In our experience, most property transactions are
straightforward and unremarkable. However, every so often,
easily avoidable problems appear and cause unnecessary headaches
Read on and make sure to avoid these in your next transaction!
The most common legal mistakes that we see in real estate
Thinking that financing ‘pre-approval’ or
‘approval-in-principle’ is actual approval.
Verbal promises, like that repairs will be made before
settlement, are usually not enforceable until they are added
to the contract.
The cooling-off rights are really not as good as they
You need to check that the contract includes all the land
and fixtures you expect to get.
Conditions with a time limit, like the finance condition or
a building inspection condition, can easily lapse and have
Conditions that are designed to protect the purchaser, for
example a building or pest inspection, are often less useful
than you think, especially if they are drafted by the
vendor's agent or solicitor.
An oldie but a goodie, vendors sometimes fail to have all
the titles on hand for settlement.
As a purchaser, this is your last chance to make sure that
the property is how you expect it. Don't pass it up.
These are just the legal mistakes that can be made. We haven’t
covered the financial aspects, which are often much more
Some buyers mistake a bank’s ‘approval in principle’,
‘pre-approval’ or ‘conditional approval’ for actual final
approval. Others hastily rely on their mortgage broker’s
assertion that there won’t be any problems in getting a loan.
Different banks have different pre-approval procedures and
check different things in this first step, but one thing is
common: they haven’t agreed to lend you a cent until you get
written final approval!
As a common example, a bank may end up approving a
significantly lower loan than you expected because there is a
valuation condition, and the bank’s valuation of the property is
lower than your agreed price.
If you don’t have final approval, then:
If you enter into a contract of sale but cannot complete it
because of lack of financing, you will lose at least your
deposit, and may be liable for further damages suffered by the
Most contracts of sale contain a ‘whole of agreement’ clause,
which essentially say that the written contract contains the
whole of the agreement between the parties, and anything not
written into it has no effect.
If the agent told you that you could pay a lower deposit, or
the vendor said that they would fix the back door before
settlement: those statements count for nothing unless you get
them added to the contract.
A cooling-off period sounds like a nice safety net, but when
you look closer, it has a lot of holes in it:
Don’t rely on the cooling-off rights. Make sure you’re fully
comfortable with a contract before signing it.
This is where it gets a little bit technical and you need the
help of your solicitor or conveyancer. Once contracts are
exchanged, you are entitled to nothing more and nothing less
than what is described in the contract. We see alarmingly often:
It is not uncommon for lawyers and conveyancers to miss these
issues too, so it pays to check this for yourself.
Purchasers insert conditions into contracts of sale to give
them ways to back out of the contract. Generally, these
conditions don’t automatically cancel the contract: generally,
one party (usually the purchaser) needs to give notice
cancelling the contract by a certain time, or else the contract
Making sure that conditions do not unintentionally lapse is one
of the most important jobs of your lawyer or conveyancer. But
missing a condition deadline can be so costly that you should
keep an eye on them yourself too.
The most common misconception is that a ‘subject to finance’
condition automatically cancels a contract if the purchaser
fails to get finance. In fact these conditions require the
purchaser to act very promptly in applying for a loan, and if
unsuccessful, give notice strictly before the deadline in the
way set out in the contract to the vendor, to successfully
cancel the contract. It is very easy for these contracts to
accidentally become unconditional.
Special conditions, especially those not drafted by solicitors
or conveyancers, can be next to useless when applied in
The classic example is a building inspection condition that
The Contract is conditional upon the Purchaser(s) obtaining a
written report from an independent registered builder or
qualified structural engineer, certifying that the dwelling on
the property is structurally sound within 14 days of the date
of this Contract.
At first glance, this sounds pretty good for the purchaser. But
note that ‘structurally sound’ does not mean ‘good condition’.
Pretty much every house is structurally sound!
An inspection that reveals a major termite problem, rusted
gutters, or leaks through the roof will not be enough to
withdraw from the contract under the condition above. It pays to
read conditions closely, and get a lawyer or conveyancer who is
looking after your interests to draft them.
Most of the time, there is a mortgage over the relevant
property, there is only one title, and the lender holds it and
will bring it to settlement. When this is not the case,
sometimes one of the titles is misplaced and the settlement
In some properties, the driveway, yard or car-parking spot is
on a separate title, and the bank might only hold the primary
title. In other cases, there is no mortgage over the property,
so the title could be anywhere.
As the vendor, you have to track down where all the relevant
titles are. Common places are the bank, a solicitor, a safe
deposit box or stashed away in the drawers at home.
As a purchaser, you have a right to inspect the property in the
week before settlement. This allows you to make sure that there
has been no damage to the property since sale, that all the
included fittings and goods have remained, and that the previous
owner is able to move out in time.
If you do find a problem during your final inspection, you
could negotiate to delay the settlement, reducing the purchase
price, or going ahead with the settlement, but getting the
vendor’s legal representative or agent to retain a sum of money
to secure the repairs / rectification works.
If you settle without an inspection, you lose a lot of your
bargaining power because you will have already handed all of the
money over to the vendor.
Growing up in a family of property developers, real estate is
in Lucy’s blood. It’s that experience and her time at her
previous commercial and property law practice that allows Lucy
to cut to the chase, identify the real issues, give you
practical advice alongside the legal, and help you with anything
from the smallest purchase to your next major development
Lucy can also draw from her years of experience at the
Australian Tax Office and Victorian State Revenue Office to help
you structure your property transactions in the most
Call us on +61
3 9041 7733 if you would like to find out more.
The Fitzroy Legal Centre’s law handbook is a good
reference for the legal aspects of a purchasing transaction.
There are many helpful resources on the web to help property
buyers. Always check when they were written, as the law and
industry practices change frequently, and many articles are
You can see our related services for property purchases on our
Kai Legal publications provide general information, and are not
legal advice. These are not complete summaries of the law, and
only touch on select points and scenarios that may be relevant
to our readers.
This fact sheet is current as of 17 March 2015.
© Kai Legal 2015
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