Buying a House: Common Special Conditions

Buyers are frequently caught out by nasty special conditions (additional clauses in the contract drafted by the vendor's solicitor which supersede the standard form clauses).

This article seeks to highlight some of these commonly seen special conditions.

 Common special condition:

1. Exclusion of Representations

Most contracts will contain a clause to the effect of 'The Buyer enters this contract without relying on any advertisement, inducement or promise, whether verbal or in writing, unless expressly contained in this contract'.

These clauses seek to oust or exclude your ability to have any legal claim if these representations ultimately prove to be untrue.

Common scenarios include when a vendor or their real estate agent: 'promises' to fix items in the house before settlement, or promises that a park will be built down the road, or promises that views will not be obstructed in the future.

Sometimes these clauses will be ineffective, and it is important to seek legal advice should you have such a claim. But, as the recent decision of Hyder v McGrath Sales Pty Ltd [2018] NSWCA 223 shows, making a claim can be very difficult.

If you have been promised anything, make sure it is negotiated as a term in the contract.

Note as well that even if you were not promised anything, buyers will often feel aggrieved, if for example, a large development is built next door and the vendor made no mention of it having been approved.

It is important to always carry out proper investigations.

2. You purchase the property subject to all latent and patent defects and infestations

As a buyer, one of the biggest risks you take when buying a property relates to defects and infestations (such as termites) affecting the property.

Carrying out due diligence reports (pest and building, and in certain cases contamination etc) is highly recommended.

Hidden (latent) defects or infestations can be very expensive to remedy.

There are some exceptions. See our website for the article titled "Caveat Emptor (Buyer Beware): purchasing a property with defects" for further information. Unless, for example, there was an active concealment on the part of the vendor so as to amount to deceit on their part (see the failed claim in Wood v Balfour [2011] NSWCA 382), then the principle of caveat emptor applies and the buyer must accept the risk when purchasing the property.

Be careful before exchanging a contract unconditionally.

3. Agent Introduction/Indemnity clause

Commonly, a vendor will have a clause in the contract whereby the buyer 'warrants' that they have only dealt with the agent listed on the front of the contract and 'indemnifies' the vendor for any breach of this warranty.

In other words, if the buyer deals with another agent (usually an earlier agent whom the vendor ceased to engage) and that agent sues the vendor for commission, then the buyer has to pay that commission and all associated costs.

This little clause can be an expensive surprise for a buyer if caught out.

4. Interest for late completion

If you are late to settle (usually because your bank is late if you are borrowing), most contracts will include a clause charging you interest for late completion.

Interest can be substantially higher than the mortgage rate.

Often buyers feel this is unfair as it is their bank, rather than themselves, who is holding up settlement.

Conversely, if the vendor is late, it is common that you cannot charge them interest. This too can be a surprise to buyers.

5. 14-day Notice to Complete

If you are late to settle, it is common for the contract to state that the vendor can issue a Notice to Complete, whereby time now becomes 'of the essence' to settle within 14 days.

After the Notice expires, the vendor can terminate the contract if you still cannot settle.

For further information, please see the article on our website titled "Cannot complete your purchase of land contract? Think your liability is limited to the 10% deposit? Think again!".

6. Release of Deposit

Another common special condition seeks to allow a vendor to use your deposit before settlement so long as they can apply it to their own purchase, stamp duty etc.

The broader the clause, the higher the risk.

If the clause allows for an "unconditional" release of deposit – allowing the vendor to spend the deposit money early on anything they wish – then it can be very difficult to retrieve the money (without suing) if you, for example, have to rescind the contract.

7. Incapacity

If one of the parties dies or loses capacity, a special condition will often be included allowing the other party to rescind the contract at their election.

8. Guarantor clause

If buying in a company name, be weary that you may be inadvertently giving personal guarantees if you are a director. A vendor will often insist on this.

9. Land Tax Adjustment

Some vendors try to pass on their land tax bill, if they have one, under the contract as a pro rata adjustment in addition to the purchase price.

Unusually the box on page 2 of the contract will be ticked to that extent, but sometimes a contract will have it marked 'no' on page 2, and then a special condition overriding that earlier "no".

10. GST

Sometimes it is important to have a custom GST clause. For example, the property brand new and the 'margin scheme' method is being used.

Other times, these clauses can catch people out, or be so poorly drafted it is left to the Court to determine which party must pay the GST if it applies.

It is important to seek competent advice in relation to these clauses.

11. Other clauses

The above 10 special conditions are but some of the long list which can appear.

You should speak to an experienced property law lawyer about these clauses.

You can contact Maclarens Lawyers on 96823777.