Top 10 essential things to look out for in real estate contracts and when buying or selling a property

Buying or selling a property is often considered one of the biggest transactions people make in their life. With that comes risks and property transactions are usually time sensitive. While the fundamentals of real estate contracts are broadly consistent across Australia, each state and territory (a jurisdiction) has its own legislation, disclosure regimes and standard form contracts. Missing a key clause or misunderstanding one can expose buyers and sellers to unnecessary legal risk.

We’ve summarised 10 essential things to look out for in real estate contracts across all Australian jurisdictions, whether you are buying, selling or advising on property transactions.


1. Correct identification of the parties and the property

This may sound basic, however, errors here can cause serious issues. The contract must correctly identify:

• The legal names of all parties entering the transaction
• The correct title reference for the property (which often includes reference to a lot and the registered plan);
• Any easements, covenants or restrictions affecting the property.

Mistakes can delay settlement, complicate finance approval, or even invalidate the contract. Extra care is required where trusts, companies or SMSFs are involved, as incorrect naming can have tax and legal consequences.


2. Price, deposit and payment terms
Again, sounds simple, but the impacts from uncertainty can be severe. The contract should clearly state:

• The purchase price
• Deposit amount and when it is payable

Buyers should also check whether the seller can access the deposit before settlement and under what conditions, which can vary substantially in practice between jurisdictions.


3. Cooling-off period

Cooling-off periods vary across Australia and do not apply in all circumstances, or in all jurisdictions. There are statutory minimum cooling off periods in many jurisdictions where a buyer of residential property can terminate a contract for any reason with a minimal cooling off fee but these cooling off periods can sometimes be shortened, extended or waived by contract terms or by legal practitioner certificates.

Cooling-off rights are excluded at auction and in other some other circumstances. Buyers should never assume they can “change their mind” without obtaining legal advice to see if cooling-off is applicable.


4. Disclosure obligations

Each jurisdiction has its own seller disclosure requirements, with some jurisdictions requiring substantial disclosure and other requiring vey little and the onus on the buyer to do more due diligence on the property.

Where disclosure is required, sellers usually need to provide accurate information about or certificates relating to the property and failure to do so can allow buyers to terminate the contract or claim losses. Buyers should obtain legal advice on the information and certificates disclosed as they may not have any rights where a seller has disclosed things about a property that could have negative consequences for a buyer.


5. Contract conditions

In some jurisdictions it is common practice for buyers to negotiate the inclusion of contract terms making the contract conditional upon finance approval or satisfactory building and pest inspections within certain timeframes. In other jurisdictions, this is not commonly accepted and must be done before the contract is signed or during any cooling off period. Auction sales are usually unconditional as are many contracts in a sellers market (i.e. more demand for good properties than the supply) so buyers need to act quickly by obtaining legal advice and inspection reports.


6. Settlement date and adjustments

The contract should clearly state the settlement date or how it is to be calculated where it is conditional upon another event occurring (e.g. settlement of a prior sale). Like most contract terms, the settlement date is negotiable but is most commonly within a 30 to 60 day period depending on the jurisdiction.

At settlement there are adjustments for outgoings including rates, water usage and strata levies (for units) and in some jurisdictions, possibly land tax depending on the contract terms. The seller is usually responsible for outgoings until settlement and the buyer thereafter but this can change depending on the contract terms.


7. Off-the-plan and sunset clauses

Off-the-plan contracts are often in substantially different forms to the standard form contracts used in most jurisdictions, or may contain special conditions that substantially change the way a contract is interpreted.
Off-the-plan contracts raise additional risks, including:

• Longer settlement timeframes
• Changes to plans or finishes
• Developer rights to extend or terminate

Sunset clauses allow a party (or both) to terminate a contract if the title to the property hasn’t registered or settlement hasn’t occurred by a latest date. The laws dealing with termination rights vary significantly between jurisdictions and in some cases, property type.


8. Special Conditions

Special conditions override standard contract terms and can be considered risky. They should only be drafted by legal professionals. Some common special conditions include those dealing with:

• Removal of usual seller warranties about the property
• Buyer’s due diligence enquiries
• Prior sales
• Early access to the property for the buyer

Because special conditions can significantly alter rights and obligations, they should always be reviewed carefully. A single special condition can shift risk entirely from one party to the other.


9. Goods and services tax (GST)

GST can be payable on the sale (supply) of property although the sale of existing residential property is usually exempt. Real estate contracts should clearly deal with:

• Whether the price includes GST
• Application of the margin scheme by the seller (usually by a developer)
• GST withholding obligations

GST treatment varies depending on the nature of the property and the parties involved. Errors in GST clauses can result in unexpected liabilities or disputes and so it is very important for both buyers and sellers to obtain legal and tax advice in this regard.


10. Possession, vacant possession and tenancies

The contract should clearly state whether the property is sold with vacant possession, or subject to an existing tenancy.
Where a property is tenanted, buyers should check:

• Lease terms and expiry dates
• Rent and bond details

Failure to properly address vacant possession or tenancies can delay settlement or prevent intended use of the property.

Alanna D'Cruz

Alanna is a legal advisor who, since completing her science and law degrees, has developed a strong interest in transactional law, with a particular focus on property. She brings prior experience in migration law and approaches each matter with a high level of attention to detail and client focused approach. Outside of law, Alanna enjoys a good glass of wine, time by the ocean, and tennis.