the Section 32 Sale of Land Act Vendor Statement (the S32) which must be given by the vendor to an intending purchaser before the parties enter into the COS. The S32 should contain all of the information about the property required by law that a vendor must provide to the purchaser. It must disclose all of the information that might affect the state of the property, particularly where such information might affect the purchaser’s decision to purchase the property.
The most important aspect of the S32 is the provision of a copy of the Certificate of Title (the title) for the property which (among other things) will show -
* The identity of the owner(s);
* The shareholding of the owner(s);
* The period of time that the owner(s) have held the property;
* The Plan or plans of the land. Sometimes these form part of the original Plan of Subdivision (the POS); and
* Easements, encumbrances and covenants.
The title may also show mortgages, charges and caveats on the property. Mr Nicolls says that it in most cases it is the responsibility of the seller (the vendor) to remove or discharge these encumbrances before the settlement date of sale.
The S32 will also usually provide a copy of the Council Rates Notice. Mr Nicolls said the rates notice will show the Capital Improved Value of the land and the amount of rates owing annually. Buyers need to factor this annual cost into their budget.
"A council certificate, as opposed to the rates notice, should also show if any notices have been issued on the property," Mr Nicolls explained.
The Water Rates Notice identifies the relevant authority and usage charges levied on the property. Mr Nicolls says a good tip for buyers is to also seek out the Water Certificate on the property as this will show easement details. "Even though they are shown on the Plan of Subdivision, the water authority is more accurate."
The Zoning Certificate identifies in which zone the property is located and also shows other zones in close proximity, which Mr Nicolls says is particularly important when considering redevelopment.
Mr Nicolls says another important thing to look out for in the case of the purchaser of flats, apartments or units within a property development is the Owners Corporation Certificate (the OCC) or details relating to the Owners Corporation (the OC).
An OC manages the common property of a residential, commercial, retail, industrial or mixed-use property development. The OCC establishes the annual fees that relate to the property. This is normally calculated on entitlements of each property as shown on the POS.
"It’s important to check the drawings on the POS to ascertain that the car spaces are clearly shown. You don’t want to end up with car stackers or a car space that is difficult to get in and out of."
“The OCC usually discloses insurance details as well as the OC rules that relate to pets, noise levels, visitors car parking or other listed restrictions," says Mr Nicolls.
"You should also check the latest annual general meeting minutes to see what was discussed. Are any special levies about to be imposed or any issues raised about the condition of the building for example?" he adds.
For those buying in a new housing estate, there may be Design Guidelines applying which may restrict the type of housing and materials that can be used if a purchaser wishes to build on the property.
Mr Nicolls adds that the COS is usually worded in favour of the vendor and therefore, “it would pay to have a qualified lawyer peruse S32 and COS before signing the documentation.”