Buying a Property - The Steps in a Conveyance
Publish Date: December 3, 2008
Q: What is Conveyancing?
A: Conveyancing is the process of formally transferring the ownership or control of property from the seller (Vendor) to the buyer (Purchaser).
Q: I am ready to buy, what do I do first?
A: If you are ready to buy a property, you should firstly seek pre-approval from a Financial Institution so that you have an idea as to how much you can afford to pay. If you qualify as a First Home Buyer, large expenses such as stamp duty may be waived or discounted and you may be eligible for any of the grants or exemptions from stamp duty that the New South Wales Government offer.
Once you have pre-approval or know how much you can afford, it is time to start looking around for your new place. If you find a place you like, you make an offer (through the Agent).
Q. What is "buying off the plan"?
A. This is where an Estate Agent or development company offers property for sale that is yet to be completed or has not yet commenced construction.
Q: What is a Contract for Sale of Land?
A: In New South Wales, a Real Estate Agent cannot advertise or show a prospective Purchaser the property until the Real Estate Agent has a Contract for Sale of Land available to provide to that prospective Purchaser at the time of advertising or showing the property to the Purchaser.
The Contract will contain all the details of the property and will have attached to it a Certificate from the relevant Council showing how the property is zoned by the Council and other development control plans or policies etc affecting the property. Also attached to the Contract will be a full Title Search showing any easements (rights of way) or restrictions that affect the use of the property and any mortgages or other matters affecting the title to the property. A Sewer Diagram must also be attached so that you may see if and / or where the sewer main crosses the property and / or the sewerage connections to the building erected on the property.
The Contract will also set out extensive standard and additional provisions agreed upon between the parties.
The Contract also contains a description of all inclusions that are to be sold with the property. The inclusions or exclusions should be confirmed with or negotiated through your lawyer before the Contract is signed.
Q: What are inclusions and exclusions?
A: Exclusions and inclusions are the technical terms for those fittings and fixtures that will or will not be sold with the property. The status of fixtures and fittings in a property that is for sale is determined through negotiation between Purchaser and Vendor before contracts are exchanged.
Q: Should I sign a Contract with a Cooling Off Period?
A: Rockliffs' lawyers strongly recommend that you seek advice from one of its solicitors before signing a Contract (even if you are given a Cooling Off Period of five business days in which to pull out of the Contract). The reason for this is so that you do not lose your bargaining power in negotiating amendments which may be recommended to protect your interests under the Contract for Sale of Land. Whilst Agents will urge you to sign a Contract with a Cooling Off Period, if you subsequently change your mind during a Cooling Off Period for example, due to problems being discovered in a Building / Pest or Strata Inspection Report, you will lose your initial deposit of 0.025% of the Deposit of the Purchase Price - ie this amount is forfeited to the Vendor if you pull out of the Contract before the Cooling Off Period expires.
Q: We are considering registering to bid on a property at an auction - what should I do?
A: If a property is listed for auction, you are still able to have your solicitor negotiate amendments to be agreed to be made to the Contract in the event that you are the successful bidder at the auction. It is therefore important that you seek legal advice in relation to the Contract as soon as possible prior to the auction.
Q: Are there any inspections which I should make?
A: Rockliffs' lawyers strongly recommend that before you commit yourself to purchasing a property, you arrange for a Building and Pest Inspection in relation to the property. Rockliffs' lawyers can recommend a number of experts who may be able to assist you to undertake such inspections. It is advisable to undertake such inspections so that you know whether the building is structurally sound and whether or not it is infected by for example, termites, white ants or any other structural pests. Even if a house / property is fairly new, there may still be structural or other building problems and therefore it is important that you know about these problems before committing to buying the property. You should also choose inspectors that carry Professional Indemnity Insurance so that if they miss something that is detrimental, you have some chance of being compensated for this error or oversight.
If you are buying a unit, townhouse or villa under a Strata Scheme, Rockliffs' lawyers also recommend that you make an appointment to inspect the Strata Records held with the Strata Manager, yourself or alternatively arrange for a Firm who specialises in these inspections and are experts in their field to conduct the inspection on your behalf and provide you with a Report in relation to their inspection. The Strata Inspection will provide information to you such as:-
What insurances are in place?
Confirmation of the quarterly levies (you should not always believe or rely on the information that is provided by the Agent);
The current financial position of the Strata Scheme;
Details of any ongoing maintenance problems;
Details of any special levies struck for any work to be done;
Details of any disputes or other issues arising between neighbours;
The number of units that are leased;
Any other matters that may be reported in the records at the next meeting;
Q. We have not exchanged contracts, what happens if I back out?
A Until you exchange contracts, you are free to back out without any penalty. The Purchaser will have to wear any conveyancing legal costs and the cost of any survey, building or strata inspections etc. The Vendor will also have legal costs.
Q. What is the exchange of contracts?
A. When both parties have agreed upon the terms of the contract for the sale of land, they both sign their respective copies of the contract, the purchaser pays a deposit to the vendor (generally 10%), the vendor's solicitor ensures that the two executed contracts are identical and physically exchanges one copy of the contract for the other (ie the vendor ends up with the purchaser's signed contract and the purchaser ends up with the vendor's signed contract). From this point you are committed to buy and the vendors are committed to sell the property. There are substantial legal ramifications if either one of you withdraw from the contract without the consent of the other. Therefore, you must be certain that you wish to sell the property under the Terms and Conditions of the contract before instructing your lawyer to exchange that contract.
Q. What is a cooling off period?
A. Sometimes the real estate agent asks the parties to sign the contract with a cooling off period to allow the Purchaser to, for example arrange finance and/or building, pest or strata records inspections. If this occurs, the Purchaser has a 5 business day period (this can sometimes be extended by agreement between the parties) from the date of exchange of contracts, referred to as "the cooling off period" for such Purchaser to change their mind/pull out of the contract. If the Purchaser does decide to pull out, the Purchaser will forfeit a deposit of 0.025% of the purchase price (this is retained by the vendor).
Q. What is a Section 66W Certificate?
A. This is a certificate signed by the Purchaser's solicitor acknowledging that the Purchaser does not wish to have a cooling off period (ie the cooling off period is waived and the contracts become unconditional upon exchange).
Q. Do I need to take out insurance after exchange of Contracts?
A. The risk of damage to the property is the Vendors up until completion or until the Purchaser takes possession of the property if that occurs prior to the completion. The Vendor is liable to take care of the property up until completion and the property should be handed over to the Purchaser at completion in the same condition, subject to fair wear and tear, as it was at the date of exchange of Contracts. If the property is substantially damaged before completion, the Purchaser has a right to rescind the Contract and have the Deposit refunded provided they do so within 28 days of becoming aware of the damage. If the damage is not substantial, then the Purchaser may choose to proceed with the purchase subject to an adjustment of the sale price to account for the cost of repairing the damage.
Q. What happens with the Council and Water Rates and Strata Levies?
A. The Contract provides that Council and Water Rates are to be adjusted between the Vendor and Purchaser as at the settlement date. Council Rates are levied for the financial year and will be adjusted so that the Vendor pays the rates up to the day of settlement and the Purchaser will be liable from then until the end of the rating period, in this case 30 June. They are adjusted as if the rates are paid in full regardless of whether they are in fact paid or not. Any outstanding rates are paid from the sale process (being the Vendor's money). The rates are a charge on the land and any outstanding rates become the liability of the Purchaser and therefore it is essential that they are paid at the date of the settlement. One of the enquiry certificates Rockliffs obtains is from the Local Council and sets out the amount of the annual rates, what payments have been made and what is outstanding.
Water Rates are usually quarterly rates and the adjustment made will be for the current quarter. The same principles apply to Water Rates as they do for Council Rates. A water usage charge may have to be paid to the Vendor. Usually an estimate is prepared by using the last quarter's water usage charge (this is often cheaper and easier than incurring the cost of having the meter read). The Vendor will make an allowance to the Purchaser for the water usage charge so that when the actual bill for the water usage is received, the whole bill becomes the Purchaser's responsibility.
If you are buying a Lot (unit, townhouse or villa) in a Strata Scheme, the quarterly Strata Levy will need to be adjusted. This levy is adjusted in the same manner as Council Rates except they are adjusted on the quarterly rate. The quarter may not necessarily be the quarter of the calendar year. There may also be special levies to take into consideration. A special levy is made when and if there are not enough funds held by the Owners Corporation to cover either the normal running expenses or a special expense that is to be incurred. Usually, a special levy made before the date of the Contract has to be paid in full by the Vendor. If however the special levy is made after the date of the Contract, then that levy is adjusted between the Vendor and Purchaser.
Q. What do I need to do before Settlement?
If you are taking out a Loan to assist you to purchase the property, after exchange of Contracts you should follow up the Lender to obtain the Loan Documentation, review and sign same. It is important that you deliver the signed Loan Documentation to the bank promptly to ensure that the Bank will not delay completion.
2. Stamp Duty
Generally, approximately two weeks before the completion date, you will need to provide to Rockliffs an amount for stamp duty so that we may attend to the payment of the stamp duty on your behalf, stamp the Transfer and submit the Transfer to the Vendor's solicitors for their approval and execution. If you are the paying the stamp duty from the loan proceeds, please let us know so that we can arrange this on your behalf.
You are entitled to, and Rockliffs strongly recommend you arrange a final inspection of the property before settlement occurs (or you take occupation of the property if you are taking early possession thereof). You should arrange with the Real Estate Agent to inspect the premises on the morning of or day before settlement to check that there has been no damage done to the property since the date of exchange of Contracts (fair wear and tear excepted) and that the Vendors have removed all their furniture and belongings from the property. Once settlement takes place, it is too late to find out that some of the inclusions are missing or that something has been damaged. It is extremely difficult and costly to have repairs done or inclusions returned after the Vendor has left and final payment has been made to the Vendor.
4. Payment of any balance of Purchase Monies
The final monies that need to be paid by you will need to be drawn and given to your lawyer the morning of or the day before settlement. Rockliffs will advise you a couple of days before completion as to the details of the cheque(s) to be drawn by you. You should however be aware that because of the procedures followed by some financial institutions, the final cheque details may not be known until the day before settlement. You should be prepared to receive the details and be able to provide Rockliffs with the final cheques on short notice. Whilst this is not very convenient in most cases, it is unfortunately unavoidable.
Q. What is completion?
A. Settlement/completion is the day upon which the sale is made final. That is, the process of conveyancing is completed, and the Purchaser is able to take possession of the property. We go with the bank or financial institution that has your present mortgage and meet with the solicitor for the Purchasers and hand over the documents of title (Certificate of Title and Discharge of Mortgage) in exchange for bank cheques representing the purchase price less deposit already paid (unless a deposit bond is used) and adjustments for rates and levies etc.
Q. When do I get to move in?
A. It is normal practice that occupation of the property is not granted until after settlement has been completed, unless some other arrangement is made. You should not assume that the Vendor will allow you to move in before settlement even if the property is vacant. You should discuss with Rockliffs any such arrangement or proposed arrangement. Because you may not have a firm time and date for settlement when you want to book the removalist, it is difficult to organise the time for the removalist to arrive and load and then to arrive at your new property coinciding with the settlement time. Unfortunately, this is a fact that cannot be avoided and it may be best to arrange for the removalist to do an afternoon move in preference to paying the removalist to sit and wait for the confirmation to unload.
Q. What happens if I am buying a property with an existing tenant?
A. If a tenant occupies a property and they have a current Lease then you take over the Vendor's role as landlord immediately after settlement has been effected. A current Lease remains in force and therefore there is no need to enter into a new Lease and as the new landlord, you are bound by the terms of that Lease.
The rental for the property will need to be adjusted. If the rent is paid in advance, then the Vendor will give you a credit in the settlement figures for that portion of the rent already paid to the Vendor that applies from the day after settlement. If the rent is in arrears, then no adjustment is made and the Purchaser is not expected to take over a Debt that is owed to the prior owner.
Q. What happens after settlement?
A. Immediately following settlement, the Real Estate Agent will be advised so that he / she has authority to release any keys being held to the property so that the Purchaser can have access to the premises. It is normal practice at settlement for a Purchaser's lawyer to give to the Vendor's lawyer a written direction to the Agent authorising the release of the Deposit and keys. This "Order on the Agent" is usually faxed to the Agent so that the Agent has the written authority to release the keys to the Purchaser and then you will be able to collect the keys from the Agent and move in. On completion, we hand to the Mortgagee / Bank (if you have a Mortgagee) a Notice of Sale (or if there is no Mortgagee, a Notice of Sale is lodged with the Transfer and Title Deeds at the Department of Lands) which notifies the Local Council, Sydney Water and other Government Bodies that you have sold the property and you will in the future receive the accounts for such services. If you are buying a Strata Title property, a Section 118 Notice will be sent by Rockliffs to the Strata Manager to advise them that you have purchased the property and you will subsequently receive notices including levy notices in regards to the property.
Law Society Guide to Buying a Home
For further information or assistance please contact Rockliffs on 02 9299 4912 or email us at email@example.com