NEGOTIATING THE CONTRACT

You should never bid up the price beyond what you think the property is worth on a fair assessment. Normally, the contract is a cash contract and provides for payment of the purchase price in two payments. Possession is given on payment of the price at settlement when the buyer receives a transfer of the land from the seller. The settlement date is normally 60 to 90 days from the date of the contract. The whole or part of the price can be provided by a lender who will pay the mortgage money at the settlement to the seller.

You should ask for a copy of the contract and vendor's statement before the auction so that you can make enquiries about the contract.

Many properties are sold by private agreements which result in buyer and seller signing a contract note. The contract note is prepared by the agent and must be accompanied by the vendor’s statement. If negotiations become difficult, you can make an offer in writing by signing the contract note, paying the deposit and instructing the agent to communicate the offer to the seller for acceptance or refusal within a specific time. The offer can be for less than the agent advises the seller is willing to accept. The deposit will be returned if your offer is not accepted.

In auctions and private treaty sales, a contact of sale is used. This is prepared by the vendor's solicitor or conveyancer or, in some cases, by the vendor's agent. You should read every clause carefully to ensure you understand its effects before you sign,

The deposit can be paid by one sum, or as a preliminary deposit and balance. The deposit should be the smallest sum the buyer can negotiate. Usually, the seller will require that 10% of the price be paid immediately.

The Sale of Land Act 1962 (Vic) ("SLA") requires agents, solicitors or conveyancers or sellers to place deposits in trust or special bank accounts. Agents or solicitors or conveyancers who hold deposits cannot use the money for their own purposes and must return the money to the appropriate party if the contract falls through. The terms of the contract provide that if the buyer breaks the contract, the seller is entitled to keep the deposit.

If the seller and buyer agree, the deposit can be put into an interest-bearing account in their joint names; however, the payment of the deposit out of the account requires the signature of both parties. While this strategy allows interest to be earned, the accessibility of the deposit is diminished.

If land is bought by two or more people, they need to choose how the title will be shared. All the owners should have their names on the title. They can decide to be joint tenants, which means that their shares are equal and the survivor will receive the entire property if the others die first, regardless of any contrary provision in their wills.

The alternative is to own the land as tenants in common, in shares calculated on the basis of each individual's contribution to the price. Each owner can have a separate title for his or her share and that share can be disposed of by will.

As soon as the contract is made, the buyer should lodge a caveat on the seller's title to prevent the seller dealing with the land except to complete the contract.

The caveat form can be obtained from law stationers (listed in the Yellow Pages). The buyer should complete the form by claiming "an equitable estate in fee simple" in the panel "Estate or Interest claimed". In the "Grounds of Claim" panel, add "by virtue of contract of sale dated ... (insert the day of sale of the contract note or the contract of sale) between ... (insert the names of the parties)". The caveat should prohibit the registration of any interest "except a transfer to the caveators". Delete "Absolutely".

The caveat can be mailed to the Land Registry with a cheque payable to the Registrar of Titles for the lodging and mailing fees, or it can be lodged personally.

Builders must have professional indemnity insurance to cover building losses and defects, under section 135 of the Building Act 1993 (Vic). The guarantee available under the Housing Guarantee Fund has been given a new lease of life via the House Contracts Guarantee (HIH) Act 2001 (Vic). This is to save claims where the registered builder was insured with the collapsed HIH Insurance group.

Generally, buyers take out their own insurance when the contract is made. A buyer who relies on the seller's insurance should ensure that premiums are paid up and the cover is adequate.

If the house is destroyed or damaged before settlement so that it is unfit for occupation, the buyer can rescind the contract by notice in writing to the seller within 14 days of becoming aware of the damage, under the provisions of section 34 of the SLA.

The buyer can ask the seller questions about the title and the land generally. These are called requisitions. To make requisitions, the buyer must investigate the title thoroughly enough to identify any difficulties. The title at the Land Registry must be searched, and the rate, tax and zoning information provided by the seller must be checked.

Buyers should always examine:

All applications for certificates are made on special forms and for appropriate fees. The list above is not exhaustive. Sometimes certificates from the Historic Buildings Council and other agencies are necessary. Often the local council should be asked about flooding, filling of the land, or slippage on hillsides. An incomplete registry of land affected by chemical pollution is held at the Environment Protection Authority, and the Department of Sustainability and Environment (Agriculture Victoria) can give advice on land affected by the use of chemicals.

The buyer must send requisitions to the seller within 21 days of the day of sale. If the seller refuses to answer the requisitions, the buyer can avoid the contract. If requisitions are not sent in 21 days, the buyer is deemed to have accepted title. Some sellers restrict the scope of requisitions in the contract.

The buyer must prepare and sign the transfer and send it to the seller for completion. This should be done when requisitions are satisfactorily answered and at least two weeks before settlement. A copy of the draft transfer must be sent to the lender as soon as possible. The seller signs and retains the transfer until settlement.

The buyer must prepare a rate adjustment statement and send the seller a copy before settlement. They must also search the title at the Land Registry and prepare a notice of acquisition of land for the SRO. All rates and taxes are adjusted, and the cost of clearing the seller’s title (by removing existing caveat and mortgages) is allowed to the buyer. All rates outstanding on the property are the responsibility of the seller and should be paid at settlement.

The buyer (or lender) hands the seller a bank cheque for the balance of purchase money plus or minus adjustments for rates, taxes and other charges. Vacant possession is given to the buyer upon settlement, or, if the property is sold subject to a tenancy, the buyer is entitled to receive the rent. The keys are usually held by the agent and given to the buyer after the settlement is confirmed by the seller’s adviser.

The seller should arrange final meter readings for water, gas, electricity, cable and telephone services for the day of settlement. The buyer should arrange for reconnection of the services

For more information on this subject refer to The Law Handbook chapter 14.1.