Contract Draft & Review

Drafting and reviewing contracts in Australia involves understanding legal principles, statutory requirements and practical considerations to create effective and enforceable agreements.

Contract Draft

A bulletproof contract draft for the sale of property in Victoria is essential to protect the interests of both the buyer and seller, reduce the risk of disputes, and ensure compliance with the law. Given that property transactions involve significant financial and legal consequences, a well-prepared contract helps prevent misunderstandings, breaches or legal complications during or after the sale.

A bulletproof contract is critical for following reasons:

• Legal Protection
  • A solid contract clearly outlines the rights and obligations of both parties, preventing misinterpretation or ambiguity where it clearly states the settlement date, purchase price and inclusions/exclusions can avoid disputes about what was agreed upon.
  • A bulletproof contract ensures that the transaction complies with the relevant laws such as the Sale of Land Act 1962 and Australian Consumer Law and failing to comply can lead to the contract being voided, fines or legal action.
  • In Victoria, the law requires the vendor to provide the buyer with a Section 32 Statement which includes essential details about the property like title, zoning, outgoings and easements and a comprehensive contract includes this, ensuring that the seller complies with legal obligations and protects the buyer from undisclosed issues.

• Minimizing Financial Risks
  • A bulletproof contract specifies the payment terms like deposit, balance and payment methods, ensuring there are no surprises for either party and clear deadlines for payment protect the seller, while details about deposit handling provide security for the buyer.
  • Ensuring the correct handling of stamp duty and the inclusion of any applicable concessions like first home buyer or off-the-plan concessions can help buyers avoid costly mistakes.
  • If GST applies to the sale, the contract should specify whether it is included in the price or whether the margin scheme applies, preventing financial disagreements.

• Preventing Disputes
  • Many property sales are subject to conditions such as finance approval or building inspections and a bulletproof contract specifies timeframes and processes for these conditions, giving both parties clarity on what happens if the conditions aren’t met like terminating the contract or renegotiating terms.
  • Including terms on how disputes will be handled like mediation and arbitration can prevent costly litigation if issues arise and it also sets a clear process for dealing with default by either party.
  • If there are unique aspects of the sale like subject to the sale of another property or vendor repairs, these need to be clearly outlined to prevent misunderstandings that could lead to contract breaches.

• Ensuring Smooth Settlement
  • Settlement is the final stage in the property sale where payment is completed and the title is transferred including a well-drafted contract ensures both parties are aware of their obligations leading up to and on the settlement day, such as handing over keys, vacant possession and required documents where it ensures no delays or last-minute complications.
  • If one party fails to meet their obligations like the buyer doesn’t secure finance or the seller fails to discharge a mortgage, a bulletproof contract will contain clear clauses on how default is handled and it may include penalties, deposit forfeiture or the right to terminate the contract.

• Protection Against Future Liability
  • A bulletproof contract ensures that the buyer is fully informed about any easements, covenants or other encumbrances on the property that could affect future development or use, and it avoids legal issues or claims after the sale is completed.
  • Including warranties from the seller about the condition of the property and its legal status like free from undisclosed encumbrances or compliance with planning, it provides buyers with a layer of protection. If something goes wrong after the sale like undisclosed structural issues or disputes over title, the buyer may have recourse under these warranties.

• Ensuring Effective Execution
  • Victoria uses the PEXA platform for electronic conveyancing and property settlement and a bulletproof contract should include provisions for electronic settlement, ensuring the parties understand the process and are prepared for a smooth and timely transaction.
  • Proper Signatures and Witnessing: To avoid disputes over the validity of the contract, the document must be properly executed. This includes ensuring the correct parties sign and that all signatures are witnessed if necessary.

• Tax and Legal Implications
  • A seller may be subject to CGT on the sale, while the buyer may be required to withhold a portion of the purchase price if the vendor is a foreign resident for tax purposes and a bulletproof contract addresses these issues to ensure compliance with the Australian Taxation Office (ATO) requirements.
  • If the buyer is eligible for a First Home Owner Grant or other government concessions, the contract should clearly state these entitlements to avoid any administrative delays or legal issues.

Contract Review

A contract review in a property sale in Victoria is an essential part of the process as it helps both the buyer and seller ensure that they fully understand the terms and conditions of the sale and avoid potential legal or financial pitfalls and make informed decisions.

The following are the key reasons why a contract review is crucial:

• Understanding Legal Obligations

A contract of sale is a legally binding document that outlines the rights and obligations of both the buyer and the seller. By reviewing the contract, you can clearly understand these responsibilities such as payment terms, settlement dates and conditions that must be met before the sale is finalized.

It helps prevent misunderstandings or disputes that could arise if either party fails to meet their obligations.

• Identifying Special Conditions

The contract may include special conditions or clauses tailored to the specific sale such as “subject to finance” or “subject to a building inspection.” A contract review ensures that these conditions are appropriate for the buyer’s and seller’s needs. Buyers may want to include conditions that allow them to exit the contract if they are unable to secure finance or if the property has defects that were not disclosed. A thorough review ensures these safeguards are in place.

• Ensuring Compliance with Legislation

The Sale of Land Act 1962 in Victoria and other relevant legislation govern property sales. A contract review ensures that the contract complies with Victorian laws, which protect both parties’ rights.

The contract must include a cooling-off period (usually three business days) and other statutory disclosures that protect the buyer’s interests.

• Review of the Section 32 Vendor’s Statement

The Section 32 Statement (also known as the Vendor’s Statement) is a mandatory document that must be included with the contract of sale. It provides crucial information about the property, such as zoning, council rates, outstanding mortgages, easements, and any restrictions on the use of the property. A contract review includes a careful examination of this document to ensure that the buyer is aware of any potential issues or liabilities associated with the property.

• Clarifying the Terms of Sale

The contract specifies important details such as the sale price, deposit amount, settlement date and inclusions/exclusions like fixtures, appliances, or furniture. A contract review ensures that all these details are clearly stated and accurately reflect the agreement between the parties. It also ensures that there are no hidden fees or unexpected costs that could arise later in the process.

• Avoiding Hidden Risks

A review by a lawyer helps identify any hidden risks or unfavorable clauses that might not be immediately apparent to a buyer or seller. There may be penalties for delayed settlement or conditions that favor one party over the other.

The contract may also include default clauses that outline consequences if either party fails to meet their obligations which should be carefully reviewed to avoid legal or financial penalties.

• Negotiation and Amendments

After reviewing the contract, you may find that certain terms or conditions are unfavorable or need clarification. The review allows for negotiation between the parties to amend or remove clauses before the contract is signed.

The buyers may want to extend the settlement period, reduce the deposit or ask for repairs to be made before settlement. A contract review gives both parties a chance to negotiate terms before entering a binding agreement.

• Protection in Case of Disputes

A thorough contract review can prevent future disputes by ensuring that the terms are clearly defined and agreed upon. If a dispute does arise during or after the sale, having a well-reviewed and comprehensive contract can provide legal protection and make dispute resolution easier.

• Ensuring the Property Is Free of Encumbrances

Encumbrances such as caveats, easements or mortgages on the property can affect the buyer’s ability to enjoy the property or sell it in the future. The contract review helps identify any encumbrances that need to be addressed before the sale is finalized.

• Financial Considerations

Reviewing the contract ensures that the deposit amount, settlement amount and any penalties for delayed settlement or breach of contract are clearly outlined. Buyers need to ensure they have sufficient finance to cover not just the purchase price but also additional costs like stamp duty, legal fees, and any adjustments for council rates and utilities.

• Cooling-Off Rights and Termination Clauses

Understanding the cooling-off period (usually three business days) allows the buyer to exit the contract within this timeframe, if necessary, although there may be a penalty. The review also examines any termination clauses to clarify under what conditions the contract can be cancelled and the consequences of doing so.