** Originally published on www.ripehouse.com.au.
Avoid the traps when buying interstate
It is becoming increasingly popular for investors to buy property interstate to take advantage of opportunities that may not be available in their own state.
Whilst an interstate purchase might tick all the boxes for an investor there can be traps for those unfamiliar with buying in that state or territory. Every Australian state and territory has different property laws, conveyancing processes and contract terms. In this article I will highlight some of the main differences and offer advice on how to avoid getting caught out.
1. Seller disclosure obligations
Victoria, South Australia and the ACT have robust disclosure regimes requiring the seller to disclose accurate information about the property. New South Wales also requires seller disclosure to a slightly lesser extent. In Queensland, Western Australia, Northern Territory and Tasmania, the onus is on the buyer to conduct its own investigations as there are limited obligations on sellers to disclose information about existing properties. There are more onerous disclosure requirements for off the plan purchases in these states and territories.
Buyers should undertake due diligence by ordering searches on the property so they can discover whether there are matters that materially affect the property that the seller has not disclosed. If an adverse search result is obtained, the buyer may be entitled to terminate the contract or claim compensation, depending on the type of search result and their rights under the contract.
If you don’t find out about a problem with the property before settlement then it may be too late to do anything about it afterwards. Some common risks include: illegal building works, building defects, boundary issues, unpaid rates, taxes and levies, rights of way and easements, zoning non-compliance, contaminated land, and compulsory acquisition.
2. Finance conditions
It is common practice in New South Wales for buyers to obtain finance approval before they exchange. In other states and territories there is often more of an opportunity to negotiate making the contract subject to obtaining finance approval within a reasonable time. The standard form contracts (and approved annexures) in those states and territories each have standard clauses dealing with the finance condition.
It is very important to provide notice of the outcome of the finance condition to the seller by the due date. In Queensland, Western Australia, Tasmania and Northern Territory the standard contracts provide that if the buyer does not give notice of finance approval by the due date then the seller is entitled to terminate the contract. In Victoria, there is a leeway of 2 business days after the due date but after that the finance condition would be deemed satisfied. In South Australia and the ACT, the seller must first issue a default notice.
3. Cooling off periods
Other than in Western Australia and Tasmania, buyers of residential real estate may benefit from a cooling off period. In New South Wales and the ACT the cooling off period is 5 business days from exchange; in Queensland, 5 business days including the date of exchange; in Victoria, 3 business days from the buyer signing the contract; in South Australia, 2 business days after exchange or later receipt of the disclosure statement; in Northern Territory, 4 business days after exchange.
Cooling off periods do not apply to properties bought at auction and there are other exceptions in some states.
4. Risk in property
Buyers purchasing existing houses in Queensland, South Australia, Tasmania and the ACT should obtain building insurance immediately after exchange as the risk in the property passes to them on exchange (or at 5pm the next business day in Queensland). It is also advisable for buyers in other states to obtain building insurance as soon as possible as it will be a lender’s requirement to do so before they advance funds for settlement.
5. Time of the essence
If time is of the essence it means that all dates must be strictly complied with by the date specified in the contract unless and until an agreement to change them is reached. Time is of the essence in the standard contracts in Queensland, Victoria, Northern Territory, Western Australia and South Australia. However this is most dramatic in Queensland in relation to settlement because if a buyer is unable to settle on the date for settlement, in the absence of the seller’s agreement to extend the settlement date, the buyer will be in default and the seller is entitled to exercise its rights under the contract which include terminating the contract, keeping the deposit and suing for damages.
Buyers of interstate properties should engage a lawyer or conveyancer who has experience and expertise in the relevant jurisdiction before signing a contract.