Buying a house? Don’t sign just yet...

December 06 2016

Buying a house? Don’t sign just yet...

So you’ve viewed numerous homes and have finally found one that you think you’d like to buy. The real estate agent gets a Sale and Purchase Agreement, presents you with a pen and shows you where to sign. If you find yourself in this situation, we want you to remember this article and say, “I need to talk to my lawyer first.” Here’s why...

Buying a house isn’t always straight forward

A Sale and Purchase Agreement is one of the most important documents you will sign. The housing market is buoyant and homes are in short supply, so there’s often pressure to sign without talking to your lawyer. If you sign an unconditional agreement with no due diligence clause, you’re committed to the purchase.

However, if you’re ready to buy a property, talk to our property lawyers first and we’ll help you do the right preparation to sign an agreement. For example, here are two out of many clauses you may want to modify, clarify or add to the agreement before you sign.

Check clause 8: Equitable set-off

In the standard agreement, Clause 8 covers claims for compensation for the property not being in the same condition as when you viewed it for purchase. It’s called equitable set-off (ESO). An ESO situation can arise at your pre-settlement inspection, which is usually done two or three days before settlement.

Here’s a real life ESO example. The purchaser carried out a pre-settlement inspection and noticed a locked cupboard in the house. The vendor said he was growing cucumbers. As it’s not common to grow cucumbers in a cupboard, the purchaser suspected the vendor was growing cannabis, which turned out to be the case. An ESO claim for compensation was lodged for in excess of $100,000 to pay for decontamination.

Happily for the indoor cucumber farmer, the claim was sorted out by settlement date, as the purchaser withdrew her claim.

Timing is critical. If there’s no settlement notice in your agreement, you have to make a claim on or before the last working day before settlement, not the day of settlement, which is all too often the case. Claims must be genuine and realistic. You should not, for example, claim $5,000 because the lawns haven’t been mowed.

We recommend you carry out the pre-settlement inspection two or three days before settlement, not early on the day of settlement. If you need to make an ESO claim, we need a reasonable opportunity to sort it out.

The pros and cons of a Solicitor’s approval clause

Adding a solicitor’s approval clause to your sale and purchase agreement isn’t as good as a due diligence clause. A solicitor’s approval clause is useful when your solicitor has a genuine legal objection or identifies an impediment to the sale, such as the validity of the title. It can be beneficial to both the vendor or the purchaser if there are genuine reasons to invoke it.

The clause isn’t useful if you want to cancel the agreement because you made a bad decision.

Here’s an example. A purchaser put in an offer on a house on a Saturday before a Sunday open home. The vendor included a standard solicitor’s approval clause, for her benefit, and both parties signed. More than 200 people came to the Sunday open home and the vendor realised she could have got $100,000 or more than the agreed sale price. The vendor then attempted to cancel the agreement claiming her solicitor did not approve it. The inevitable sale went ahead after a caveat and a flurry of letters. Changing her mind wasn’t enough to get out of the agreement.

Still holding that pen ready to sign?

The devil is in the detail. Read your agreement and don’t be persuaded to sign if you’re unsure about anything. Most importantly, talk to our legal champions before you sign, not after.

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