Buying a property is an exciting milestone, but before you commit to a purchase, it is important to understand exactly what you are committing to. In NSW, the contract for sale sets out the terms of the transaction and contains key information about the property you are purchasing. Once contracts are exchanged, the buyer and seller are legally bound by the terms of the contract, subject to any applicable cooling-off rights.
Having the contract reviewed before you sign can help you understand your obligations, identify potential issues, raise any questions, and negotiate any proposed changes before you are committed to the purchase. So, what should you check before signing a property contract in NSW?
What is a contract for sale in NSW?
The contract for sale is the legal document that governs the agreement between the buyer and seller.
For residential and commercial property in NSW, a property cannot be offered for sale until a contract has been prepared and made available. The contract contains the terms and conditions of the proposed sale as well as prescribed information and documents relating to the property. These documents provide important information about matters such as the property’s ownership, registered interests affecting the land, planning information and drainage considerations.
The contract also contains additional special conditions that apply specifically to the transaction. As the contract documents are specific to the particular property and may affect the way you use and enjoy the land, it is important to know that every property contract is different.
What should you check in a property contract before signing?
A contract review involves much more than checking that your name and the purchase price are correct. Your property lawyer can review the contract as a whole and explain the terms that are particularly relevant to your purchase, as well as any considerations specific to that property.
Some of the key matters to consider include the following:
1. The property and title
The contract should correctly identify the property you intend to purchase. The title documents can also reveal registered interests affecting the land, such as easements, covenants and other restrictions that affect the way you may develop, use or otherwise enjoy that property. An easement, for example, may give another person or authority particular rights over part of the property. Depending on its terms and location, this could affect how you use or develop the land.
Your property lawyer can review the title information and explain any matters that may affect your proposed purchase.
2. The purchase price and deposit
The contract will record the purchase price and the deposit payable under the agreement.
The deposit is commonly payable on exchange, although the amount and arrangements can vary depending on what has been negotiated. Before exchange, make sure you understand how much is required, when it must be paid, and how you will fund the balance of the purchase price.
3. The settlement period
The contract will specify the date for completion (known as the settlement date).
Settlement commonly occurs around six weeks after exchange, but this is not a fixed legal timeframe. The settlement period can be negotiated between the parties and the contract should be checked to confirm what applies to your transaction. The proposed settlement date should work with your finance arrangements and any other relevant circumstances, particularly if your purchase is connected with the sale of another property.
4. Inclusions and exclusions
Don’t assume everything you saw during an inspection will remain at the property after settlement.
The contract can identify items that are included in or excluded from the sale. Depending on the property, this may include items such as appliances, light fittings, window furnishings or other fixtures and fittings. If there is something you expect to remain with the property, raise it with your lawyer before exchange so that the contractual position can be clarified.
5. Special conditions
Property contracts often contain special conditions in addition to the standard terms.
These conditions can alter or add to the parties’ rights and obligations and may deal with matters specific to the property or transaction. Because special conditions can have important consequences, they should be reviewed carefully rather than treated as standard wording. Your property lawyer will explain how the conditions affect you and, where appropriate, seek amendments before contracts are exchanged.
What documents are included in a NSW property contract?
NSW legislation requires certain prescribed documents and information to form part of a contract for sale. Depending on the property, these can include documents relating to the title, registered plan, dealings affecting the land, planning information and sewerage or drainage.
The documents attached to the contract are therefore an important part of your legal review. They may identify matters that warrant further investigation before you proceed.
Is reviewing the contract enough before buying a property?
Not necessarily. A contract review is an important part of your legal due diligence, but the contract cannot tell you everything about the property or every issue that may be relevant to your decision.
Depending on the property, you may also want to consider:
- Building and pest inspections
- A strata records inspection for a strata property
- Further searches or enquiries as appropriate
- Finance approval
- Whether the property is suitable for your intended use
- Planning or development issues relevant to your plans.
The appropriate enquiries will depend on the particular property and your circumstances. This is why it is important to complete your due diligence before you become unconditionally bound to the contract.
What should you check when buying a strata property?
If you’re buying a property within a strata scheme, there are additional matters to consider. The contract should include the strata plan and by-laws. The by-laws should also be reviewed to understand the rules that apply to owners and occupiers. This may be particularly relevant if you have plans involving pets, parking, renovations or alterations to the lot. Buyers should also consider obtaining a strata records inspection or strata report before committing to the purchase, as the contract does not include such information.
A strata report can provide information about matters such as:
- The financial position of the owners corporation
- Current levies and potential future costs
- Building defects and planned works
- Insurance
- Meeting minutes
- Existing or potential legal matters
- Disputes within the scheme
Can you negotiate a property contract in NSW?
Yes. A property contract presented by the seller does not necessarily have to be accepted without changes.
Before exchange, your property lawyer can raise proposed amendments with the seller’s legal representative. These may relate to matters such as the settlement period, deposit arrangements, inclusions, special conditions or issues identified during the contract review. Whether the seller agrees to a requested amendment is ultimately a matter for negotiation. Importantly, a real estate agent cannot amend the contract on behalf of the parties. Changes to the contract should be dealt with through the parties’ legal representatives.
What is the cooling-off period when buying property in NSW?
For many residential property purchases in NSW, the buyer has a statutory cooling-off period after the contract is made. For a standard residential property contract, the cooling-off period generally ends at 5 pm on the fifth business day after the day on which the contract was made.
During the cooling-off period, the purchaser can rescind the contract by serving the required written notice. However, exercising that right has a financial consequence. The purchaser generally forfeits 0.25% of the purchase price to the seller. For example, on a $1 million purchase, 0.25% is $2,500. A cooling-off period should therefore not be treated as a substitute for carrying out appropriate checks before signing.
What about off-the-plan purchases?
Different cooling-off rules apply to off-the-plan residential property contracts.
These contracts generally have a 10-business-day cooling-off period, reflecting the additional complexity that can be involved in an off-the-plan purchase. Off-the-plan contracts can also involve issues that do not arise in an established property purchase, so obtaining legal advice early is particularly important.
What is a section 66W certificate?
You may be asked to provide what is commonly known as a section 66W certificate. A valid section 66W certificate can result in the statutory cooling-off period not applying, or can be used in connection with shortening that period.
Giving a section 66W certificate can mean that you become unconditionally bound to the contract immediately. For that reason, it should not be treated as a routine administrative document. Before a certificate is provided, you should understand the contract and be satisfied with the enquiries you need to make, including your finance position. Importantly, the certificate can only be signed by a solicitor acting for the purchaser.
Is there a cooling-off period when buying at auction?
No. If you purchase residential property at public auction in NSW, there is no statutory cooling-off period. There is also no cooling-off period where a property is passed in at auction, and the contract is made on the same day under section 66W conditions.
If you are the successful bidder at auction, you will generally be required to sign the contract and pay the deposit immediately. This makes completing your legal and practical due diligence before the auction particularly important. Before bidding, you should consider having the contract reviewed, arranging appropriate property inspections and making sure your finance is sufficiently organised for an unconditional purchase.
Should you have the contract reviewed before making an offer?
Ideally, yes. Having the contract reviewed early allows you to understand the property and contractual terms before negotiations progress too far. It also allows time to identify any changes you may want your property lawyer to request. If the property is going to auction, early review is particularly important because you will not have a cooling-off period if you are the successful bidder.
What happens once contracts are exchanged?
Exchange is a significant point in the purchase process. Before exchange, the parties are generally not legally bound to proceed with the sale. Once contracts have been exchanged, the agreement becomes binding, subject to any cooling-off rights that apply and the terms of the contract.
From there, your property lawyer will continue working towards settlement, including carrying out the legal steps and searches required for the transaction. At settlement, the balance of the purchase price is paid, legal ownership is transferred to the purchaser, and the transaction is completed.
Buying property in NSW?
At Southern Waters Legal, our Property Law team can assist you throughout the property purchase process, from reviewing the contract and advising on its terms through to exchange and settlement. If you’re considering buying a property, contact our Property Law team to have the contract reviewed before you sign or bid.
This article provides general information only and does not constitute legal advice. Property transactions and contractual terms vary, so advice should be obtained about your particular circumstances.
