Conveyancing is a legal procedure that requires the sellers and the purchasers to engage in a coordinated step-by-step process. Below, we set out the four distinct stages in the conveyancing process namely, pre-contract, exchange and settlement.
This stage is characterised by the preparation of a written contract for the sale of property. During this stage, your solicitor will prepare a draft contract, which includes a title search to verify the owner of the property. In preparing the contract, it is important to check the following:
- Whether there are any charges on the property that may affect the sale;
- If title deeds are in order,
- Whether the rates and charges are fully paid; and
- Whether there are any restrictions on the property.
There are also other requirements to ensure that legal forms by various government departments are completed. Some certificates can take several weeks to obtain.
After the searches are completed and the terms and offer are agreed between the seller and the purchasers of the property, a contract will need to be prepared and signed by both parties.
Exchange is the legal process where the contract for sale becomes binding on the vendor and the purchaser. Exchange involves a meeting between the purchaser’s solicitors and the vendor’s solicitors where a contract signed by the buyers is exchanged with a contract signed by the vendor. At this meeting, the solicitors ensure that the contents of the contracts are identical. Once it is confirmed that the contracts are identical, the contracts are dated then swapped. At this point, the contract becomes legally binding and both the purchasers and the vendors are legally obligated to meet the terms of the contract.
Consequence of Signing
It is important that at the time of signing the contract that the purchaser be made aware of any matters which may adversely affect the land. The purchaser is legally entitled to assume at this point that they have been given all relevant information about the property and that the vendor has provided them with a warranty that all adverse matters have been disclosed.
If after the contract has been signed, the purchaser finds an adverse matter affecting the land, the purchaser will have grounds to rescind the contract based on the vendor’s breach of an implied contractual warranty to disclose relevant issues if:
- The purchaser was unaware of the adverse matter; and
- The purchaser would not have signed had they known about the adverse matter.
During the exchange, the purchaser’s representative will provide the vendor’s representative with a cheque for the deposit. The real estate agent will hold the deposit in trust until settlement is completed.
The purchaser is required to pay the stamp duty on the property. Liability for stamp duty arises on the date that the contracts are exchanged and the purchaser must pay this within 90 days of the date of the contract or prior to completion. In this case, the purchaser will need to pay the stamp duty prior to the settlement.
Cooling Off Period
It is a legal requirement that the contract includes a cooling off statement. If a cooling off statement is not included then the purchaser obtains the right to rescind the contract at any time until completion.
Cooling off provisions allow the purchaser to rescind the contract for any reason at any time before 5 pm on the fifth business day on which the parties exchanged the contracts. If a buyer elects to do this, they are required to forfeit 0.25% of the purchase price.
Most vendors request purchasers to issue a section 66W certificate. A section 66W certificate allows the purchaser to waive or shorten the cooling-off period. Asking the purchasers to issue a section 66W certificate is standard practice and a cooperative purchaser will likely issue one to expediate the exchange and settlement process. Although uncommon, some vendors prefer to proceed in this manner as providing a cooling off period to the purchaser suits their individual circumstances.
The purchaser of the property is entitled to a pre-settlement inspection in the three days before completion. Clause 12.3 of the Contract of Sale contains this clause. The purchaser’s agent will usually arrange a pre-settlement inspection. If the property is sold with vacant possession, the vendor would need to make arrangements to vacate the premises prior to or by the time of settlement. The property should be left in a clean and tidy condition and all possessions moved from the property.
If the purchaser locates any problems that they are unwilling to accept, they can withhold settlement until the matter is resolved. Neither party can terminate the contract immediately for such a breach but the buyer can delay settlement to give the vendor time to resolve the problem. If the purchaser wants to avoid delay , then it may be possible to continue with settlement with the buyer withholding part payment from the vendor until the problem is resolved.
Settlement marks the final point in the conveyancing process and is the point where the purchaser takes possession of the property, all remaining finances are settled and the transaction reaches its point of conclusion.
Before settlement, purchasers will prepare and finalise settlement figures and cheque details before arranging a settlement time and venue. For the property to change hands, the settlement agent needs to ensure any existing mortgage is paid-off and any caveats on the property are lifted. They must also register the transaction to make the transfer official. Usually, the nominated representatives of the vendors and purchasers attend settlements to ensure that all documents are correct and are handed over to the party who will hold security after settlement.
During settlement, the purchaser pays the balance of the property’s purchase price. They will also hand over the order on agent, which authorises the agent to release the deposit (minus disbursements such as the agent’s commission). Vendors have to give the purchasers the executed transfer document and title documents.
It is common for representatives of the vendors and purchasers’ mortgagee to attend the settlement to receive the final payment on the mortgage (in the case of the vendor’s mortgagee) or to secure their rights on the new mortgage (in the case of the purchaser’s mortgagee). The settlement finalises the contract, which means the rights and obligations under the contract will not continue after settlement.
If there is an outstanding mortgage on the property, a representative from the bank will also attend settlement to receive any money owing on the seller’s loan. The lending body pays the loan money and the purchaser pays the balance. The buyer’s solicitor will authorise representatives of the vendors to collect the deposit from the real estate agent. The transfer and the title deed documents are signed and the lender will arrange for the Land and Property Information to register the transfer and the mortgage on title. The lending body will hold the title documents and mortgage until the term of the mortgage is completed.
Immediately following settlement, keys and other access devices, for example, garage remotes and security alarm codes for the property are handed over after full purchase money is received. The buyer may refuse to settle until the vendor hands over all keys and security codes. If the property is the vendor’s primary residence, they will have until 12 noon on the day following settlement to hand over the key. It is common practice for vendors to provide keys to their agents before settlement because some buyers will want to collect the keys right after the settlement has been finalised.
This event is more than a symbolic gesture because by handing over the keys of the property, the vendor is handing over the physical possession of the property to the purchaser. At this stage, the buyer’s bank will register the change of title and mortgage, and notifies the relevant authorities of the change. Therefore, it is important to ensure that all keys are provided and this will help ensure a happy transition.
When titles, cheques, relevant documents and keys have changed hands, the buyer’s bank will conduct final checks in respect of caveat and/or mortgage discharge, transfer and title documents at the Land Titles Office. The transfer of ownership also takes place at this stage.
It is normal practice for the buyer’s solicitor to give the vendor’s representative at settlement a written direction to the agent authorising release of deposit and keys. This direction or “order on agent” is usually faxed to the agent so they have written authority to release the deposit.
In NSW, the insurance risk passes from vendor to purchaser on settlement or early possession, not during the exchange of contract. For this reason, vendors are advised to keep insurance coverage on their property until the settlement. Under the law, insurance is the vendor’s responsibility. If the house is damaged by fire or flood or some other catastrophe, the buyer is not bound by the contract to proceed with the purchase. It is important that after settlement, the vendor notifies their insurance company in writing that the cover is no longer required.
The purchaser of the property accepts the property in the state and condition that it is in on the date of the contract (subject to fair wear and tear). Risk of damage to any of the buildings and other fixtures remain with you as the vendor until after settlement unless otherwise provided for. If any building or fixtures are substantially damaged after the exchange, the purchaser may rescind the contract by notice in writing within 28 days of becoming aware of the damage.
If you have any questions about your upcoming property settlement, get in touch with our commercial lawyers on 1300 544 755.