[BUYING AND SELLING REAL ESTATE IN AUSTRALIA]
19
Conditional Contracts It is not uncommon for the contract of sale to be subject to certain conditions. An off-the-plan contract is one example of a conditional contract, as it is subject to the registration of a plan of subdivision. A contract could also be conditional on finance, the purchaser’s due diligence enquiries (e.g., title and property searches, building and pest reports), either the purchaser or the vendor procuring a permit for the property or the vendor agreeing to complete certain works before settlement. It is important that the condition is included in the contract and drafted carefully to ensure that the party relying on the condition can terminate the contract without penalty if the condition is not satisfied and is refunded any
Terms Sheet A terms sheet is another example of a preliminary agreement. A terms sheet can be binding or non-binding between the parties. Just like a heads of agreement, a terms sheet creates the framework for the sale or acquisition of the property between the parties. The same considerations which apply to a heads of agreement also apply to a terms sheet. Options Before a contract of sale is entered into, the parties could enter into an option agreement. Option agreements are commonly used by developers who wish to secure a right to purchase a future development site. Generally, the option agreement will require the payment of an option fee which may or may not form part of the deposit which is payable under the contract of sale. The option to acquire the property is exercisable within a specified time frame, which could be several months or years. The contract of sale for the purchase of the property should be attached to the option agreement. If the option is not exercised within the specified timeframe, it lapses. Any option fee paid is usually forfeited to the vendor. It is common for the grantee under an option to have the right to assign the benefit of the option to a third party. There are several types of option agreements. A call option is where the purchaser has the right to purchase the land, but no obligation to do so. A put option is where the vendor has the right to sell the land to the purchaser, but no obligation to do so. A put and call option is where the purchaser has the right to call for the option to be entered into by the purchaser (i.e., require the vendor to sell) or the vendor can put the contract to the purchaser (i.e., require the purchaser to buy). A put and call option agreement is normally used where the purchaser intends to proceed with the
deposit monies paid. Heads of Agreement
Before a contract of sale is entered into, the parties may execute a preliminary agreement. A heads of agreement (“ HOA ”) is one example. A HOA is commonly used when the parties to a large transaction are seeking to secure an early commitment from the other party and wish to impose obligations of exclusivity and confidentiality. One of the advantages of having a HOA is that it sets the contractual framework for the parties at an early stage and helps identify the key terms. The HOA can create a timetable for certain events to happen. The parties can specify in the HOA if they intend to be immediately bound by its terms or if they are only bound upon the signing and exchanging of a formal contract of sale. If the HOA is meant to be binding, this needs to be expressed clearly in the HOA. Careful drafting is required. The disadvantages of using a HOA are that it can be time consuming to prepare and it could potentially restrict a party’s negotiating position in the future.
ILN Real Estate Group – Buying and Selling Real Estate Series
Made with FlippingBook - professional solution for displaying marketing and sales documents online