Get in Touch

Buying

What Happens If You Aren’t Ready To Settle?

Published: 14 October 2019
Written by burstonline
No comments
Categories: Buying, Off the Plan

We had a new purchaser client who recently signed a contract of sale with settlement due in just 30 days. Whilst the parties can agree on any time frame for settlement (sometimes this can extend to years), as a rule of thumb 30 days is pretty quick to get everything ready. Doable, but things need to go smoothly.

When we spoke to the client they explained that ’30 days is just the earliest date, otherwise we’ll just settle when we are ready’.

The problem is that isn’t how it works from a legal perspective. The settlement date in a contract of sale isn’t fluid, the parties should treat the date as set in stone. There are very onerous legal consequences that the parties may exercise if the other party isn’t ready to settle on time.

For tips on choosing your settlement period click here.

Let’s take a look at what happens if you’re not ready to settle on time from a legal perspective and what happens in a real world situation.

There are essentially three different situations that can occur to cause a delay at settlement.

The Vendor isn’t ready to settle

There are a number of reasons why the Vendor may not be ready to settle. This may be because of a delay in having their mortgage ready to discharge, failure to prepare and sign the correct documentation or they may physically not be out of the property.

Usually however the Vendor will be motivated to get ready quickly so they can receive the money under the Contract of Sale. In our experience it is only clerical (documentation errors) or issues with their lender that cause a delay, and they are usually remedied very quickly.

The Purchaser isn’t ready to settle

There are a number of reasons why the Purchaser may not be ready to settle. This may be because of a delay in having their funds ready to purchase the property or a failure to prepare and sign the correct documentation.

The main concern when settlement is delayed by the Purchaser is the money owing to the Vendor under the Contract of Sale. Interest on that amount is payable for each day until the property is settled. This is commonly referred to penalty interest.

To read more about penalty interest click here

If the Purchaser still isn’t in a position to settle and it becomes clear to the Vendor that they are not going to settle then they will issue a Default Notice which gives them 14 days to settle or they will exercise their full rights under the Contract of Sale.

To read more about default notices and to see an example of what one looks like click here.

Both parties aren’t ready to settle

If both parties are not in a position to settle then they can mutually agree to extend the settlement date to a time in the future they believe they will be ready. If this is the case then they will usually agree that no penalties will be charged since they themselves can’t settle, even though they know the other party can’t either.

What you need to remember is that the failure of any one of the parties representing the Vendor or Purchaser is treated as a failure on their own behalf. So if you’re bank isn’t ready to settle, that’s on you. If your conveyancer hasn’t had all the documentation signed, that’s on you.

The law for the purposes of a contract of sale doesn’t see the lenders (outgoing and incoming) or legal representatives as parties to the transaction, they are simply the team behind the vendor and purchaser. So make sure you choose the best team to represent you!

What Is Penalty Interest And How Is It Calculated?

Published: 14 October 2019
Written by burstonline
No comments
Categories: Buying, Selling

If a property fails to settle on time then penalty interest may be payable on the amount owing under the Contract of Sale. We say ‘may be payable’ because it is at the discretion of the party who is ready to settle to exercise the right to charge penalty interest.

Let’s take a look at penalty interest, what it looks like in practice and how much it can cost you as a purchaser if you are not ready on settlement day.

Penalty Interest Act

Penalty Interest is fixed by the Attorney General of Victoria under section 2 of the Penalty Interest Rate Act 1983.

Calculation

The typical calculation for penalty interest in a Contract of Sale is 2% plus the amount prescribed in the Penalty Interest Rate Act 1983. If we assume there is $500,000 owing on a property at settlement and the penalty interest rate is currently 10% per annum then we calculate 12% (because it is 2% plus the penalty interest rate) on that amount calculated annually and then break it down to a daily figure.

12% on $500,000 annually is $60,000

$60,000 calculated daily in 2019 (365 days) would be $164.38.

So for every day the purchaser doesn’t settle they will have to pay $164.38 in penalty interest.

Be careful of ‘penalty interest’ and ‘additional costs’ special conditions

One thing that your lawyer will discuss with you is Special Conditions that inflate the amount of penalty interest owing if there is a delay at settlement. In many cases (particularly we have found those contracts drafted by larger law firms) the rate of penalty interest will be lifted from 2% to 4% plus the current rate in the Penalty Interest Rate Act.

Additionally, some firms will also include a special condition that burdens the purchaser with significant legal costs if there is a delay. They require the purchase to pay for the cost of the additional legal work which can often be hundreds of dollars.

How often is penalty interest charged on the delay of settlement?

Anecdotally speaking, a significant delay to a settlement date is rare enough so that we don’t expect it, but common enough to know what to do when it does occur. A huge breakdown at settlement happens in only 5-10% of files and is usually because the purchaser cannot secure their finance in time.

There really aren’t that many other significant issues that will cause a delay. The vendor is generally motivated to close out the transaction (especially if they have a new purchase they need funds for) and the Purchaser is preparing to move in. Outside of a significant dispute between the parties, most settlements go through on time.

To avoid disputes, have a look at our article on Special Conditions and ensuring that they are drafted correctly in the Contract of Sale. Click here to read more.

Case Study: The Importance Of Checking For Building Permits

Published: 14 October 2019
Written by burstonline
No comments
Categories: Buying, Contract Review, Leasing

You might remember seeing a news article in September 2018 about a Melbourne man who had purchased a home with illegal building works. Click here to read more.

Hao Dong had purchased the property at auction 2 years before and after a complaint that it was being used an unregistered boarding house, the council investigated and issued a notice that most of the house was built without the proper permits.

Let’s take at some of the mistakes that Hao made and how you can avoid them when purchasing your property.

“[The real estate agent] didn’t mention anything so I assumed everything [was] legal”

There are a few mistakes that Hao has made in this situation

  1. Relying on representations (or lack thereof) from the real estate agent. The real estate agent is ‘selling’ the property and beyond taking you through the property and showing you the features, you should refer all legal questions to your lawyer.
  2. Don’t assume anything about a property. It is likely that the Vendor in this transaction knew that they needed (or might have needed) a permit for all (or at least some) of the works on the property. They deliberately didn’t disclose that fact.
  3. Be an engaged purchaser. If you look at the photos of the property then you will see pretty quickly that there is a difference between the original building and the add ons. Quite simply they look different. If you notice that the character of the home is different in the external buildings then ask the question and get confirmation.

Click here to read our tips for dealing with real estate agents.

Now that we know what Hao did wrong, let’s take a look at 4 steps you can take to avoid making the same mistakes.

  1. Check that the character of the home is consistent. Be aware at open for inspections. It is completely normal to have a detached garage, but does it look like it was built at the same time as the house? Have they aged the same? If the house is weathered but the garage looks brand new then it may have been built at a later date. Did the Vendor have a permit for the new building?
  2. Start asking questions. If you believe that there are additional building works on the property, start asking tough questions. The real estate agent will be able to direct you to the Vendor’s lawyer. Get confirmation from the source that any works on the property were completed using the proper procedure.

If we have learnt anything from Hao’s experience it is that whilst the Vendor-Purchaser relationship doesn’t have to be adversarial, it should be viewed professionally. Not everyone selling a property is doing so honestly.

The most important thing you can do when inspecting a property is talk to your lawyer before you sign on the dotted line. Avoiding these sorts of problems before you purchase the property is so much easier than dealing with them during the settlement period or in the future when you own the property.

To read more about the consequences of not having a building permit please click here.

Do You Qualify For The First Home Buyers Exemption, Concession or Reduction?

Published: 30 September 2019
Written by burstonline
No comments
Categories: Buying, First Home

The major difference between the First Home Buyers Grant (FHOG) and the First Home Buyers Exemption, Concession or Reduction is how you receive assistance from the government.

The First Home Owners Grant gives you money ($10,000 in metropolitan areas and $20,000 in regional Victoria) to build or buy your first home.

The First Home Buyers Exemption, Concession or Reduction is often incorrectly referred to as a ‘grant’ when really it is an exemption or concession from paying all of the stamp duty you would usually pay on the property.

The amount of duty you pay is either an exemption from paying any stamp duty or a concession (to pay less) based on the price of the property.

NOTE: It is important to remember that you can be eligible for both the FHOG and the First Home Buyers Exemption. You don’t have to choose between one or the other.

How do I know if I’m eligible for the First Home Buyer Exemption, Concession or Reduction?

Let’s take a look at the criteria. If you would like to know more, click here for a link to the State Revenue Office website.

  1. You must have entered into a contract of sale to buy your first home on or after 1 July 2017.
  2. Your home has a dutiable value of $600,000 or less to receive the First Home Buyer Duty Exemption or $600,001 to $750,000 to receive the First Home Buyer Duty Concession.
  3. All the purchasers of the property must meet the First Home Owner Grant eligibility criteria
  4. At least one purchaser must satisfy the residency requirement

Click here for more information on the First Home Buyer Grant eligibility criteria or click here to head to the State Revenue Office (SRO) FHOG page.

Do You Qualify For The First Home Owners Grant (FHOG)?

Published: 30 September 2019
Written by burstonline
No comments
Categories: Buying, First Home

The $10,000 First Home Owners Grant (FHOG) is available to eligible purchasers when they buy or build their first new home. The grant is boosted to $20,000 for eligible first home owners buying in regional Victoria.

There are essentially two steps to obtaining the First Home Owners Grant, the property you are purchasing must be eligible and you personally must be eligible to receive the grant.

How do I know if the property I am looking to purchase is eligible?

  1. To be eligible for the First Home Owners Grant your first home can be a house, townhouse or apartment, unit or similar valued at $750,000 or less.
  2. It must be the first sale of the property as a residential premises
  3. Home must be less than 5 years old

How do I know if I am eligible for the First Home Owners Grant?

Some of the questions the State Revenue Office will ask include

  1. Will the home be in Victoria? The property must be in Victoria.
  2. Will there be more than one applicant for the Grant?
  3. Will the applicant(s) both be a person? This means that each of the applicants must be an individual person, not a separate legal entity like a company or a trust.
  4. Will the applicant be at least 18 years of age at settlement or completion of construction?
  5. Will the applicant be an Australian Citizen or permanent resident?
  6. Will the applicant have a spouse or partner? If you have a spouse or partner, you will have to answer if they have received a first home owner grant in any other state or territory of Australia. If they have already received a First Home Owners Grant then you will be ineligible.
  7. Has the spouse or partner ever had a relevant interest in residential property? A relevant interest is someone with a legal entitlement to the property being purchased or built. Each person with a relevant interest must be listed as an applicant for the grant.
  8. Will the applicant be an owner builder? An owner builder is an owner of land who builds a home without entering into a comprehensive home building contract.
  9. Will the applicant move into the home within 12 months of its completion and live there for at least 12 months?
  10. Will the property be in regional Victoria with a contract signed on or after 1 July 2017?

The State Revenue Office has a tool you can use to determine whether you are eligible for the First Home Owners Grant. Click here to take a look.

For more information on the First Home Owners stamp duty exemption or concession click here.

Worst Case Scenario: What Happens If I Can’t Get Finance?

Published: 30 September 2019
Written by burstonline
No comments
Categories: Buying, Off the Plan

In this edition of Worst Case Scenario, we take a look at what happens if you can’t get finance. This situation happened earlier in the year when a client received notice that their off the plan property was ready to settle.

WHAT CAN WE LEARN FROM THIS WORST CASE SCENARIO?

  1. Recognise changes in the property market that might change the new valuation of your property.
  2. Recognise changes in your personal circumstances that might impact your finance.
  3. Work with your mortgage professional to secure alternate sources of funding and valuation.
  4. Keep track of your finances during the settlement period.

Let’s take a detailed look at what happened and how we can learn from it.

TELL ME WHAT HAPPENED

In 2016 a first home buyer purchased an off the plan apartment in inner city Melbourne. They put down a $75,000 deposit which represented 10% of the purchase price. The development was a medium-large scale site with about 30 apartments across 5 levels. The vendor’s representative provided updates on the progress of construction.

With the Plan of Subdivision due to be registered in a couple of weeks, the purchaser contacted their mortgage professional who re-applied for finance on her behalf. She was offered a mortgage $70,000 less than she needed to settle the property.

WHY WAS THERE A DIFFERENCE BETWEEN THE TWO OFFERS

There was a difference between the two finance offers for two reasons. One, the value of the property had slightly lowered during the construction period and two, the earning capacity of the borrower had changed in the two years.

We cover this issue with a mortgage professional in our video series which you can watch here.

WHAT HAPPENED FROM A LEGAL PERSPECTIVE

Big developers are very difficult to talk to directly. This is simply because they are settling hundreds of properties a year and as a result they don’t have time to deal with them on an individual basis. This makes it almost impossible to appeal to them personally. The Vendor’s lawyers are also dealing with hundreds of settlements a year and can’t be lenient with one of them to the exclusion of another so they apply the general rule of being lenient to none of them.

CAN YOU GET INTO TROUBLE FOR NOT SETTLING YOUR PROPERTY

There was one email which really shook the purchaser to the core. The Vendor’s solicitor mentioned that there was a chance that bankruptcy action would be taken against them. In hindsight this was included in a generic paragraph and we don’t believe that the Vendor had any intention of going down this path. It’s simply not a good look.

The Vendor already has the full deposit which would offset any costs they would incur in selling the property again…and then of course they are able to sell the property on the market for it’s full value. So whilst we must always assess these matters on a case by case basis, we haven’t heard of a situation where a vendor has continued to pursue the purchaser AFTER they have taken the deposit. That is damage enough.

FOR COMMONLY ASKED ‘OFF THE PLAN’ QUESTIONS, CLICK HERE OR HERE.

5 People You Will Meet At An Auction…And How To Beat Them!

Published: 26 September 2019
Written by burstonline
No comments
Categories: Buying, First Home

When it comes to an auction you better know the character you are playing. That’s right, it’s not enough to turn up and hope for the best. If you want to be the highest bidder when the final hammer falls you need to understand who you are bidding against.

3 Tips Before Heading to Open For Inspections

Published: 20 September 2019
Written by burstonline
No comments
Categories: Buying, First Home

We’ve been there before. It’s Saturday morning, you’re at an open for inspection eyeing off every other person looking at the property you’re quickly falling in love with.

The real estate agent tells you that there is ‘plenty of interest in this one’ and that they ‘have a couple of people interested but no one has signed a contract yet’. Are you prepared to make an offer on the spot?

How do you prepare yourself before heading to an open for inspection? Your Property Australia shows you how.

Print out your YPA Inspection Form

This is the biggest single financial investment of your life, so you best be getting serious about it.

Start off by downloading the Your Property Australia Inspection Form. Chances are you will be looking at 5-6 properties on a weekend. This will allow you to write down key information about your favourite properties to review at the end of the day.

The YPA Inspection Form is an interactive PDF meaning you can insert information before you go (if you are super organised) or fill it in when you arrive. At the end of the day you will have a list of the properties you’ve visited, what you liked and what you didn’t.

Download here.

Broken toilet. Let’s get a plumber. Busted air conditioner. Let’s get it fixed before settlement. You can then hand this list across to your YPA lawyer who can use it to understand your purchase and any special conditions that might need to be drafted.

Get on the phone to Your Property Australia. Now.

If you think that this property is too good to be true then call Your Property Australia straight away. A Contract Review can usually be completed within a handful of hours, allowing you to have the confidence to put in an offer before the weekend is finished.

Make sure you have your finance sorted BEFORE you sign a Contract of Sale

‘Subject to Finance’ is the Shania Twain of Contracts of Sale. As our favourite country singer used to say ‘that don’t impress me much’. No one is getting excited about a conditional offer. Real estate agents aren’t getting paid their commission to bring vendors conditional offers. They want to seal the deal. Now.

Make sure you have your finance sorted BEFORE you sign a Contract of Sale so that you can make an offer with confidence and without the purchase being ‘subject to finance’.

The Importance of Special Conditions

Published: 20 September 2019
Written by burstonline
No comments
Categories: Buying

Like the Spice Girls, both buyers and sellers of property need to tell the other party what they ‘really really want’ in a Contract of Sale. If you don’t put what you really really want in a Special Condition then don’t expect it to happen at the settlement of the purchase or sale of that property.

What is a Special Condition? 

A Special Condition can add to the current conditions in your Contract of Sale or amend or replace one of the General Conditions in your Contract of Sale. They can be one of the most important aspects of a property sale because they reflect the personal circumstances of the transaction.

TIP: If it’s not in the Contract of Sale then don’t expect the Vendor or Purchaser to do it.

It sounds harsh but people promise things during the negotiation of a property that if they aren’t compelled to do by the Contract of Sale, they simply won’t do. No amount of your real estate agent telling you ‘this Vendor is a really good person’ and ‘dont make the Contract of Sale complicated’ will make any difference.

What can a Special Condition include?


As a rule of thumb, a Special Condition should capture any action that is external to what is in the Contract of Sale. If you want anything to be included that isn’t secured to the property or the Vendor to perform in a certain way before settlement then make sure it is included.

What are some examples of Special Conditions?

  • Repairs that the purchaser would like made before settlement of the property.
  • Furniture or large items that the Vendor doesn’t want to move with them can be included in the purchase.
  • In the case of an investment property, access to the property before settlement so that the Purchaser can show prospective tenants who are looking to move in.
  • Subject to building inspection or pest inspection clauses. We talk more about these clauses in this article.

My Contract doesn’t have any Special Conditions…should I be concerned?

If your Contract of Sale doesn’t have any Special Conditions then you need to ask yourself if you expect the Vendor to do absolutely anything except for handing over the property in its’ current condition. 


Help! My Contract has a million Special Conditions! They are longer than the General Conditions.

Oh no! Bigger law firms in Australia will include their own Special Conditions which will rip apart the General Conditions and often impose onerous requirements on the Purchaser before settlement.

One common culprit is if you are purchasing an off the plan property. Have a read of our article on understanding Off the Plan Contracts of Sale to better understand why they are so long.

There are also certain technical Special Conditions that are important to include and lawyers would expect to see in Contracts of Sale. So if there are absolutely zero special conditions then you should double check you’ve got the full copy of the Contract of Sale with your lawyer.

Common Mistakes When Borrowing Money From Your Parents.

Published: 16 August 2019
Written by burstonline
No comments
Categories: Buying, First Home

Family comes first. If your family has offered you money to purchase a property then keep reading to understand how to make sure it doesn’t cause huge problems in the future.

One of the biggest worries for first home buyers entering the market is finding a property that fits within their budget. It can be particularly difficult when purchasers want to stay near their family as the suburb they have been living in for decades has almost certainly skyrocketed in value.

Homebuyers find themselves priced out of the market and understandably stressed out. 

There are of course plenty of inner city options and new suburbs opening up on the outskirts of Melbourne, but for those who are lucky enough to have been offered some assistance from their family our concern is always ensuring that the help doesn’t cause tension between the family in the future. You might say ‘don’t be silly it will be fine’ but when money is involved tension inevitably follows. 

TALK ABOUT MONEY NOW. AVOID PROBLEMS LATER.

“She’ll be right” is not a solid foundation for loaning someone money. Tension and fighting is usually caused by miscommunication. One party doesn’t understand their role and their responsibilities in the property transaction.

WHO IS REALLY DREAMING OF OWNING PROPERTY?

Understanding the spending habits of the home buyer is essential for avoiding problems in the future. Remember that above all the ambition to own a home must be the home buyer themselves and not their parents.

If it’s the parents’ dream that their child own their own home but they want to go overseas for a year on holiday then there will be big problems.

Talk openly about the future with your children; they may have completely different ideas for their life. Of course there are always ways to make it work, including renting the house to help cover the mortgage before they are ready to settle down.

BUDGET.

Whether you’re a guarantor, loaning money or using the family home as security, once the property has settled you have a vested financial interest in its’ success.

Working through a budget with your children sounds so simple, but it will give you clarity on whether they can comfortably met their repayments in the future.

For more information on family and property, have a read of our recent article “3 ways to help your children into their first home”.

Click here for more.