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November 2008

The Truth about a Solicitor's Approval Clause

Everyone knows that inserting a Solicitor’s approval clause into an Agreement for Sale and Purchase provides you with the ability to cancel the agreement if you change your mind, right? Wrong! Unfortunately, this is a popular misconception and the situation is not that clear cut.

In the recent High Court case of Reynish v Joyce, the vendors advised their real estate agent that they would not sign an agreement for the sale of their farming property until their Solicitor had seen the agreement. After some discussion, the agent inserted a Solicitor’s approval clause into the agreement and it was then signed by the vendors. Concerns were subsequently raised by both the vendors and their Solicitor regarding their liability for GST, the unilateral change on the agreement of the name of the purchaser and, as possession was being given prior to settlement, the vendors would have nowhere to graze the 200 sheep they were retaining ownership of. These concerns resulted in the vendors’ Solicitor notifying the purchaser’s Solicitor that he refused to approve the agreement and it was therefore at an end. However, the cancellation was not accepted by the purchaser’s Solicitor, who lodged a caveat on the title so that the property could not be sold to anyone else.

In this case the High Court confirmed the principle that a Solicitor is only entitled to refuse approval of an agreement if there are genuine legal objections or impediments to the bargain the parties have made, such as validity of title.

This means that your Solicitor is unable to consider the suitability of the agreement after you have signed it and refuse approval because you have made a bad decision. It also means your Solicitor does not have the ability to insert new terms and conditions into the agreement to rectify the situation for you.

Reynish v Joyce is an illustration of how it can all go wrong when you insert a Solicitor’s approval clause into an agreement in the mistaken belief that your Solicitor can later cancel the agreement if you have a change of heart. As indicated in this case, the inclusion of a Solicitor’s approval clause does not mean you can simply abandon a signed agreement when you later have regrets.

So how do you protect yourself from getting stuck in a bad deal? We strongly recommend that you should never sign any agreement, whether for real estate or otherwise, until you first seek our expert legal advice.