Legal tips for buying a property
- September 21, 2018
If you have purchased a property in the past, you may have experienced the rush and urgency placed by all parties in proceeding to exchange contracts and place a deposit.
It is essential that you consider the below-listed items to avoid being out of pocket thousands of dollars, disappointed with your purchase or being a party to a lawsuit.
1. Is the property fit for your intended investment purpose?
Ensure you allow yourself sufficient time to make enquiries related to the property. Given that the property is intended to derive you an income as an investment, you need to determine whether the property is fit for occupation.
It is recommended that you, or your solicitor arrange a pest and building report or a strata report prior to attending an auction, signing a contract or during your cooling off period. You may discover defects or issues in the property. If so, your solicitor must rescind the contract before the expiry of the cooling off period otherwise you will be bound by the contract and required to proceed with the purchase. If the contract is rescinded before your cooling off period expires, you will be liable to lose the holding deposit.
A common misunderstanding occurs when purchasers are interested in buying a newly built or renovated property. Even though the property may appear to be complete, there are numerous certificates, which need to be obtained by the vendor to document the completion. Generally, the vendor is required to obtain a final occupation certificate (final OC). Without the final OC, you are unable to list the property for lease as it is not fit for occupation.
We have listed an example below:
The vendor had only obtained an interim occupational certificate rather than a final OC for the works undertaken at the property. Upon reviewing the contract, we requested that settlement be subject to a final OC being issued in a specified timeframe and if the vendor was unable to obtain the certificate then only our client was entitled to rescind the contract and have its deposit returned. We requested that the deposit be held by the vendor’s solicitor on trust and it was not to be released to the vendor prior to settlement. This minimised our client being exposed to having to recover the deposit if it was released and spent by the vendor.
The vendor was unable to obtain the final OC. We rescinded the contract and our client had its full deposit returned. We appreciate that time is money, however, it is much cheaper to lose time than lose a deposit worth hundreds of thousands of dollars.
2. Have you arranged your finances?
Ensuring the property is fit for your investment purpose is essential as the rental income itself may be taken into consideration when determining your borrowing capacity. If the property itself is not fit for occupation, your bank valuation may fall short. If you have already signed a contract and this occurs, you will be required to arrange the shortfall which could be in excess of thousands of dollars. If you can not arrange the shortfall required to settle, you will be exposed to losing your deposit and being liable for damages.
Do not sign any contractual documents until you have obtained your loan approved.
3. Always have your contract reviewed BEFORE signing
The contract of sale may contain clauses and/or dealings which could substantially impact your use of the property. A solicitor should provide you with advice on the contract, special conditions, dealings and annexures which will better assist you in determining whether the property is a suitable purchase.
A vendor is under NO obligation to review requests for amendments following an auction and the winning bidder is not entitled to a cooling off period. A winning bidder is legally bound by the terms of the contract and the condition of the property as they are presented at auction.
Items which may be evident in the contract include easements, restrictive covenants, council policies, sewerage service locations, by-laws, special levies, disputes or defective works.
Further, the contract may contain special conditions which impact the property or there may be special conditions you require to be inserted in the contract.
We have listed an example below:
A client attended an auction and was the winning bidder but did not have the contract reviewed prior to attending the auction. They were under the impression that settlement would occur in 42 days as it was stated on the front page of the contract. The contract contained a special condition which stated that settlement was subject to the grant of probate. Given that the contract had not been reviewed prior to the auction, the client was bound by the terms of the contract and was required to wait approximately 3 months for probate to be granted for settlement to occur. If there was a claim made against the estate, probate may have taken years, however, in this instance it was a few months.
Always carry out your searches as they are all you can rely on and do not rush into a transaction without obtaining sufficient advice.