What Should A Buyer Know?

Contract

The Real Estate Institute of Queensland (REIQ) in conjunction with the Queensland Law Society have published Contracts adopting standard terms and conditions for most types of property transactions. It is accepted within the real estate industry and the legal profession that, where possible, a standard REIQ Contract will be used.

An REIQ contact will not typically be available for new developments. In these circumstances a contract is usually designed specifically for that development.

Whether the contract is a 'standard' REIQ contract or one designed for a specific development, it is recommended that before a contract is executed, legal advice is sought.

Subject to Finance

It is recommended that, where necessary, a contract be made conditional upon a buyer obtaining finance to assist with the purchase of real estate. The usual finance clause of the standard REIQ contract places an obligation upon a buyer to take all reasonable steps to obtain finance. It is important that buyers be aware that where a contract is conditional upon finance approval this is not an "out" for a hesitant buyer and that there is an overriding obligation upon a buyer to seek finance approval.

Transfer Duty

By law, both a seller and buyer can be held liable to the Commissioner of Stamp Duties to pay any transfer duty that is dutiable on a contract of sale. 

However, it is usual practice in Queensland that it is the buyer's responsibility to pay any transfer duty that may be assessed on a contract of sale.

Transfer duty was previously referred to as stamp duty.

Is a Buyer eligible for a concession on transfer duty?

As to whether or not a buyer is eligible for a concession on transfer duty depends upon a buyer's individual circumstances.  For example, a home / first home concession is available to a buyer if it is purchasing residential property as the buyer's home / first home, and

  • the buyer will occupy the residence on the land as their home starting within 1 year after the transfer date; and
  • the buyer will remain in occupation of the residence for at least 1 year.

If the property is the first home owned by the buyer, then, if the purchase price of the property is $500,000.00 or less, the buyer will be eligible for an even greater concession on transfer duty.

The value of the property impacts upon the amount of any entitlement to a concession e.g. if the price paid is greater than $500,000.00, then a buyer will not be entitled to concession as a result of it being the first home purchased.

This information is not to be taken as legal advice and is intended as a guideline only. The matter of how much stamp duty a buyer will pay will be addressed by the buyer's lawyer.

What does Time of the Essence mean?

It is usual that a contract will expressly make time of the essence. This means that it is important that a party strictly observe all time limits that are set down in the contract. From a buyer's point of view, the time limits may be with respect to approval of finance, the date for obtaining a building and pest inspection report or the settlement date. If a buyer fails to strictly comply with the time limits imposed in a contract then a seller has certain rights, including the right to terminate the contract and forfeit the deposit. It is possible that a seller may agree to extend certain time limits if necessary. This is something that is open for negotiation with a seller.

Tenure of Ownership

If there is more than one buyer of the property, then the buyers will need to decide what will be the tenure of their ownership of the property,i.e. whether they will hold the property as joint tenants or as tenants in common.

Joint Tenants means that if either party die, the remaining party would have the right as the surviving tenant to receive a transfer of the deceased's share in the property. This is regardless of any bequest made by the deceased party in a will.

In contrast, Tenants in Common means that if either party die, the deceased party's share would be distributed in accordance with the deceased's Will or, if there is no Will, then in accordance with the law.

The surviving party does not have any right to the deceased's share in the property unless provided for in the deceased's will.

Whose Risk is the Property at?

In accordance with the standard terms and conditions of an REIQ contract, the property is at the risk of the buyer from 5pm on the next business day following the date of the contract. It is recommended to buyers that they take out a cover note over the property as soon as they have signed a contract to purchase that property.

Where a buyer is purchasing a unit or other property that is a lot in a community titles scheme, the Body Corporate will, in most cases, have taken out insurance to cover the full replacement cost of the building. This insurance does not include the interior of any of the lots in the community titles scheme.

The buyer should discuss this issue with their lawyer as soon as a contract is executed.

Landlord Protection Insurance

Where a property is to be used as an investment property, a buyer should consider taking out Landlord Protection Insurance . Depending on the policy, this type of insurance should protect a property owner against those times when the property is vacant.

A buyer can find out more details about this type of insurance cover from an insurance broker.

Cooling Off Period

All relevant contracts in Queensland are subject to a five (5) business day cooling-off period within which a buyer has a right to terminate the contract if, for example, they change their mind about purchasing the property. 

If a buyer elects to terminate the contract during the cooling-off period, the seller may deduct a termination penalty of up to 0.25% of the purchase price from the deposit.

Body Corporate

A body corporate is made up of all of the unit/lot owners in a building complex. As a member of a body corporate, a lot owner will have certain rights and obligations, including the right to vote upon any decision of the body corporate.

One of the most important obligations on a lot owner is to contribute to the costs of the body corporate. These costs typically are in the form of regular levies.

A seller is required, by law to provide to a buyer a Disclosure Statement, which sets out things such as: 

  • the amount of levies that are due and payable to the body corporate;
  • particulars of the insurance that has been put in place by the body corporate; and
  • the interest schedule entitlement and contribution schedule that is alloted to the property being purchased.

A buyer should make sure that they are aware as to the amount of levies that they will be required to contribute before signing the contract. It may also be appropriate for the contract to be conditional on the buyer conducting a due diligence of the body corporate records. These matters should be discussed with the buyer's lawyer before the buyer signs a contract.

Building and Pest Inspection Report

Before signing a contract, a buyer should ensure that its obligation to purchase the property is conditional upon the buyer satisfying itself that the property is structurally sound and is not infested with pests. Such a condition usually will require the buyer to obtain a building and pest inspection report.

Searches

As part of the conveyancing process the buyer's lawyer will arrange for certain searches to be undertaken in respect of the property. Unfortunately, there are limited circumstances where a buyer can rely upon the results of those searches to terminate the contract, seek compensation or have recourse to any other remedy against a seller. It is advisable that, if a buyer has any particular concerns about a property, then, before signing a contract, the buyer should address those concerns with the buyer's lawyer. The lawyer can then deal with the specific concerns by inserting a special condition in the contract or by making other recommendations.

It is recommended that a buyer undertake the following searches -

  • Title  – A copy of the title to the property should be obtained.  This will confirm:
    • that the seller is the owner of the property;
    • reveal any encumbrances that are registered on the title, such as mortgages that will need to be released at settlement;
    • any easement that benefit or burden the land; and
    • confirm any other dealings that may be registered against the title.
  • Plan - A copy of the relevant plan will confirm the positioning of the lot being purchsed and, if the propety is a strata title property, it will also confirm any exclusive use areas or areas that form part of the title, for example, a storage area.
  • Local Authority Rates Information Search - The information that is obtained from a search of the local authority records will vary between each local authority.  It is usual however that the following matters would be revealed:
    • the amount of rates;
    • whether the current rates are outstanding;
    • if there are any arrears of rates and if there is, any interest that may have accrued on the rates; and
    • the history of any water meter and if there are any water charges to be incurred.
  • Department of Transport - A Department of Transport search will reveal if the department has any proposal to resume any part of the land to be purchased or any proposal to realign the road which is likely to affect the land.
  • Land Tax Department - A Land Tax Department search will reveal if there is any land tax outstanding with respect to the land.  This is important as any land tax that remains outstanding forms a charge against the property, even after settlement.
  • Body Corporate Records Search - A thorough investigation and compilation of a report should be undertaken with respect to the records of the body coporate.  This will importantly reveal the following matters:
    • any levies that are outstanding with respect to the lot to be purchased;
    • any notices or causes of action that may have been undertaken by the body corporate against their lot;
    • any proposals by the body corporate to undertake any major repair or works to the building which is likely to mean a special levy to lot owners;
    • the amount of the sinking fund;
    • any other matter that may be relevant with respect to the lot to ensure that a buyer is fully cognisant of the body corporate.

It may be appropriate that a condition of the contract be included that entitles the buyer to satisfy themselves with respect to the body corporate records.  This is a matter that should be discussed with a lawyer prior to signing a contract.

Additional searches that a buyer may consider appropriate include:

  • Building Records Search – A search of the building records will provide details of all applications and approvals given to construct improvements to the land.  This may be of particular relevance where any alterations or additions have been carried out to ensure that council requirements have been met.
  • A Survey Plan - A Survey Plan will confirm such things as:
    • whether the fences are on the true boundaries of the property; and
    • whether any structures from adjoining neighbours encroach onto the land that is being purchased or whether any structures on the land that is being purchased encroaches onto the neighbours land.

There are other searches that it may be appropriate to undertake depending upon the location of the property or because of any specific concerns that a buyer may have.