Buying a property as a new home or investment will be an exciting but also a difficult time. With so much at stake both financially and emotionally it can also be risky if you don't have the right information or advice.
As laying claim to your piece of the ‘Australian Dream' is becoming harder, purchasing a property will not be always easy nor problem free and your best defence to the dream becoming a nightmare is to arm yourself with knowledge and sound legal advice.
This article outlines what happens when you buy a residential property to ensure you understand the rights and responsibilities of those involved.
Of course, all property sales will be different and this information is only a starting point for prospective purchasers and the advice of a legal specialist should always be sought. The ConveyanceWhat is Conveyancing?
Conveyancing is, simply, the legal process of formally transferring the ownership of real estate from a seller to a buyer. Central to this process will be a contract, in this case a contract for the sale of land. Contract for the Sale of Land
A contract is an agreement between a buyer and a seller that outlines the identity of both the parties (buyer and seller), the details of the property being transferred (as well as any other items that come with the property) and its condition, the agreed price, the settlement date (the day on which the transaction will be completed), and other rights and particulars such as a ‘cooling off' period or sale contingent on the buyer gaining finance or selling their own property. ‘Drawing up' and Exchanging Contracts
‘Drawing up' and ‘exchanging' are words that are familiar to many but what is actually involved in this process? The drawing up and eventual exchange of contracts flow in a similar manner to this:
The Cooling-Off Period
- The seller will list their property with an estate agent, and their lawyer creates a draft contract. After having completed the relevant property searches the seller's lawyer will include in the contract the details of the property, and the identity of the seller;
- The estate agent finds a buyer for the property; the buyer and seller may negotiate the terms of the contract (not all clauses will be negotiable). The draft contract prepared by the seller's lawyer will be amended with any amended terms, the buyer's details, any other particulars, as well as the sale price;
- The buyer's lawyer will scrutinise the contract and carry out various searches to confirm that the property described in the contract is the one actually being sold. These inquiries will also substantiate that the property is owned by the seller, that it is in good repair and not on land likely to flood or subside;
- There may also be further negotiation about “cooling off” rights. The buyer's lawyer may also attend to matters such as ensuring the availability of finance for the purchase;
- The appropriate deposit is paid by the buyer and contracts are ‘exchanged'. Once contracts are exchanged, the parties have entered into a legally binding arrangement to sell and purchase the property. After the exchange of contracts the seller's lawyer will execute the transfer of the property title and this will be held by them until settlement.
Conveyancing may include a “cooling off” period. Inserted as a clause in the contract, this gives the buyer a period (often five days) in which to decide not to proceed with the contract.
Many sellers will insist that the buyer waive their right to a “cooling off” period as the removal of initial interest may significantly damage the seller's chances of finding other buyers.
There must be a clause in the contract that allows the seller to rescind on the contract, that is, ‘opt out' of the deal. This is a complex area of the law, but simply put any recision must be made on the basis of ‘reasonable grounds' and not be an arbitrary or capricious act. If the seller does rescind in a manner that is arbitrary or capricious your lawyer will be able to advise you on steps to recover damages from the seller.Purchasing a Strata Property
If you're buying a unit or townhouse as an investment or residence, the likelihood is that the property will be part of a strata scheme. Strata schemes have rules to ensure all owners enjoy the use of their property unfettered by the adverse actions of others. They also have funds, which the property owners contribute to, to ensure maintenance of the ‘common areas', that is those areas such as the exterior of the building, stairways and foyers that are owned simultaneously by all parties. This ensures properties within the scheme retain their value.
A strata property purchase will be mainly the same as a house purchase (as most strata schemes are under the same property system known as the Torrens system), however, it should be remembered that when purchasing strata property you will automatically become involved in the Strata scheme. This will require payment of strata levies because strata schemes require funds to fulfil their obligations.
The building inspection on strata premises will be largely the same as on non-strata premises, but a strata search will also need to be completed. This will allow you to go into the purchase understanding the standard of management of the scheme.Off the Plan Purchases
As numerous new unit developments are planned and built, many unit purchases will take place ‘off the plan'. This is the purchase of a property that is yet to be completed or commenced.
This is a very risky way of buying a new property and you should be aware that while buying ‘off the plan' can be a smart way of gaining a property for less than its eventual worth, the opposite may also occur. Also, off the plan purchasers may be in for a nasty surprise upon completion as there may be no guarantee as to the quality and types of finishes within the completed property.Obtaining advice from a Property Law specialist
The conveyancing process is complex and can be risky. While it can seem simple, there are many parts of the process that can go wrong without the right advice.
The good news is that having a lawyer act on your behalf in this process maximises the prospect of your sale or purchase going ahead smoothly and with a minimum of fuss. While you may think that you cannot afford the services of a property law specialist, consider whether you can afford not to.
Purchasing a property will be the largest investment most Australians will make in their lives. Whether investing for the future, or buying a new home, consulting a lawyer will ensure your investment is in good hands. If you're buying or selling a property, contact a property law specialist at Alexander & Associates to ensure your slice of the ‘Australian dream'.