Article, 20 September 2004
Current
Market Information
Accidental instalment contracts ?
There is a real trap for agents, contained in section 71 of the Property Law Act 1974 .
A contract where the deposit is greater than 10% of the purchase price, is deemed an 'instalment contract'.
Usually, it would seem easy to calculate whether the deposit is greater than 10% of the price. However, it is not always so easy. The Supreme Court earlier this year was asked to decide how the amount of the deposit applies to a discounted purchase price.
In Moor v BHW Projects Pty Ltd [2004] QSC 60 (25 March 2004) there was a deposit of $24,750, a contract price of $247,500, and the following special condition:
"Immediately upon payment of the deposit under this contract the buyer will receive a discount of $10,000 from the purchase price payable at settlement"
The Supreme Court decided this clause meant the deposit was more than 10% of the purchase price (ie the "real" purchase price was $237,500.00).
Another accidental instalment contract
In an earlier Supreme Court decision (Starco v Ladd [1998] QCA 344) an agreement to release deposit and interest to the seller, in exchange for extensions, made the contract an instalment contract.
Just how bad is an 'instalment' contract ?
In Moor v BHW Projects Pty Ltd (above) the decision that the contract was an instalment contract meant the seller couldn't cancel when the Buyer didn't settle on the due date.
In other circumstances, the Buyer may be able to become the owner of the property, without paying the full price.
It every case, it probably means a real chance of litigation against the agent who prepared the contract.
How do agents protect themselves ?
Step #1 - Take extreme care that deposits are not over 10%.
Step #2 - Be aware that "discount" special conditions reduce the allowable deposit.
Step #3 - Be aware that variations to the contract can (if done incorrectly) make an accidental instalment contract.
What the numbers mean
We are sometimes asked what the numbers on the left hand axis of the graph mean.
The numbers represent the use of the Government's "CITEC" search system. The numbers include:
-> Lawyer's searches
-> Bank's searches
-> Multi-searches (ie start of a conveyance, end of a conveyance, etc)
-> Refinances, and
-> Searches which don't relate to property transfers.
Therefore, the numbers do not relate in any way to sales ... but (we suggest) show the general level of activity in the market.
This means - the numbers are useful to show whether things are getting busier, or quieter.
Documents to send to Buyer's and Seller's solicitors
An (excellent) question we received last week was: "Exactly what has to be sent to the buyers' and sellers' solicitors with the contract and in what order, and do they both have to be originals ?"
To answer this question, we have limited ourselves specifically to the contract and warning statement, and we answer the question in parts as follows:
Part 1 - Is it necessary that there be two originals of a contract ?
The answer is: "No". There is no law requiring a property contract to be made with two originals.
Historically, two originals were used before there were photocopiers. In modern times, using this method may cause problems. What happens, for exampe, where there are amendments to the contract during negotiation and the two originals (accidentally, or deliberately) end up different ?
It is perfectly satisfactory to make a contract on a single original, then provide the original to the buyer's representative, and a photocopy of the original to the seller's representative.
Part 2 - What is to be the first page of the contract ?
Sections 366 and 367 of Property Agents and Motor Dealers Act require that a warning statement be "attached" as the first or top sheet of a contract.
There has been a Supreme Court decision on the meaning of "attached" in that section - namely MP Management (Aust) Pty Ltd -v- Philip Stuart Churven & Ylva Maria Kjellberg [2002] QSC 320 (9 October 2002).
The Court decided that the word "attached" meant "some form of joinder, fastening or affixation".
In that case the warning statement was loose in a folder containing other contract documents. It was found that the warning statement was not "attached" as the first or top sheet.
Part 3 - Can a contract be made by facsimile ?
The Property Agents and Motor Dealers Act specifically mentions making a contract binding by providing a copy by facsimile - see section 365(2). However, this seems to contract the requirement for a warning statement to be "attached" (as mentioned above).
In the absence of a clarifying judgment of the Court, or a change of law by the Government, we suggest the following measures should be taken if a contract is to be made using facsimile machines:
(1) A contract may be faxed to an intending Buyer.
(2) An agent must take steps to ENSURE that a warning statement is physically stapled as the first page of the contract at the time the Buyer signs the contract ... AND that the warning statement is signed first by the Buyer before the remainder of the contract is signed.
(3) The contract can then be "taken apart" to be returned by facsimile .. and then reassembled at the other end by the agent.
(4) It is CRITICAL (just to restate the point) that the Buyer did have the warning statement stapled as the top page at the time they signed the contract - AND that they signed the warning statement first.
The real practical difficulty the law creates here is: How can an agent be sure the warning statement was attached and signed first ? The only way we can see of guaranteeing this, is to have a local agent (or lawyer or conveyancer) receive and collate the contract and witness the signing of the contract.
Part 4 - What should be sent to the Buyers and Seller's solicitors ?
First: A copy of the contract should be sent by facsimile, with the warning statement as the first page - and with a covering letter confirming that the contract has been unbound for the purposes of sending by facsimile, and that the warning statement was "attached" as the first or top sheet of the contract.
Next: An original (to the Buyer's representatives) or copy (to the seller's representatives) of the contract should be sent by mail or otherwise delivered. Care should be taken to ensure that this contract has attached as its top sheet the original warning statement.
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Kindest regards, 
"No problem can stand the assault of sustained thinking."
Voltaire
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