Buying Property in NSW (Conveyancing Guide)

Buying Property in NSW (Ultimate Guide)

Introduction

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Contract

Contract

This is the document that regulates the transaction which even-handedly protects the interests of both parties.

The contract provides that you cannot rely upon any representation made to you which is not in the contract so let us know if there were any such representations.

The contract also includes a warranty by you that you were not introduced to the property by any agent other than the one shown on the front page of the contract. If you were, please let us know as otherwise you may be liable for that other agent’s commission.

The contract also provides for interest to be paid by you if you do not settle on the due date, which is normally 42 days after exchange. Also a procedure is established to force settlement if it is not effected on the due day. A notice to complete, usually within 14 days, is served on the defaulting party and if settlement does not take place in that time the contract can be terminated resulting in damages or actions for specific performance against the vendor or the loss of the deposit and damages against the purchaser.

Contracts are not binding on the parties until exchanged. This is the swapping of a contract signed by you for one signed by the vendor. There are occasionally exceptional circumstances when part performance might constitute a contract but this is a rare event not warranting further comment here.

In practice 10 days have passed by the time loan approvals are obtained, pest and building reports completed, contracts issued negotiated and signed and the parties are ready to exchange. During this time either party might change their mind.

In an endeavour to avoid purchasers of residential properties missing out during this time and at a time when the market was very active and gazumping was commonplace the state government introduced anti-gazumping legislation. It still applies although it has never found much acceptance in the marketplace. Its object is to allow purchasers to exchange contracts immediately and have 5 business days to make their arrangements after which they can either proceed or get out of the contract losing only 0.25% of the price. Purchasers can waive this cooling off period and most vendors require the purchaser to do so.

On exchange a 10% deposit is usually required and is held by the agent or vendor’s solicitor as stakeholder. If it is a significant sum, or if settlement is well in the future, then it may be invested and the interest earned shared. Normally this is not done as the amount is small and the administration expenses do not justify it. If this is to be done, then we will need your tax file numbers to avoid the maximum rate of tax being deducted from the interest by the institution with whom it is invested.

If it is difficult for you to pay the whole of the deposit, it is not uncommon for vendors to agree to a 5% deposit.

As an alternative a deposit bond can be used. This is an insurance policy, which provides that if you default the vendor can call upon the insurer to pay the deposit. The insurer is then entitled to recover the deposit from you.

On occasions the vendor seeks the release of the deposit. If it is an integral part of the transaction, then so be it. However, whilst the risk of trouble is small it is not considered to be wise to do so as in the event of default it may be difficult to get it back from the vendor.

Identifying the property

It is important that the property the subject of the contract is the one intended to be bought. This sounds obvious but in reality purchasers have been known to buy the wrong property. Care needs to be taken to identify the property.

Inclusions and exclusions

Fixtures are part of the land so that items such as built in pantries are included without further mention. Please check the inclusions and exclusions shown on the contract and let us know if the lists are deficient in any way.

Pest and building reports

Pest and building reports

You need to be sure that you are informed and happy with the condition and state of repair of the buildings. After exchange of contracts there is no recourse except in exceptional circumstances if the buildings are defective in some way.

Hence the need for pest and building reports, which we strongly recommend.

Please tell us whether or not you will be arranging a building and pest inspection.

Under the Conveyancing Act and the Home Building Act some protection is afforded to purchasers of residential property in relation to faulty buildings. However, we suggest that there is little comfort to be found in a right to sue for breach of warranty and it is best to thoroughly check the property and get pest and building reports before contracting.

The warranty under the Conveyancing Act, amongst other things, provides that there is no matter in relation to any building or structure on the land that would justify the making of any upgrading or demolition order. The only remedy is rescission of the contract before completion and return of the deposit.

The Home Building Act, amongst other things, provides a warranty that the building work was performed in a proper and workmanlike manner and in accordance with the plans and specifications, that all materials supplied were good and suitable for the purpose for which they were used and were new and that the construction complied with the law, and the dwelling is reasonably fit for occupation. The remedy is an action against the builder commenced within 6 years of completion of the building. The original or any subsequent owner can bring the action. If the builder has either disappeared, died or is insolvent then an action lies against the insurance company that issued the compulsory warranty insurance.

Council matters

Zoning certificates are attached to all contracts. These disclose the uses that are permitted without consent, those permitted with consent and those prohibited. They also disclose whether the property is affected by or subject to policies relating to flooding, tidal inundation, contamination, bush fire, mine subsidence, tree preservation, road widening, conservation, critical habitat, coastal protection, land slip, land fill, acid sulphate soils and any other risk. In most cases the answer is no to all of these possibilities. If the property is affected in some way, then further investigations need to be undertaken.

If you are considering any further development of the property, then you need to discuss those plans with us and you will need to investigate council’s requirements.

As a major shortcoming of the council certificate required to be attached to all contracts is the lack of information on approvals relating to the construction and use of the property. Not only does the construction of the buildings need approval but their use following construction also needs approval. If, as is usually the case, the vendor does not have a building or occupation certificate from council, then there is no way of knowing from the contract whether the buildings were built with approval and passed for occupation for their intended use. Inspection of the council file will normally provide the information that is necessary to assess the compliance of the building. However, in some instances it may be necessary to obtain a council building certificate. A current survey must accompany an application for such a certificate.

If the property is vacant land upon which a building is to be constructed then there are many constraints to do with such matters as setbacks, water catchment, bush fire, environmental impact, and energy saving imposed by council. A visit to or discussion with council is usually warranted. Most of this information is not available on the contract or the documents attached to it.

Enquiries

As a standard practice, enquires are made of a number of government authorities to ensure that there are no affectations or proposals that affect the property. If there are adverse affectations, then remedies are available. Council notices for work to be done or financial contributions to be made, issued before the exchange of contracts, are the responsibility of the vendor. Those issued after exchange of contracts are the responsibility of the purchaser.

Title

We will explain to you the nature of title, which might be either Torrens or old system. Regardless we will ensure you get a good title to the property. There may be easements, covenants and restrictions as to user affecting the title, which will also be explained ensuring they do not constitute a problem.

The easements and restrictions that commonly occur are those relating to the buildings on the land or access to them by right of way. Commonly subdividers seek to establish a standard of housing to be constructed within a subdivision by stipulating that houses of a certain size and using certain materials are the only ones that can be constructed. This might well set a standard but also might restrict your plans.

Access by right of way is common and can cause trouble when it comes to maintenance and repair. The usual position is that the properties benefited by the right of way are equally responsible for its repair. However, getting neighbours to pay their appropriate share can cause difficulties.

Strata title

Land in a strata scheme is divided into lots and common property. A lot is comprised of the cubic space delineated by the inner surfaces of the walls, ceilings and floor. The walls, ceilings and the floor, which are the boundaries of the lot and the rest of the building and all other improvements and the land, form the common property which vests in the owners’ corporation. Title to a lot in a strata scheme confers legal title to the lot and an interest in the common property as tenant in common with the other lot owners. You can sell, mortgage, lease or otherwise deal with your lot as you wish.

You automatically become a member of the owners’ corporation on settlement and you are bound by its by-laws regulating such matters as the keeping of animals.

The owners’ corporation establishes an administrative fund, to pay regular outgoings and ongoing maintenance, and a sinking fund, to provide for long-term work such as repainting. Your contribution to these funds is determined by the unit entitlement of your lot, as is the value of your vote at meetings as is your interest as tenant in common in the common property. Unit entitlements are calculated on the value of each lot on completion of construction. The total of all lot entitlements becomes the aggregate and each lot is part of that aggregate. So a more expensive penthouse will contribute more to the funds, have a greater voting power and have a greater interest in the common property than a ground floor bed-sitter.

You cannot alter your lot without the consent of the owners’ corporation.

Joint tenancy or tenancy in common

When two or more parties buy they must elect to buy as joint tenants or tenants in common. On the death of a joint tenant the survivor by law automatically receives the deceased share regardless of the provisions in a will. This is the way spouses usually buy their home. There is however a trap. In this age of blended families often one or both have children from a previous relationship. If both are killed in a car accident at the same time then the law provides that the youngest survives the eldest and in that moment of time, joint tenancy property passes to the youngest. If they do not have wills dealing with the situation then the home would pass to the children of the youngest, leaving the children of the eldest with no share in the home.

Tenancy in common is usually the way that unrelated parties who want their families to inherit their share hold property. The share in the property can be any size from 1% to 99%. Separate title deeds can issue for each share, which can, in theory although difficult in practice, be separately sold and mortgaged.

Insurance

Insurance is required from settlement or the date of possession if earlier. The mortgagee needs to be noted on the policy. The mortgagee’s title needs to be accurate as most mortgagees reject policies that do not show their correct legal title. The cover should be for replacement value. Contents cover is optional. Public risk and domestic workers’ compensation are normal extensions to these policies.

Fences

The adjoining property owners who must contribute equally to their repair maintenance and replacement usually own the fences built on the boundaries jointly.

Subdivision

Subdivision

Frequently the subject of the sale is a lot or unit that is yet to be subdivided or built and completion of the purchase is subject to this taking place. A plan of the proposed subdivision is attached to the contract and provisions included that the vendor will diligently do the things necessary to complete the works and have it registered.

The contract usually allows six months or other agreed sunset time for the vendor to complete the subdivision and register the plan, failing which either party can walk away. Completion cannot take place until the title for the lot issues following registration. In a normal market both the vendor and purchaser want completion to take place within the sunset period. However, if the market turns for the worse and property values drop a purchaser may well want to get out of the contract as the price is now too high. If the market surges forward then the vendor may want to delay past the sunset period so that the property can be sold to another buyer for a better price. An insoluble problem and the best that can be done is to agree to a sensible time frame.

With new lots in a subdivision it is important to ensure that all services that you expect are to be provided to the lot normally water, gas, electricity, telephone and sewerage.

With new units or houses the important matters are the layout and position of the dwelling and the fixtures, fittings and finishes being installed.

Finance

Sensibly finance is approved before contracts are exchanged, even if completion is well into the future. This avoids the risk of defaulting and losing the deposit and perhaps being sued for damages.

It is not easy to have a vendor agree to make a contract subject to finance because from the vendor’s viewpoint it is a sale that is not certain.

Funds coming from sale

Frequently purchasers move from one house to another and rely upon the proceeds of their sale to pay for the purchase. It needs to be born in mind that if the sale falls through then there will be no funds to complete the purchase. In theory one default balances the other and the loss of the deposit on the purchase is offset by the keeping of the deposit on the sale. In practice this is not necessarily the case particularly as in both cases actions lie for damages as well as loss of the deposit. If possible have an alternative arranged, such as bridging finance to enable completion of the purchase whilst reselling.

Completion

Normally the forty-second day after exchange is agreed as the time to settle by handing over the money and taking possession of the property. This time can be any time that the parties agree to suit their arrangements for moving and arranging their affairs. The time required to complete the legal work involved, assuming the usual requirements of mortgagees, can be reduced to about two weeks if necessary.

The contract normally includes a special condition that interest at about 10% will be payable by the purchaser on the balance purchase money if settlement is delayed.

All rates and taxes are adjusted on the day of completion. After settlement a notice of sale notifying the council and Valuer General is lodged at the titles office with the transfer, mortgage and title deed. A new title issues in the purchaser’s name shortly thereafter noting the mortgage and is held by the mortgagee as security pending eventual discharge of that mortgage.

The purchaser arranges for the phone, electricity and gas to be put into their name. This is done by phone sometimes with follow up documentation.

Possession

Arguments occur fairly frequently as to the condition of the property when the purchaser takes possession. Usually just prior to completion the purchaser makes a final inspection. However, completion cannot be delayed for minor matters of tidiness or cleanliness. For any remedy to be available the condition of the property would have to either prevent the purchaser from being able to use it or it would have to have changed the property significantly.

Sometimes purchasers move into premises before completion in which event they must insure from the date they take possession and rate adjustments are made from that date. It is not wise to spend much on improving the property before completion as if for any reason completion doesn’t eventuate then the cost of the improvements cannot be recovered from the vendor.

Subject to tenancies

tenants

Many properties are bought as investments and are bought subject to the existing tenancies. Full details of the tenancies will be attached to the contract. By virtue of the law on completion of the purchase you automatically step into the shoes of the vendor and the lease becomes enforceable by you. Prudently a discussion with tenants before exchange will reveal any issues that might exist that would otherwise remain undisclosed. The fact that a tenant is a poor performer will not entitle you to terminate the contract after exchange.

Rate adjustments

The vendor pays the rates until the day of completion after which the purchaser pays them. Usually either the rates for the current quarter are paid or a cheque is drawn out of the vendor’s money at settlement to pay them. As an adjustment at settlement the purchaser then pays the vendor that part of the rates for the quarter that apply for the period following settlement.

Sometimes vendors seek a land tax adjustment if they pay land tax on the property. This tax is calculated on the unimproved value of the property. An adjustment is appropriate if the property is commercial or industrial because both the purchaser and vendor will be liable for the tax. Adjustment should be confined to the value of the subject property on its own and not include other property owned by the vendor thereby ensuring that you get the benefit of the threshold of about $400,000 before tax is payable. This tax also applies to residential properties that are rented but not to principal places of residence. It is unreasonable for a vendor to seek a land tax adjustment when the purchaser is buying the home to live in and therefore will not be liable to the tax.

Default

If settlement does not occur on the date agreed, then a process begins of enforcing the contract. This might see a small delay or in the worst case scenario end in litigation taking months or years to resolve. Fortunately, it is an infrequent occurrence, but is has to be understood that there are no contract police who force defaulting parties to comply with the contract. Default ultimately results in slow and expensive court cases to be avoided at all costs.

The result of default by a purchaser is a termination by the vendor who then is entitled to keep the deposit and sue for the shortfall if any between the price at which the property was sold and the price achieved in a subsequent sale. As stated above, unless a negotiated compromise is reached, this can involve costly litigation.

Stamp duty

Stamp duty is payable on the transfer of land and is a significant expense when buying a property. By way of example on a price of $585,000.00 the duty payable is approximately $21,835.00.

Stamp duty on mortgages for owner occupied housing was abolished on 1 September 2007, however there are some instances where mortgage duty still does apply and your financier can advise you further on this issue.

Premium property duty is payable on dutiable transactions for residential land where the dutiable value exceeds $3 million.

First Home – New Home Scheme

Applies to an agreement or transfer entered into on or after 1 January 2012. The scheme is intended to help people who are acquiring a new home that is their first home. The agreement or transfer must be to acquire either a first home which is a new home, or a vacant block of residential land intended to be the site of a first home. This includes the acquisition of:

1. A new home (that is a home not previously occupied or sold as a place of residence); or

2. A substantially renovated home; or

3. A vacant block of residential land (that is the sale or transfer of vacant land intended to be used as the site of a first home).

The scheme provides for exemptions on transfer duty for purchase of new homes valued up to $550,000 and concessions on duty for new homes valued between $550,000 and $650,000.

The scheme also provides for exemptions on transfer duty for purchase of vacant land valued up to $350,000 and concessions on duty for values between $350,000 and $450,000. The agreement must be for the purchase of vacant land on which you will build a house.

First Home Owner Grant (New Home) Scheme – from 1 October 2012

From 1 October 2012 the First Home Owner Grant (New Home) Scheme applies to first home owners purchasing or building a new home only. The grant is a one off payment of $10,000. First home owners purchasing an existing home will not be eligible.

Value of property caps

For contracts entered into on or after 1 July 2014, the maximum value of the home must not exceed $750,000.

Applicants who buy a new home with a value greater than the cap are not eligible for the grant.

Applying for the first home owner grant

At least one applicant must live in the residence for at least six months and move into the property within 1 year of settling.

The statutory declaration accompanying the application negates the disqualifying factors. Several prosecutions and serious penalties have followed those that cheat.

The grant is paid to the incoming mortgagee for availability at settlement. If a cash transaction, then the grant can be claimed following registration.

If it is intended to build a home on land being purchased, then the grant is available after issue of the final inspection or occupation certificate for the home. The mortgagee can however obtain the grant when doing the building loan.

New Homes Grant Scheme

From 1 July 2012 purchasers of new homes, either newly built or off the plan, and valued up to $650,000 and purchasers of vacant land intended to be the site of a new home, and valued up to $450,000 are eligible to receive a $5,000 New Home Grant.

Construction of the new home on vacant land must commence within 26 weeks of settlement, however there is no limit on the time of construction.

Eligible purchasers include natural persons, companies or trustees of a trust, and they are not obliged to be owner occupiers. Purchasers must be Australian nationals, that is, an Australian citizen, Australian resident or Australian owned body.

The grant applies to all eligible agreements entered into on or after 1 July 2012 and is paid as a credit against your duty liability. If the duty payable is greater than $5,000, only the difference between the duty payable and the $5,000 grant is to be paid.

If the duty payable is less than $5,000, no duty is required to be paid and a payment of the difference will be paid to you by cheque on completion. If the duty is paid in full, the $5,000 grant will be paid to you by cheque on completion.

If you are eligible for a stamp duty concession or exemption under the First Home – New Home scheme you cannot receive the New Home Grant.

There is no limit to the number of grants that you may receive for new home purchases; however, eligibility is restricted to one grant per financial year.

About Us

RM Legal and Conveyancing co-directors

We hope you enjoyed our Buying Property in NSW (Ultimate Guide).

If you’re buying, selling or want to transfer between family members, let us help you. Efficient, cost-effective with you as our priority.

At RM Legal & Conveyancing, we understand that buying a property may be the biggest commercial transaction you will make in your lifetime. RM Legal & Conveyancing is the solution to your needs. Buying property does not have to be daunting or stressful. RM Legal & Conveyancing will make sure you receive superior service and a hassle-free transaction.

We will see to the transfer of ownership to you and make sure that you get a good title to the property. We will make or recommend all necessary enquiries about the property and generally advise you and look after your interests.

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