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Special conditions in property contracts – the stakes are high if you get them wrong

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Ensuring Property Contracts are overseen by an experienced solicitor is imperative for property transactions. Poorly written or vague special conditions can lead to contract termination and a loss of an agent’s commission, writes QLD Property Lawyer Raphaelle Worrall.

Introduction

There are important factors to consider when drafting special conditions and it is critical that these be prepared by an experienced solicitor. In the recent case of Latimore Pty Ltd v Lloyd [2020] QSC 136, the Supreme Court of Queensland provided a judgment and orders for specific performance after a Buyer purported to prematurely terminate a residential contract on the basis that the Seller had failed to comply with an essential term and was in breach of the contract.

Background

A contract was entered into for the sale by auction of a residential property with a 60-day settlement, which the parties agreed was 22 April 2020. In addition to the standard terms of the REIQ Contract, a special condition was added stating:

3.1 Notwithstanding anything else in this contract, the Seller agrees to provide a Pool Safety Certificate to the Buyer 7 days prior to Settlement. The parties agree that this is an essential term of the contract.

It was agreed that “7 days prior to settlement date” was 15 April 2020. At 5.03 pm on the 15 April 2020, the Buyer sought to terminate the contract. This was on the basis the seller had breached the special condition by not providing the buyer with the certificate by 5pm on the due date. The seller provided the certificate at 6:31pm on the same day.

The buyer relied upon the operation of clause 10.4, together with special condition 3, on the basis that the Pool Safety Certificate is a “notice” required to be given “under this contract” or “by law” and therefore since the Certificate was provided after 5pm on the relevant day, it was to be treated as provided at 9am on the following day, in breach of the special condition.

The seller emphasised that special condition 3 does not specify a time by which the Certificate is to be provided. It only specified that the Certificate be provided “7 days prior to Settlement”. The seller relied upon the principle that, where a term of a contract specifies a date by which something is to occur, satisfaction of the obligation can occur at any time on that day, effectively up until midnight.

Decision

The court accepted the seller’s submission and found that clause 10.4(5) did not have the effect that special condition 3 had to be complied with by 5pm on 15 April 2020. It was determined that the seller had until the end of that day to comply with its obligation to provide the Pool Safety Certificate. As the Certificate was provided at 6.31pm on that day, the obligation was complied with in accordance with the terms of the special condition. Accordingly, it was not open to the buyer to terminate the contract at 5.03pm.

Therefore, the court declared that the seller satisfied Special Condition 3 of the contract for the purchase of land within the time permitted by the Contract. The buyer’s termination notice was invalid and of no effect.

Outcome

The court ordered the buyer to specifically perform the contract by paying the Balance Purchase Price of $1,853,807.71, together with any adjustments pursuant to clause 2.6 of the Contract to the seller and pay interest on the sum of $1,853,807.71 between 22 April 2020 and the date of completion of the purchase at the rate of 8.96% p.a., being the contract default rate published by the Queensland Law Society. Upon settlement, the respondents were to do all things necessary, including signing any documentation required by the Deposit Holder, to facilitate the release of the Deposit by the Deposit Holder to the applicant. The respondents were also ordered to pay the seller’s legal costs of the proceeding on the indemnity basis pursuant to clause 9.7 of the Contract (this means the sellers were entitled to claim their full legal costs incurred with their lawyers). This would most probably have amounted to several hundred thousand dollars!

How to avoid this happening to you

In Queensland, a POA licensee ( an auctioneer, real estate agent or resident letting agent under the Property Occupations Act 2014 ) or a POA employee (a real estate salesperson under the Property Occupations Act 2014 , whether or not the real estate salesperson is also a property agent under that Act) is not qualified or permitted to provide legal advice on a contract or other documents and special conditions, or draft special conditions.

Under section (3A) it is declared that neither a POA licensee nor a POA employee is engaging in legal practice only because the licensee or employee provides, prepares or completes a property contract or other document as part of performing either of the following (each of which is a
“POA licensee’s work” ) —

(a) the work of a POA licensee;

(b) other work ancillary or incidental to the work of a POA licensee and part of the ordinary course of business undertaken generally by a POA licensee.

However section (3b) states a POA licensee’s work does not include 

(a) giving legal advice in relation to a property contract or other document; or

(b) providing, preparing or completing a document prescribed under a regulation.

If a POA licensee or employee engages in legal practice in Queensland’s by providing legal advice in relation to a contract or other documents or by drafting their own special conditions, they will have committed an offence under section 24(1) Legal Profession Act 2007. The maximum penalty for breach is 300 penalty units or 2 year’s imprisonment.

It should be noted under s(3E), a POA licensee or employee preparing or completing a contract or other document is defined as either:

(a) inserting information in a blank space, or crossing or leaving out an alternative included, in the property contract or other document; or
(b) by inserting a term into, or altering a term of, the property contract or other document if —
     (i) the insertion or alteration —
          (A) is authorised by a party to the proposed property contract or other document as an insertion or alteration; or
          (B) is given in writing to the licensee or employee by a party to the proposed property contract or other document as an insertion or alteration; or
          (C) was previously prepared by an Australian legal practitioner, whether or not in connection with the property contract or other document – this provision allows the use of a precedent.

     (ii) the licensee or employee does not change the insertion or alteration except in relation to —
          (A) changing a detail about the transaction that is the subject of the property contract or other document; or
          (B) crossing or leaving out an alternative, or changing the grammatical form of words, of the insertion or alteration.

Example of preparing or completing a property contract —

A POA licensee gives a property contract to a seller to sign. The licensee has prepared or completed the property contract by printing the relevant form from the REIQ website and by filling in required details, including the names and addresses of the seller and buyer and the address and description of the property. The licensee also crossed out words when there were alternatives set out in the property contract.

Also the POA licensee inserted 2 special conditions into the property contract. The first special condition is one the seller gave to the licensee because the property is located within a gated community and the condition related to the standard covenants for the community. The second special condition is about financing and the licensee used a special condition known by the POA licensee to have been prepared by an Australian legal practitioner for another transaction but changed details to ensure the property contract read properly – this was taken from http://classic.austlii.edu.au/au/legis/qld/consol_act/lpa2007179/s24.html#poa_licensee

Including all the relevant elements

When drafting a special condition, our property solicitors always consider the other obligations being imposed on a party. This includes the time and/or date by which the obligation is to be complied with, and how the obligation is to be satisfied, needs to be clearly outlined in the special condition. Further, we understand the importance in determining whether the right to terminate the contract is given to the seller, buyer or both parties and how the right of termination may be exercised.  Upon review of the contract and drafting the special conditions, our expert property team ensure all relevant elements have been included.

Clear language

The team at Attwood Marshall Lawyers understand the importance of using clear and unambiguous language when drafting special conditions so parties can accurately determine their rights and obligations under the contract.  We understand that ambiguous wording of a special condition, or not correctly describing the performance of obligation, can cause a party to interpret the clause incorrectly. This can cause a party to not perform the special condition properly. We recognise the issues that can arise from this including providing a party right to terminate, request specific performance or sue for damages.

Review

If you are unsure if a special condition has been drafted correctly to reflect your client’s rights and obligations under the contract, we highly recommend contacting one of our qualified property solicitors to peruse the contract and special conditions to ensure they are accurate before having your client sign the dotted line. This can avoid the possibility of becoming liable for your client’s breach or not receiving your commission due to the contract being terminated.

New South Wales’ position on drafting special conditions

In NSW, the seller’s solicitor drafts the contract and provides this to the buyer’s solicitor for review before contracts are exchanged.  Therefore, special conditions are more likely to be drafted correctly and advice on the special conditions are more likely to be given to the client prior to exchange. This means there is less risk involved.

How can Attwood Marshall Lawyers help?

Our experienced team of property lawyers can ensure special conditions are drafted correctly and will not leave your clients vulnerable to disputes or give rights to a party to terminate, sue for damages or claim compensation. We take the utmost care in reviewing contracts and encourage that this be done prior to anyone signing. This gives clients access to quality advice when they need it most.

Attwood Marshall Lawyers are a leading Property Law firm. For legal help with a conveyance or pre-signing advice, contact Property and Commercial Department Manager Jessica Kimpton on 07 5506 8214 or email jkimpton@attwoodmarshall.com.au today.

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