This article addresses the risks associated with contracts that are completed and executed by the agent and/or parties without the further involvement of the vendor’s solicitor.
Conveyancing practitioners are often engaged by vendors of property to prepare a contract for the sale of land and vendor’s section 32 statement in anticipation of an impending sale or auction. Typically, a ‘standard’ contract of sale of land will be drafted with a deposit payable upon signing the contract and the balance of the purchase price to be paid at settlement, and with the purchaser becoming entitled to possession at settlement (and not before).
After the contract is prepared by the vendor’s solicitor, it is common for the selling agent to then complete the particulars of sale, such as the purchaser’s name, the price, deposit, balance to be paid at settlement and the settlement date. This article addresses the risks associated with contracts that are completed and executed by the agent and/or parties without the further involvement of the vendor’s solicitor.
However, LPLC is seeing instances — particularly with properties in areas designated for future urban development — where the purchaser has negotiated a longer settlement period with multiple instalment payments prior to settlement. The selling agent then includes the payment details in the contract and the contract is signed without the vendor’s solicitor being consulted. Such amendments to the contract can unintentionally convert the contract from a standard contract into a ’terms contract’ under s29A of the Sale of Land Act 1962 (Vic) (SLA).
Under the SLA, a terms contract is defined as a contract of sale of land where the purchaser is:
- obliged to make two or more payments to the vendor other than a deposit (as defined) or final payment on completion, or
- entitled to possession of the land or to the receipt of rents and profits before the purchaser becomes entitled to a conveyance or transfer of the land.
This inadvertent change from a standard contract to a terms contract can lead to serious unintended outcomes for the parties, including the contract being voidable. This is because standard contracts and vendors statements are typically not drafted to comply with the specific requirements under Part I Division 4 (ss29A to 29W) and s32A(d) of the SLA, necessary for a terms contract.
For example, the sale of property by a terms contract requires the vendor to include additional information in the vendor’s statement such as the number of payments, interest charges and other financial information under s32A and Schedule 2 of the SLA, as well as particulars of any mortgage set out in Schedule 1. For the contract of sale of land to comply, various requirements under the SLA must be met, including for example, s28M (a), (b), (c) and (d) if the land is subject to a mortgage. The failure to comply may give the purchaser a right to avoid the contract at any time before completion and recover money that has been paid.
LPLC sees claims where the signed contract is returned to the practitioner, and the practitioner does not identify that the contract which has been executed is, in fact, a terms contract so they do not provide any or adequate advice on the relevant implications and the client’s obligations under the SLA.
Further problems can also arise after the contract is signed and before settlement if the purchaser cannot settle or needs more time, and arrangements are made for instalment payments, an extended settlement and/or possession of the property. Such changes may also create a ‘terms contract’ with the consequence that the contract and vendor’s statement may not comply with the requirements under the SLA giving rise to a voidable contract.
Risk Management Tips
Bearing in mind these risks, when providing a draft ‘standard’ contract of sale of land and section 32 statement to a vendor client and/or selling agent, consider always providing an accompanying warning that:
This contract of sale of land has been prepared as a ‘standard’ contract only. If the contract terms are changed to allow the purchaser to make two or more payments after 60 days has passed since the contract was executed and before the final payment at settlement, or to allow possession of the property by the purchaser prior to settlement, the contract may be deemed a terms contract under the SLA. In these circumstances, it is likely that both the standard contract and vendor’s statement will not comply with the SLA and different documents must be prepared before it is signed to avoid the risk that the contract may be voidable at any time before settlement.
Then, when a signed contract of sale of land is returned or provided to the practitioner, always check the contract for any amendments made to the standard form document. If a terms contract has been created, practitioners must always advise on the implications and risks, including that the purchaser may potentially avoid the contract, as well as the client’s obligations, and then obtain the client’s instructions. Keep good file notes and always confirm advice and instructions in writing to the client.
Further resources about terms contracts:
- LPLC Article Are You Preparing a Terms Contract
- Sale of Land Act Victoria, W. Rimmer and D. Lloyd, Pyrmont, 2nd Edition, Thomson Reuters Lawbook Co, 2023
