Conveyancing - What Is Conveyancing?Conveyancing is a term used to describe the whole of the process of putting a property on the market, concluding an agreement to sell and buy, and then transferring ownership of the property from the vendor to the purchaser. In fact, conveyancing is only one part of this procedure.
On this page you will find out, not only what conveyancing is, but also what conveyancing is not. Many consumers experience legal and financial trouble simply because they do not understand the difference between the pre-sale legal procedures and the post-sale conveyancing process.
What Is Conveyancing?
Conveyancing Is Transferring Ownership – But There’s More!Conveyancing is the process of transferring the legal ownership of real estate from one person to another. While the definition of conveyancing is simple enough, the fact that conveyancing is a legal procedure does introduce a number of complexities.
To properly understand the concept of conveyancing, and why a simple conveyancing transaction can become extremely complex, we must first examine the nature of real estate itself.
Conveyancing Is About Real Estate InterestsReal estate is permanent. It cannot be moved, or hidden or destroyed. These features make real estate extremely valuable, and they also mean that real estate represents one of the best forms of security. If a bank lends money, and accepts real estate as security for the loan in the form of a mortgage, it doesn’t matter if the owner of the real estate flees the country and refuses to repay the loan. The bank has an “interest” in the land, and is entitled to sell that interest in order to recover the loan money.
A mortgage is just one form of interest a person can have in real estate, but there are many others, such as caveats, easements and covenants. It is part of the role of person providing the conveyancing services to ensure that the property is transferred or “conveyed” to the new owner free of any other interests. If the property cannot be conveyed free of other parties’ interests, then the purchaser or transferee of the property should be alerted to the interests as part of the conveyancing service.
Conveyancing Is About Keeping Things On TrackA simple way to state the situation is to say that conveyancing procedure involves, not only doing the conveyancing, but also keeping the conveyancing process on track.
As mentioned above, conveyancing can be a very simple process when everything is simple and straight-forward, and anyone can complete the processes and procedures necessary to effectively transfer ownership of a property. However, the real skill in conveyancing is not so much a knowledge of conveyancing procedures or even conveyancing law. Rather, the real skill in properly completing a conveyancing transaction is in anticipating potential problems, both legal and procedural, and addressing them before they materialise.
Conveyancing Can Continue After SettlementKeeping the conveyancing transaction on track is not the end of it. Problems can arise well after the conveyancing has been completed, and rectifying these problems still constitutes conveyancing work. This is because some of the problems arise through set conveyancing procedures, many of which are determined by the Land Titles Office.
For example, part of any conveyancing transaction is the registering of the Certificate of Title, so that the transferee will be recorded as the new owner of the property. The conveyancing matter is usually regarded as complete when the transfer documents have been lodged at the Land Titles Office, and it is then just a matter of waiting until the new Certificate of Title has been issued in the name of transferee.
However, the smallest of technical problems can cause problems, with the result that a simple conveyancing matter can spin out of control. A common problem is where the signature of the vendor, as it appears on the Transfer of Land, may not be sufficiently similar to that appearing on the Contract of Sale. Because the person conducting the conveyancing on the purchaser’s side of the conveyancing matter will not have seen the Transfer of Land before its delivery to settlement, or because the signature was not regarded as being in doubt, the matter does not arise until the Transfer of Land reaches the Land Titles Office.
It remains the responsibility of the person conducting the conveyancing transaction to take whatever steps are necessary to secure registration of the transfer, and to thereby complete the conveyancing process. The conveyancing is not complete unless and until ownership has been legally transferred. In other words, the conveyancing has not concluded until the property has been conveyed.
Conveyancing Start And Finish PointsDiscussion about conveyancing continuing beyond the settlement date inevitably leads to the question regarding the difference between conveyancing and legal matters. It is wrongly assumed that conveyancing encompasses everything to do with the real estate sale and purchase transaction, but this is quite incorrect. In fact, conveyancing relates only to the processes associated with the transferring, or conveying, of ownership. The conveyancing process continues beyond settlement only in those circumstances where further non-legal procedural matters are outstanding. However, even in these cases, conveyancing can necessarily entail the performance of legal work and the giving of legal advice.
We examine whether conveyancing work commences before a sale under the heading “When Does Conveyancing Work Commence”, below.
The Sale Of Real Estate Is NOT ConveyancingOne of the most common and costly mistakes made by conveyancing consumers is to believe that the actual real estate sale is part of the conveyancing process. It is this mistake that has caused hundreds of unlicensed and unqualified conveyancing company operators to commit criminal offences by acting as unqualified lawyers. (The offence of “unqualified legal practice” is a criminal offence, and carries of imprisonment for 2 years!).
The negotiation process, including the drafting of the written legal document that sets out the terms and conditions of the sale, is a legal process. It is a legal process because it creates the legal relationship that binds the two parties, and gives rise to legally enforceable rights.
Conveyancing Does Not Start Until There Has Been A SaleGiven that conveyancing is the process of transferring ownership of real estate from one person to another, there is no need for conveyancing services until such time as a sale has taken place. It is only after the sale has been effected that the purchaser acquires the right to require a transfer of ownership.
Preparing For The Sale Is NOT ConveyancingThe preparation of sale documents requires a solid knowledge and understanding of the law associated with real estate contracts, including specific provisions of the Sale of Land Act, the Transfer of Land Act, and laws relating to contracts, trade practices and consumer law, to name but a few.
The vendor requires legal advice as to the obligations, responsibilities, and consequences of the rules and procedures associated with the proper marketing and sale of real estate.
This stage of the sale process is the negotiation stage. While it may lead to an agreement to transfer the ownership of real estate, it is not a transfer or conveyancing procedure. It is purely a legal process.
To conclude, no part of the sale process is conveyancing work. From the time a person first decides to put a property on the market, until the time a contract has been brought into existence, the only assistance a vendor requires is that involving legal work and legal advice. Every vendor who sells real estate in the State of Victoria is governed by the provisions of the Sale of Land Act, and in particular Section 32 of the Sale of Land Act. It is Section 32 of the Sale of Land Act that gives us the section 32 vendor's statement, otherwise known as simply the “Section 32”.
Conveyancing Work Commences When The Contract Is ReceivedAs discussed above, conveyancing work , as it relates to a sale, does not commence until the sale has taken place, because it is the sale contract that gives rise to the right of the purchaser to have ownership of the property transferred.
In the case of a purchase, the conveyancing process may not commence until the estate agent has sent a copy of the signed contract or Contract Note to the purchaser’s lawyer. In many cases, the purchaser will have bought the property before telling the lawyer that conveyancing services are required. (We advise strongly against the purchasing of real estate without prior legal advice regarding the rights and obligation arising from the contract, as all real estate contracts are prepared in favour of the vendor, and may expose an uninformed purchaser to serious risk.)
Conveyancing Work Commences When The Sale Has Been ClosedIn sale matters the conveyancing work does not commence until the contract has been signed and the sale closed. It is only at this point that the vendor becomes obliged to allow ownership of the property to be transferred. Usually, the lawyer acting for the vendor will receive the completed contract of sale from the real estate agents, and will thus be made aware that a sale has taken place.
Who Can Do Conveyancing Work?A consumer has 3 options for completion of a conveyancing matter:
Before you start organising your conveyancing, it's important to do your homework. While your conveyancing matter may at first seem simple and straight-forward, you may find that there are important legal implications for the way in which you transfer ownership of the property, and these may have ripple effects into other areas of law.
For example, if you purchase a property in two names there may be tax and liability implications that warrant the property being owned by one person only, or in unequal proportions. If a property is owned jointly there will be survivorship implications in terms of being unable to pass the property to a beneficiary through your will. Advice from a lawyer, financial adviser or tax consultant may be crucial to the making of a good decision about your ownership of the property. You can ensure that these issues can be properly explored if you consult a lawyer before you sign a contract
We will now examine the different types of conveyancing service available to consumers.
Using A LawyerUsing a lawyer remains the safest way to complete a conveyancing matter. The role of the lawyer in conveyancing matters extends beyond merely completing the conveyancing work component. Lawyers have a duty to actually advise their clients, and to give their clients the full benefit of their knowledge, skill and expertise.
When a lawyer offers conveyancing services, these will invariably include the giving of legal advice regarding pre-contract rules and procedures, contractual obligations and the precise nature of the relationship between the client and the other party.
In addition to the obligation to provide legal advice and assistance throughout the conveyancing matter, lawyers must carry full responsibility for the client's legal well-being and financial safety throughout the conveyancing matter. To this end all lawyers are required to carry professional indemnity insurance and fidelity insurance. Conveyancing consumers want to have the confidence that comes with having the conveyancing transaction managed by a conveyancing expert. The lawyer is the only true conveyancing expert.
Lawyers, as well as performing all aspects of a conveyancing transaction, are also able to advise on collateral matters. Other areas of law such as Family Law, Wills and Estate, Taxation, just to name a few, can all affect, or be affected by, a person’s ownership of real estate. Licensed conveyancers, on the other hand, must refer a client to a lawyer for advice on such matters.
Using A Licensed Conveyancer
The collapse of a Geelong-based conveyancer, and the resultant loss of over $5 million dollars of client funds, together with problems associated with non-lawyer conveyancers seeking to "make a quick buck" by offering dodgy conveyancing services, prompted the Victorian Government to require all persons holding themselves out as non-lawyer conveyancers to be licensed.
Many conveyancers left the industry, while some became licensed and simply took the opportunity to increase their fees. Unfortunately, the licensing of conveyancers has done little to increase expertise or legal skills of conveyancers. Licensed conveyancers are permitted to perform a very limited range of legal work associated with a conveyancing transaction, but they are not permitted to advise on important issues related to, but not forming part of, the conveyancing transaction.
When something goes wrong with a conveyancing matter involving a licensed conveyancer, they can go very wrong. Licensed conveyancers do not have access to the same legal resources as lawyers (accessed through the Law Institute of Victoria and its Property Law Section, including legal updates, bulletins and journals), nor can a licensed conveyancer brief a property law barrister for specific advice in circumstances where court action may be contemplated or threatened.
While most consumers believe that conveyancing involves all aspects of the sale or purchase of real estate, the limitations on services offered by licensed conveyancers in Victoria make them not only risky, but also extremely expensive on a value for money basis.
Doing Your Own ConveyancingDo-it-yourself conveyancing can be very risky because consumers do not have access to the same insurance available to a qualified lawyer. This means that if a mistake is made, the consumer remains personally responsible and there's nowhere to go for financial compensation. For example, the conveyancing lawyer may fail to make sure the vendor has disclosed everything they are legally required to, such as an order to demolish the house. If the purchaser suffers loss as a result of this negligence they may be able to take action against the lawyer.
The reason people engage lawyers to manage the conveyancing process is to have an expert take professional responsibility.
The cost of conveyancing is really the cost of having someone else assume responsibility. Another way to consider the matter of conveyancing costs is to regard the savings made by using a conveyancing kit as the payment you are prepared to accept for taking on the responsibility of acting in your own conveyancing matter. At the end of the day, the risk is just not worth it.
For further information on conveyancing kits and do-it-yourself conveyancing, see our page at ”Conveyancing Kits”
The Conveyancing ProcessIn this section we examine what happens when a purchaser buys real estate, from the pre-purchase stages, and on to the actual conveyancing process itself.
We will focus on the purchaser’s side of the conveyancing transaction, as most issues affecting both the vendor’s conveyancing and the purchaser’s conveyancing responsibilities will be addressed.
Get Some Pre-Purchase Legal AdviceBefore committing to the purchase of real estate it is essential that you get pre-purchase advice. Lawyers Conveyancing offers a pre-purchase advice service, designed specifically to assist consumers with the purchase of real estate.
Remember, the conveyancing process does not commence until after the sale has taken place; that is, after the contract has been signed.
Checking Before You BuyIf you intend to “go it alone” when buying your property, we suggest that you carry out some basic checks of the property, as follows:
Dimensions: Ensure that the dimensions of the property as shown in the Plan of Subdivision correspond with the dimensions of the land “on the ground”. The safest way to do this is to engage a surveyor, but you can do it yourself with a tape measure if you know what you’re doing.
Building Inspection: Engage a building inspection service to check not only the structural integrity of the buildings, but also issues such as asbestos, faulty wiring, pests etc. Again, you can do this yourself, so long as you know what you’re doing and are prepared to accept the risks.
Type of PropertyWhile most consumers are familiar with the difference between vacant land, house and land, and home units, some forms of title can create problems for the unwary:
Strata Title – This is the typical home unit title, and may or may not include provision for carparking. Check whether there is carparking, and whether carparking is allocated by the body corporate, incorporated in the unit title, or on separate title. Remember too, that liability for the common property will be shared.
Stratum Title – Take care with stratum title, as you may find that no bank will accept it as security, and for this reason they can be difficult to sell. Stratum title properties are often sold by auction, so that they are sold for cash. Auctions lessen the likelihood that an inexperience purchaser will discover that they are buying a stratum title unit.
Company Share TitleMuch less common, but still in existence, is are company share properties. Under this structure the purchaser does not actually own a title. Instead, the purchaser is allocated shares in a company that owns the title. On sale the shares are transferred.
General Law TitleThis is the original form of land ownership. When land was sold or otherwise allocated by the government, a Crown Grant would state that the land described had been given to the person named in the Grant. Each time the property was sold a new deed would be added to the Grant. These would grow into a chain of deeds. To prove ownership, a vendor would have to produce the complete and unbroken chain of titles. These days any general law land that is transferred must be converted to modern Torrens title.
Checking the TitleThe Certificate of Title sets out the details of the present owner and any registered mortgages over the property, as well as any other "encumbrances". The Lot and Plan number set out in the title document are the means by which the land is properly identified in terms of its precise location and size. (See above re’ measuring the dimensions).
The following checks should be made pre-purchase:
Easements – easements are restrictions on the use the land, such as rights of way, or the right to lay water or sewerage pipes;
Mortgages – these are rights that a lender has over the land in return for the loan of money. If the loan is not repaid the mortgagor may sell the land or, in some circumstances, become registered as the owner.
Caveats – caveat is Latin for "beware", and a caveat registered on a title is a warning that some other person has a right or interest in the property, and that their interest is first in line before those of the purchaser.
Other Checks And InquiriesOther important pre-purchase checks include (but are not limited to) the following:
The local council – If there is a vacant block of land next to or near the property, see if there are there any plans for a block of flats or apartments to be built next door.
What if there are plans for a shopping centre development down the street?
Will the zoning of the property affect your use of it? Or will permitted uses of the land by others affect your enjoyment of the property?
Have any of the buildings on the property been built without a permit? The local council will require the current owner to modify or even demolish an illegal structure (and you may be the new current owner).
Is the property near a registered toxic site? Or is it registered as being of Heritage significance?
What about the plumbing and wiring? If asbestos has been used in the construction, is it stable? Some checks and inquiries will be conducted as part of the conveyancing process, but the most important checks are best conducted before you buy.
Components Of The Conveyancing TransactionThere are four main components to any conveyancing transaction, all of which will be undertaken by the conveyancing lawyer with the instructions of the client. We will examine these in detail under their respective headings.
Conveyancing Component 1 – The Title
Title SearchMost conveyancing software packages allow for quick and precise title searches. The title search provides up to date information as to the registered owner of the property, encumbrances registered on title, and any dealings affecting the title but not yet registered.
Conveyancing Component 2 – Off Title Restrictions & InterestsWhile the title search will reveal encumbrances and restrictions that are registered, some restrictions are not registered and must be discovered by way of searches of records held by various authorities.
Searches undertaken as part of the conveyancing process will usually include:
Zoning – This determines permitted land use according to the local planning scheme.
Rates and outgoings – These are costs a property owner must pay as a consequence of owning real estate.
Road proposals – Vicroads may have intentions that could affect the property.
Other searches may include:
Most conveyancing lawyers will serve requisitions on the vendor, through the vendor’s conveyancing lawyer, to obtain further information about the vendor’s rights over the property. However, it has become an established conveyancing practice for requisitions to be replaced with warranties.
Conveyancing Component 3 – Section 32 Vendor’s Statement & The Contract
The Section 32 Vendors Statement(See our page Section 32 Vendors Statement for a more detailed treatment of the Section 32 Vendors Statement)
A purchaser may have the right to end a contract if the vendor has not served an information statement in accordance with Section 32 of the Sale of Land Act. The section 32 vendor's statement will be examined by the purchaser’s conveyancing lawyer for information about the property, including the following:
Restrictions and any breach of those restrictions.
Outgoings payable as a consequence of owning the property.
Services connected to the property.
Planning and zoning information.
Details of any building permits, and related home owner warranty insurances.
Details of any notices served on the vendor.
ContractUsually, the contract will take the form of a Contract of Sale or a Contract Note. While effect of both of these documents is the same, the Contract Note contains only brief details of the terms and conditions of the sale.
Cooling OffSection 31 of the Sale of Land Act provides for a purchaser’s right to ”cool off”. This is a consumer protection provision, introduced to allow purchasers who have bought impulsively or without the benefit of legal advice to end the contract “no questions asked”.
There are exemptions to the ”cooling off” provision, and a purchaser should take careful note of these. It has been argued that estate agents should not be involved in the finalisation of sale contracts, and the ”cooling off” right highlights this. From a vendor’s perspective, it is preferable that a purchaser should have the benefit of legal advice before signing a contract, as a sale made on a Friday or on a weekend cannot become unconditional until the following Thursday, due to the ”cooling off” right. However, if a purchaser has the benefit of legal advice prior to signing, there is no ”cooling off”, and an immediately unconditional contract is possible.
Section 27 Deposit ReleaseThe provisions of the Sale of Land Act require that a deposit paid by a purchaser must be held in trust, pending settlement, unless released earlier pursuant to the provisions of Section 27 of the Act.
This poorly designed piece of legislation prevents the vendor from having access to the deposit until such time as the purchaser agrees in writing to its release, or the purchaser is deemed to have agreed to release. In either case, the release of the deposit may be delayed until the purchaser has conducted searches and enquiries, until 28 days passes after service of the Section 27 deposit release statement, or until settlement takes place.
Vendors are strongly advised not to rely on release of a deposit when committing to a purchase, as it is quite common for purchasers to refuse to authorise release. Legal advice should always be sought in such instances.
Arranging for discharge of the vendor’s mortgageThe purchaser’s lawyer must be vigilant, to ensure that the any mortgage over the property is withdrawn before settlement, or that a Discharge of Mortgage is delivered to settlement so that the mortgage can be discharged immediately after settlement through simultaneous registration with the purchaser’s Transfer of Land.
The vendor’s lawyer must ensure that arrangements are made with the vendor’s mortgage, to ensure that the mortgage will be paid out and a Discharge of Mortgage form is delivered to settlement. Failure in this regard can lead to collapse of the settlement and consequent delays and costs.
Similarly, where there is a caveat on title the purchaser’s lawyer must ensure that a withdrawal of the caveat is delivered at settlement. The vendor must investigate the claim of the caveator, and ensure that this can be settled in return for the delivery of a Withdrawal of Caveat at settlement.
Statement of AdjustmentsApportionable outgoings, such as rates, land tax and body corporate fees are apportioned between the parties in the statement of adjustments. This sets out the purchase price, deposit paid, the amounts to be added or deducted (including any registration fees, costs and penalty interest if applicable) and the balance to be paid as at the day of settlement.
Purchaser’s Final InspectionIn the week leading up to settlement the purchaser is entitled to conduct a final inspection of the property. It is often at this stage that issues arise, particularly regarding disputed chattels, damage to the property, rubbish left at the premises or appliances that may have broken down between the day of sale and settlement.
It is important that the final inspection be conducted at least a few days prior to settlement, so that any issues can be resolved in time for the scheduled settlement day. There are established rules regarding the vendor’s obligations, the purchaser’s rights, and the concept of “fair wear and tear” that will allow problems to resolved quickly, but problems can only be resolved if there is sufficient time in which to do so.
Suitable arrangements should also be made with the estate agent or the vendor’s representative for the delivery of keys. Purchasers are always advised to arrange with the person who gives access to the property at the time of the final inspection for the hand-over of keys, garage remote controls etc. after settlement.
SettlementSettlement is simply the exchange of documents. Representatives of the parties, usually the vendor’s mortgagee, the vendor’s lawyer, the purchaser’s mortgagee and the purchaser’s lawyer, meet at an appointed place at an agreed time on the settlement day, and exchange documents and cheques. When all parties are satisfied that the documents and cheques are in order, the exchange is made, and the parties are notified that “the matter has settled.”
Post Settlement Matters
Notices of Acquisition/DispositionAfter settlement the vendor’s lawyer will advise the council and the water authority, by way of a Notice of Disposition, that the property has changed hands.
Similarly, the purchaser’s lawyer will notify the authorities of the purchaser’s acquisition by way of a Notice of Acquisition.
Stamping and LodgingIn addition, the purchaser’s lawyer is responsible for stamping and lodging, that is, ensuring that the purchaser is registered as the new proprietor of the property, and that the property is free of any unwanted or unexpected encumbrances.
The Transfer of Land will be delivered to the State Revenue Office, and stamp duty paid. The Transfer of Land is then stamped with a register imprint to confirm that stamp duty has been paid in full, and to confirm to the Land Titles Office that stamp duty has been paid.
It is usual, however, where a purchaser is taking out a mortgage, for the mortgagee to take custody of all of the registrable documents (Transfer of Land, Withdrawal of Caveat, Discharge of Mortgage etc.) and to stamp and register them on the purchaser’s behalf. This procedure is adopted by the mortgagee to ensure that the mortgage is registered on title at the same time as the purchaser is registered as the new proprietor.
Let the Conveyancing Begin!You have found a property you want to buy. Having spent weeks or months finding the ideal property, you have made your offer and had it accepted.
Step 1 – Holding DepositIt is common for estate agents to ask for a “holding deposit” as a sign of good faith. This can be any amount from a couple of hundred dollars, to the full deposit amount. There is no basis in law for the payment of an informal “holding deposit”, but if it will make the difference between securing the property and risking its sale to someone else, you may be inclined to pay it. Using a personal cheque will ensure that you money is not “tied up” if you decide not to proceed. Remember there is no binding agreement until formal written contracts are signed by both parties. Agreements dealing with real property must, by law, be in writing containing sufficient information to clearly identify the property, the parties, the main terms and conditions and the price. Any holding deposit is refundable unless a written agreement says otherwise.
Step 2 – Get Us Involved Early!Have us check the sale documents before you commit to the purchase. The agent will normally fax the documents to us at your direction.
If the property is your ultimate “dream home”, and you’re not prepared to risk losing it under any circumstances, you may be prepared to “sign up” with the estate agent then and there. In that case you may need to sign the contract held by the agent, subject to the ”cooling off” period – if applicable. Be sure to read about ”cooling off”, and seek our advice on the use of this provision, as there are exceptions to its availability.
Step 3 – Arrange Your FinanceIf you have not already done so, liaise with your lender to obtain urgent loan approval, in writing, so that you can safely proceed to commit to your purchase. Take care not to rely on the assurances of estate agents who advise purchasers that “extensions” of the finance condition are possible, and mortgage brokers who regularly advise purchasers not to pay the deposit until after the loan has been approved. In both cases this advice is WRONG, and can result in a failed purchase and a forfeiture of deposit. (DISCUSS this aspect with us before you commit to a purchase!)
Step 4 – Arrange Pre-Purchase InspectionsIn real estate transactions the principle “buyer beware” applies. This means that the vendor is under no legal obligation to advise you as to any physical or title defects the property may have, subject to certain disclosures required to be made pursuant to Section 32 of the Sale of Land Act.
So, when it comes to the physical aspects of the property you should carry out all inspections, and be fully satisfied that what you are buying is not structurally defective or termite infested. It is also usually better to ensure that the building and other structures comply with the building code and swimming pool laws before the contract is executed and becomes binding upon you.
Step 5 – Negotiate any changes you need to the contractYou do not have to accept the terms of the contract, as prepared on behalf of the vendor. In fact, it is important that you bear in mind that the standard contract of sale and Contract Note are prepared so as to give the vendor every opportunity to finalise the sale, and to limit the purchaser’s opportunities to withdraw.
You may negotiate the terms of the contract with the vendor, usually through the agent, up until execution, however you will usually find that the estate agent will take the position of ensuring that the commission, and not your interests, are protected. We have developed our sale negotiation service for this very reason. We can also provide you with advice and information to assist you through the negotiation process if you wish to negotiate on your own behalf.
Step 6 – Submit Your OfferOnce you have inspected, investigated, determined your purchase price, and satisfied yourself on all these aspects, you will be ready to execute the contract, and submit it as your formal offer.
You and the vendor or vendor’s lawyer will check your copy of the contract against the vendor’s signed copy to ensure they are identical in all respects. If they are different in any way, except for the most minor discrepancy such as an obvious insignificant typographical error, for example, there is a very real risk that the contract may be void (of no legal effect).
You will therefore appreciate that this checking of duplicate contracts function at exchange is crucial and not to be taken lightly. You will then take possession of the vendor’s signed contract and hand the vendor’s lawyer your signed counterpart. Then both contracts are dated.
What happens to the deposit?
In most cases the agent in a purchase and sale transaction will hold the deposit once the contract becomes binding until the purchase is completed. The deposit may be invested for the joint benefit of you and the vendor. In this case interest on such invested deposit will generally be shared between you and the vendor. The deposit is held in trust and cannot be released without both parties giving written authority. This authority, on your part, may be contained in a special condition inserted in the contract by the vendor, so you should carefully check the contract before exchange, for any condition of this type.
What happens after exchange?
Once the contracts have been exchanged (or once the auction has ended by the fall of the hammer) the vendor is unable to sell to any other person and you are obliged to complete the contract . If you fail to complete the contract without good cause you stand to forfeit (give up to the vendor) the deposit, or a sum equal to 10% of the purchase price.
In some situations, you may even be liable to compensate the vendor for losses suffered by the vendor over and above this amount! . That is why it is important to have your finance approved and all other matters considered before you exchange - so you don’t find on settlement you do not have sufficient funds or there are other problems which mean you cannot complete. After exchange, subject to the specific terms of the contract you will normally be obliged to pay the balance of purchase price in 4 to 6 weeks. The actual completion date must be provided for in the contract , for the sake of certainty.
You will generally only be entitled to withdraw from the contract and get your deposit back (or rescind the contract ) if the vendor’s title is found in the meantime to be defective, or if any statutory warranty made by the vendor is disproved – for example, if your inquiry to Transgrid (the electricity authority) shows that it proposes to take an easement for transmission lines over the property but the vendor failed to disclose this affectation, you will generally be entitled to rescind.
After exchange of contracts you or you Lawyer will: -
1. make enquiries of relevant government departments and authorities;
2. ask the vendor a series of contractually - authorised questions (requisitions on title) to test the vendor’s title to the property. (Sets of standard requisitions on title may be obtained from legal agents);
3. obtain a current survey and apply to the local council for a Building Certificate, where necessary or appropriate;
4. advise you of the amount and timing required for payment of stamp duty and attend on payment of stamp duty;
liaise with your lender to advise title details; obtain, read and advise you in respect of the mortgage 5. documents; witness your signing of them; and provide necessary certificates to your lender; advise you to take out building Insurance to insure the property against the risk of damage by fire, explosion, storm, etc and the date on which the insurance policy should commence. This will generally be on the date of completion or settlement, except where the vendor has allowed you into early occupation of the property (that is before settlement 6. , which is the time you are normally entitled to move into the property).
This will not, of course, be needed if you are buying a Strata Title unit, villa home or townhouse as the Owners Corporation must insure all buildings under Strata Titles Law – the individual owners can simply insure their contents, usually. In this case, you must apply for a Certificate of Currency of insurance to make sure the owner’s corporation has carried out its duty to maintain proper insurance. arrange a suitable time and place for all parties to attend for settlement . The co-ordination of settlement can be very time consuming, particularly when there are a number of parties involved and agreed settlement 7. appointments are cancelled or postponed;
in the case of a Strata Title property ensure the vendor supplies you with a certificate from the owner’s corporation setting out the relevant financial information relating to your property (called “a Section 109 Certificate”), well before settlement 8. . If the property is held under the Community Titles legislation, this is called a “Section 26 Certificate”;
carry out a final physical inspection of the property as close as possible to the appointed settlement 9. day. This should be done through the agent. You should carefully inspect the property to check for defects or damage done to it that did not previously exist (that is, to ensure the property is in the same condition as the last time you inspected it before exchange – that’s what you contracted to buy, and that’s what you should receive for your money!);
carry out final title search to ensure the title is as attached to, and represented in, your contract 10. ; and
attend and carry out settlement 11. to make sure you receive a good legal title free of any encumbrance or fetter on the title.
Step 7 - Completion
What Actually Happens at Settlement?
At settlement (which is a term often used interchangeably with “completion” but is more appropriate to describe the procedure by which completion takes place) you will generally receive from the vendor:
Discharge of any mortgage
Withdrawal of any caveat that may appear on your final search (which you would have obtained on the morning of settlement · );
You will hand over to the vendor: The settlement
You will then hand to your lender (mortgagee) who will have provided you with some, if not all, of the settlement cheques:
Your lender should then promptly lodge the title documents on your behalf (together with its mortgage ) for registration at the Land Titles Office. If you don’t have an incoming lender, you will need to attend to registration of the documents yourself (unless, of course, you have a lawyer, who will perform that duty for you as part of his/her role). The Land Titles Office is located at Queens Square, Sydney. As the registration procedure is the means by which title to the property passes to you (at least in the case of Torrens and Strata Title) it must not be neglected or delayed. Registration is also extremely important, even though perhaps not quite as critical, in the case of Old System Titles. The Notice of Sale from which you must complete and take to settlement, as outlined above, is the document that is required to enable the Land Titles Office to automatically notify the relevant rating authorities (in the Sydney notification area – your local council, Sydney Water Corporation and Valuer General’s Office). Once that is done, the change of ownership will be recorded on the registers of those authorities so that rate and other notices relating to the property will be addressed to you, as owner, in the future. On registration, the title deed (Certificate of Title) will issue showing you as the registered owner under the Torrens system. When you have a lender the title deed will also record the lender’s security interest in the property which is known as a mortgage . In that case your title deed will be delivered to your lender (mortgagee) and held by it until you have repaid your loan and are therefore able to “discharge” your mortgage .
Stamp duty is a tax which is payable to the Government on the transfer of land.
Where no concession or exemption applies Transfer Duty is usually payable within 3 months of the date of the contract (but in practical terms must be paid before settlement or completion of your purchase and this usually within 4-6 weeks of the sale subject to what the contract says).
Scale of Transfer Duty
Value of Property Rate of Duty per $100 or part of $100
Not exceeding $14,000 $1.25 with minimum of $10.00
$14,001 - $30,000 $175 plus $1.50 per $100 in excess of $14,000
$30,001 - $80,000 $415 plus $1.75 per $100 in excess of $30,000
$80,001 - $300,000 $1,290 plus $3.50 per $100 in excess of $80,000
$300,001 - $1,000,000 $8,990 plus $4.50 per $100 in excess of $300,000
over $1,000,000 $40,490 plus $5.50 per $100 in excess of $1,000,000
Essentially, the Goods and Services Tax (GST) is not intended to apply to sales and purchases of established (as compared with newly constructed) residential properties. To that extent, GST should not normally impact on your purchase in a major or direct way.
However, GST may apply in certain circumstances including;
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