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December 2011

Agreeing to Conditions Outside of your Control

The risks with Agreements for Sale and Purchase of Real Estate

Before signing an Agreement for Sale and Purchase of Real Estate you should always ask yourself the question “Are there any provisions in this Agreement that could be beyond my control to satisfy?”. In particular parties to such an Agreement need to have made all necessary enquiries and be confident of their ability to perform before taking on the responsibility of agreeing to do something that may be beyond their control.

Recent examples of such circumstances are:

  • A clause as drafted by the land agent (and signed by the Vendors) stated: “In the event that the woodburner does not have approval from the Local Authority, the Vendors hereby warrant to provide to the Purchaser, prior to the date of possession, a Letter of Acceptance from the Local Authority”.

  • The Vendor came into some difficulties in obtaining a “Letter of Acceptance” from the Local Authority as most Local Authorities do not provide such a letter anymore.
    The Vendor was faced with:

    • either coming to some agreement with the Purchaser for areduction in the purchase price; or

    • removing the woodburner and installing a new one that meets the Local Authority’s standards which would obviously be at a cost to the Vendor; or

    • the Purchaser threatening litigation.

    Checking this matter with the Council, before signing the Agreement, would have assisted in identifying the best way to resolve this issue without additional costs.

  • Purchaser did not include in an offer to purchase that such offer was subject to the Purchaser selling the Purchaser’s existing property (monies from the first sale being required to complete purchase of the second property). In this case, the anticipated sale did not eventuate and the Purchaser was left with insufficient funds to complete the purchase. A simple clause regarding the sale of the first property would have resolved this issue.

  • Vendor agreed to undertake certain works on the property and obtain a Code Compliance Certificate from the local Council on or before settlement. In this case, a reasonable amount of building, plumbing and electrical work had to be undertaken to meet the Council’s requirements and then there had to be building inspections by the Council. Unfortunately, everyone took longer than was anticipated by the Vendor and no Certificate was available at the intended settlement date. If the Vendor had not committed to such a specified date or had ensured that all work was completed and the Certificate issued before making a definite commitment there would not have been the major problems the Vendor faced.

So the moral of the story is beware of these clauses, conditions and commitments. Always seek our advice before signing an Agreement for Sale and Purchase and situations (and the inevitable costs) such as the above can be avoided.