Conveyance Made Easy

You might be a first home buyer or a seasoned property investor. But if you are reading this article, I presume that you would like to know a bit more about what you are signing up for and what is involved in the process of “conveyancing”.

You might have heard of different things from friends and family about their experiences. Some might (hopefully) tell you that it is a complicated process and you should seek professional advice. Some might tell you that they have done everything by themselves and it went smoothly. Some might even tell you that their transaction didn’t go well even with professional help, which makes you wonder whether you should spend the extra dollars on seeking advice.

Our article is here to resolve your puzzle and give you a guide on what to expect during the conveyance process. But please be mindful that our article here deals with NSW residential property only. It is not a comprehensive guide to each type of property in every state. And in real life there are always variations to the standardized practice. These variations might not necessarily be wrong, but only designed to suit the needs of a specific transaction. You should always rely on the professional advice that are made specifically towards your transaction.

This guide is divided into five parts that are general to all conveyance transactions:

Each of these steps contains various questions that we are commonly asked by clients (or missed by clients). We hope you find our answers useful!

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Pre-Exchange Steps

First and for most, should you seek professional advice for conveyancing?

Without sounding self-promoting, the answer is YES!

The reason is simple. Whilst most people purchase one, two or three properties in their lives, professionally trained solicitors and conveyancers deal with hundreds of conveyancing matters every year. It allows them to deal with and resolve hundreds of different scenarios. And yet, they still encounter novice matters from time to time and had to try very hard to keep up to date with new laws coming to play every few months.

When investing, we observe that people tend to under-estimate the risks involved in the property transactions. However, we are afraid to say that, in real life, Murphey’s Law is merciless. And, yes, anything that could go wrong, will go wrong.

So yes, save yourself some time searching internet and try to figure out the legal jargons and get professional help. But beware, your lawyer should never sound like a salesman, who tells you all about your returns but no risks (or try to make the risks sound minuscule). If that happens, it means that their interests vest somewhere else, but not in you.

So, what is Conveyance about?

From our point of view, conveyance is mainly about three things—Money, Title, Risks. You pay the contract price for the title to be transferred by the vendor to you and at the same time accept the risks of not being passed the title (or a lower than expected return after the transfer). Unfortunately, people tend to place most of their focuses on money and title, not the risks. But remember, buying a property, no matter for what purpose, is an investment, just like buying shares. And it has risks.

Buying a property is about being informed of the risks, offer the best price for the risks you are taking and having the property securely passed onto your name.

We will analyse the three things one by one:

1. Money

This is by far the most important thing a buyer or a seller cares about. How much shall I pay for the property? How much do I need to pay now? How much do I pay at settlement? How much is the stamp duty? How much is legal fee? What on earth is adjustment? However, these are not the theme we would like to discuss here. These questions deserve a separate article. You may find very accessible and easy to understand answers on the Office of State Revenue website.

What we would like to discuss is how much you are willing to pay for the risks that you are exposed to. Where risks are under-estimated, people tend to pay more for what they are actually buying. For example, when you purchase a product priced at $10.00, are you still willing to pay $10.00 if I tell you that you only have 80% of getting the product? What if I do not tell you that you only have an 80% chance? What if I tell you that you will get your products in two years? What if I tell you that I will pay your $10.00 back to you 2 years later and sell it to someone for $15.00? I guess if you are told of the risk, you might say that “well given there is only 80% chance for me to get the product, I will only pay for $8.00”.

What we are getting at here is not to say that you should not invest in property, but that the price you are willing to offer should have taken into account the discounts for the risks you are exposed to as well as the premium to be paid for the expected returns.

2. Risks

What risk? You might ask. I am willing to buy. The vendor is willing to sell. We signed a contract. Construction is started. I have enough money to settle. What risk?

Here are some:

a. Default risk—where there is a contract, there is always default risk. Which means either party withdraw from the contract for any reason that is not allowed in the contract. If the purchaser default, the Vendor may choose to retain the deposit and sue purchaser for losses caused. Or, they may ask the court to force purchaser to settle. Where the Vendor default, the purchaser may ask the deposit back and sue for damages. Or, same as the Vendor, ask the Court to force settlement. The following paragraphs may contain some detail examples of default.
b. Financing risk—If you are not purchasing a property with cash and haven’t yet got finance approval before signing contract, there could be a risk for bank not lending enough money.
c. Market risk—market rises and falls. It is inevitable that one circle will be over and another circle will start. For properties with long settlement period, it could sometimes be difficult to time the market.
d. Developer not completing project—although most developers complete their jobs within the set time frame, there are projects that are not able to be completed for all different reasons, the developer bankrupt, construction substantially delayed (sometimes deliberately) or development approval not granted. Most of the time purchasers get their deposit back (sometimes with interest), but what you have lost is the investment opportunity and the capital gain that could have been earned over the period of time.
e. Policy risks—government policies change from time to time. For example, between 2015-2016, we saw the foreign investment and banking policy towards foreign acquisition turn from favourable to unfavourable, causing many foreign purchasers not able to secure loans necessary for settlement. No one could have predicted the change when the contract was signed two or three years ago.
f. Unsatisfactory workmanship and defects—this usually give rise to post settlement disputes as to what was promised and what was delivered and give rise to ongoing costs.

It is particularly important to take notice of when the risks of the property passes. I.e. who bears the loss if the property is damaged or lost. Whilst it is generally assumed that risks pass at the time of settlement, some contracts provide that risks pass at the time of contract. If this is the case, then purchasers will need to be cautious. The purchasers my either negotiate this clause away. Or, if the purchasers accept the risks, insurance should be taken out from the time of contracting.

3. Title

After taking the risks and paying the money, you would want the property to be securely passed under your name. This does not only mean that the title shows, and only shows your name(s) (correctly) as owner, but also means that all encumbrances that are not supposed to be on the title are removed. For example, the seller’s mortgage, any caveat or writ that was on the property.

The only things that shall be on your title are:
a. Your mortgage;
b. Any easement in existence at the time of contract;
c. Any registered lease at the time of contract and continue into your ownership; and
d. Any Crown Grant (which is on the title for historical reasons and should not cause concern)
Remember always to do a title search one or two days after the settlement to make sure that the property has been registered under your name. If not, contact your solicitor immediately.

Before starting your property hunt, what should you consider? Here is the checklist.

1. Your current residential status—the topic about foreign person acquiring Australian property itself deserve a separate article, which you will find here. But put it simply, foreign person (that is, non Australian Permanent Residents or Citizen) may only purchase new property (property never sold before). Foreign person holding visa over 12 months may only purchase one second hand property (to be used as principal place of resident only). Under any circumstances, foreign purchaser needs to seek approval from Foreign Investment Review Board for approval.
2. Your budget—This might sound very obvious. Anyone who intends to purchase a property will have a budget in mind. But people tend to be over-confident about their estimate and overlook the costs other than the price. When considering your budget, You should consider a few other things as well. Otherwise, you might find yourself in a situation, where you are unable to settle the property on settlement and stand to lose your deposit.
a. Stamp duty—Stamp duty is the single largest payment you need to pay other than the property price. There will be concessions in some circumstances, but you should be confident that they do apply to the property you purchased. And you should beware of the timing for payment. For an article on Stamp Duty, click here.
b. Adjustment and Legal Fee—adjustment means that, on settlement, the buyer and seller has to adjust for the money paid that ought to have been paid by the other party. For example, the buyer will pay back the seller some money they prepaid for council rate, strata levy, water rate, land tax. Together with the legal fee, the purchaser should generally allow $5,000.00 extra for the adjustment.
c. Bank Loan—some people will tell you that you can borrow 60%-80% of the “property price”. This statement is at least misleading, if not wrong. Before you are granted a loan, bank will assess the value of the property itself. It is against the value of that property that they decide how much to lend. If the property you purchase have a very long timeframe, the value of property can fluctuate a lot according to the market at the time of assessment. You really need to consider, if the valuation falls short of your expectation, do you have a plan B?
d. Bank Fees—another common mistake is to assume that if bank agreed to lend me $500,000.00, I will have that much to use on settlement. But it should always be borne in mind that bank does not do things for free. Instead of charging you additional fees and ask you to pay later, they will deduct their fees from the loan granted to you. Depend on the bank, you would wish to allow another $2,000 – $5,000.00 there.

3. Who are you buying the property with (or as)?

Consider this matter clearly upfront might save you not only hassles, but also some significant money in the future.

For example, if you just started to work and your income is not sufficient to secure the loan you needed, you might wish to include your parents on the contract to increase the chance. But also consider if you wish them to remain on the title after you become capable of taking up the loan on your own shoulder? If you do not, adding their name up front might mean extra stamp duty in the future to transfer the property back to you.

If you are a parent, you might consider setting up a family trust and to purchase an investment property in the name of a trustee for the benefit of your children, so that you can distribute property income to your children or spouse to minimize your tax liability.

You might be entering a small joint venture with someone to invest in a residential property. Then you might consider setting up a company, so that you can freely transfer your shares in the company without going through the process of transferring property each time a change of ownership is made.

There are sometimes some very complicated considerations that can affect the choice. The point here is, do consider your current circumstances and tell your legal adviser about your concern and intention before signing any form of contract.

Can I purchase property as a foreign person?

Yes, but subject to restrictions and approval of Foreign.

For the purpose of acquiring property, anyone who is not Australian permanent resident or citizen is a foreigner. If a foreign person purchase a property through a company, it is still considered a foreign acquisition.

If you are a foreign person, then you will have to apply for Foreign Investment Review Board (“FIRB”) approval. For any contract entered after 1 December 2015, a fee is payable for the application.

For properties below $1 million, $5,000.00 is payable. For properties between $1 million and $2 million, $10,000.00 is payable. Then for each $1 million above $2 million, $10,000.00 will be payable. This fee is not refundable no matter you obtain FIRB approval or not.

In a nutshell, there is no restriction on foreign person purchasing new properties. Generally foreign person cannot purchase second hand properties. For foreign persons holding a visa over 12 months, they are only able to purchase second-hand property for the purpose of self use, but the property has to be disposed of when they leave Australia permanently.

I have found a property I am interested in, what is the next step?

We assume that now you have already done your market research and found a property you are really interested in buying. You attended the inspection, talked to the agent and find it reasonably satisfactory.

Now the first thing you do, whilst you are still on the Property – drop down your name and email (or your lawyer’s email) and ask a copy of contract to be sent to your lawyer and/or yourself. Or if you have already left, call or email them for a copy.

Some agents might ask you for an Expression of Interest deposit, so that they can “hold the property” for you. There is nothing against the law for doing so. But always remember, this money is refundable and you only deposit this fund into the agent or the seller’s solicitor’s “trust account”. At least a simple EOI agreement shall be signed stating that the money is refundable and always ask for a receipt.

Remember, before receiving advice by your adviser, do not sign anything else. Much too often, we met client who send us a signed contract for advice and found that the contract is to his/her detriment. You might receive pressure from agent pushing you to sign or say that someone else has offered a better price, don’t be swayed by this. Other buyers might have been told the same things. Although things don’t always turn out badly, you bear the risk of a hasty decision. Again, it goes back to the “risk, money, title” discussion above.

What is the first step of engaging a lawyer?

First, your lawyer will provide you with a costs agreement and explain to you your rights and obligations and the costs for the legal services. Bloomsbury Legal charges a fixed fee for conveyancing services and the disbursements that we pay on your behalf. You just need to sign the Agreement and return to your lawyer.

After costs agreement is signed, your lawyer will commence the work for you.

Before meeting your lawyer?

The first thing they do is to review the contract you sent for you in order to identify the potential pitfalls, risks or problems within the contract.

After they finish reviewing the contract, they will invite you for a face to face meeting (or teleconference) explaining the contract to you and identify your specific personal need.

Before attending to the first meeting, please make sure you have the following information or document ready, to avoid the trouble of sending them in the last minute:

1. Your Driver’s Licence or Passport—this is required for the purpose of stamp duty in NSW;
2. If you are a Permanent Resident—your visa grant notice or visa label;
3. If you are purchasing the property through a Company—the company details;
4. If you are signing the contract on someone else’ behalf—Power of Attorney and your and your principal’s ID; and
5. Other information that enable the solicitor to get in contact with you in time—address, email, phone number etc.

Do I need to get building report, strata report or pest report?

Generally, if the property is over three years old, we generally advise our clients to obtain a building report and strata report before our first meeting, so that at the meeting, we may advise them on the reports together. These reports are highly recommended for property over 10 years.

The reports do not only tell you the general condition of the property, whether there are defects, but also tell you the quality of the strata management as a whole, whether there is any special levy for your strata down the way or whether the property requires pest control.

Costs for these reports range from $200.00 – $400.00.

What will your lawyer ask you?

At the meeting, your lawyer will first collect your personal information in order to identify your specific circumstance. The questions generally asked are:

1. Your/Your company name and details;
2. Is there any other purchaser of the property;
3. Whether you are a foreign purchaser – in order to determine whether you will need to apply for Foreign Investment Review Board Approval;
4. Whether it is the first time you purchase a property—in order to determine whether you are eligible for any stamp duty concession;
5. What is the purpose of purchasing the property, self use or investment—in order to determine the tenancy issue and any Capital Gain Tax issue;
6. If you are aware if the Vendor is a foreign owner—for the purpose of determining whether you need to pay any withholding tax under the new rule commencing 1 July 2016;
7. Whether you have inspected the property and your general satisfaction of the quality of the property;
8. How do you plan to finance your property—pay off or with mortgage.
9. When would you like the property to be settled—in order to advise you on the timing of payments and whether the expected settlement date can meet your expectation.
10. Whether you would like to have a cooling off period after receiving the advice.

Understanding Your Contract

What are the information on the contract front page?

The front page of the contract contains the most important information of every property transaction. You should go through it with your lawyer first word to the last word to make sure the information are correct. This applies to both purchaser and vendor.

1.Agent—make sure that the agent on the contract front page is the same as the agent that sells you the property. There will generally be a clause in the contract stating that if you purchase the property from an agent not named on contract, you will be liable for paying the loss of the named agent;
2.Vendor—purchasers may not always know who the vendor is, but they should always make sure that the name on the contract matches the name on the title search attached to the contract;
3.Vendor Solicitor—provide details for the ease of contact;
4.Settlement Date—indicate when the property is going to be settled. For existing property, it is generally expressed a number of days. Settlement will take place exactly on that date. For off-the-plan properties, the date is generally expressed as number of days after the registration of the plan;
5.Property Address—make sure the address is what you understand it to be;
6.Folio Number—this is the identifying number of the land. Again, make sure it matches the title search. For off-the-plan property, the folio number of the current land will be provided, but it will be changed after the subdivision of the land.
7.Subject to existing tenancy—whether the property is tenanted when property settles. If there is a term tenant living in the property and you purchase the property subject to tenancy, you will not be able to terminate the tenancy after becoming the owner of the property. Thus, the transaction is “subject to existing tenancy”. If the property is not tenanted, then the property will be transferred with “Vacant Possession”
8.Inclusions and exclusions—what is to be included in the sale of the property. Make sure what you understand to be included in the sales price is either ticked or marked on the front page. For off-the-plan property, inclusions will be provided in a schedule of finishes listing everything to be included;
9.Purchaser details—make sure your name is spelled correctly exactly in the way it appears on your official ID. Otherwise it might cause problem on settlement;
10.Joint tenancy or tenants in common—long in short, joint tenants own the property in equal shares. If one owner passes away, the property under his/her name passes automatically to the other owner. Tenants in common allow the owners to own the property in unequal shares. If one owner passes away, the property is not automatically passed to the other owner;
11.Purchaser solicitor—insert your solicitor’s information here;
12.Purchase price—most important information, make sure that this is the price you bargained for;
13.Deposit—normally this is 10% of the purchase price. I could be less if you have a bargain with the vendor, but not more than 10%;
14.Balance—the balance you will need to pay on settlement;
15.Land Tax Adjustment—Land is only taxable if the land value (not property price) is above certain threshold ($482,000.00). If the vendor owns land above that threshold (remember this is the value of all land owned by the vendor), they might ask the purchaser to adjust the land tax paid in the year of settlement. You may always propose not to adjust it to the Vendor;
16.Goods and Services Tax—GST are generally payable for new properties that you purchase a residential property from a developer or vacant land, but GST would have been included in the sales price. If you are purchasing a second hand property, purchasers will generally not be liable for GST.
17.Strata Manager—at the bottom of the contract front page, you will normally be able to see the details of the strata manager of a strata property.

What are the often used clauses got second hand property and what would your lawyer advise you on?

Each residential property contract is different. Some are simple. Others are more comprehensive. Some are more balanced. Others are more one-sided. But there are clauses that would appear in almost every contract come across the desk.

The contract condition is made of two parts—General Conditions and Special Conditions.

General Conditions are the standard clauses that prepared by the Law Society of New South Wales. It provides a “baseline” to all property transactions. The parties then can add the conditions that are specified to their transactions to the Special Conditions, which may amend the General Conditions and add additional clauses.

Because General Conditions is a framework setting out the structure of a property transaction, which we have described and explained throughout this article, we will not get into more details about these clauses here. Below are some of the Special Conditions you should be aware of (But please remember that this is no substitute for the specific advice to your contract):

Agent—to guarantee the selling agent’s interest, the contract would generally require that purchaser only purchase the property from the agent named on the contract.

Defects and current status—almost all contract for second-hand property has a clause stating that purchaser purchase the property “subject to defects and current status of the property”, which means “what you see is what you buy”. That is why it is very important to conduct your research and inspection of the property before you sign anything.

Representations—almost all contract for second-hand property also says that purchaser shall not rely on any representations, statement or promises outside what has been disclosed within the contract. The purpose of this clause is to prevent any risk that might be caused by agent or the owner’s statement during sales or other marketing material. Again, this is a reminder for the purchasers to conduct their own researches and do not overly rely on any pre-sale promises that have not been written in the contract.

Default interest—if the purchaser unable to complete the settlement on time, contract generally requires that the purchaser to pay an interest calculated on a daily basis, the interest rate is generally expressed as a fixed annual rate. Unfortunately, if the vendor fails to settle, the purchaser generally does not have the equivalent right.

Foreign Investment Acquisition Board Approval—Purchasers will need to warrant that they comply with any foreign acquisition approval requirement.

Personal Guarantee—If the purchaser of the property is a company, the director(s) of the company will generally be required to provide personal guarantee to the transaction. That is, if the company is not able to complete the transaction and cause damages, the directors can be called upon to compensate the Vendor for any losses.

What happens after my lawyer advise me about the contract?

There are two things that could happen:

1.If you are satisfied of the terms and conditions and are fully aware of the risks involved, you may proceed with the execution of the contract; or
2.If you have doubts or you think there are terms that you wish to be amended, your lawyer may assist you in proposing the amendments to the vendor and clarifying doubts. This will also allow you time to think over the transaction again in the meantime.
Sale by Auction

If the property is sold by auction, be sure that you request all the changes before attending to the auction and receive the answer that you are happy with. The reason is that you will need to sign the contract once the hammer falls.

Exchange of Contract

Execution of Contract

Once you are all happy with the contract terms, you may proceed with signing of the contract. In New South Wales, we sign Contract for the Sale of Land by way of exchange, meaning each party only sign one copy of the contract, then you deliver your copy to the other party. Each side will end up having the contract signed only by the other side. Contract can be executed either on the front page or a separate execution page.

Individual—each individual purchaser must sign the contract and the signature must be witnessed by an adult person over 18 years old.

Company—if you purchase in the name of the company, then the contract must be signed by two directors or one director and one secretary of your company. If your company has only one director/secretary, the sole director/secretary may sign by him/herself. These signature need not be witnessed.

Power of Attorney—You sign the contract in your own name, not in the name of your principal. However, you will need to provide a copy of the power of attorney to the other side.

Cooling-Off Period

In New South Wales, the purchasers have an automatic 5 business days cooling off period after the date of the contract. If the purchaser decides to pull off from the contract within that period, only 0.25% of the purchase price will need to be paid to the Vendor. After that period, 10% can be forfeited if the contract did not proceed due to purchaser’s reason.

Sometimes the purchaser may also choose to (or required by the vendor to) waive the cooling off period after receiving legal advice from lawyers. If this is the case, your solicitor will sign a form called s 66W Certificate. If contract is exchanged with this form attached, then you will not be able to exercise any cooling off right should you change your mind.

Payment of Deposit

Deposit of the property purchase can be made in a few different forms

Cheque (Cash)

Depending on the term of the contract, you could be required to pay the deposit on exchange of contract or within a few business days after exchange. Your deposit shall only be paid to one of the two places:

1.Vendor solicitor’s trust account; or
2.Selling agent’s trust account.

Trust account is a special type of account held by solicitor or agent to hold money on behalf of clients or third party. It is subject to strict auditing and management rules. Your cheque or EFT shall always be made to “XXX trust account”. Transferring funds to a general account of the agent or solicitor may expose your funds to misuse.

Bank Guarantee

Some purchasers prefer to pay deposit through a bank guarantee, as it is perceived to be safer than depositing a large sum of money to Vendor Solicitor or Agent’s account.

If you choose this option, there are a few things to be born in mind:

1.Ask the Vendor for their bank guarantee requirement before you approach the bank. Bank Guarantee is a document with strict formality requirement. A misspelling can invalidate the whole document. So instead of sending the Vendor solicitor with a non-complying document and spend time and money redo the bank guarantee, ask the Vendor solicitor first;
2.If you pay deposit with Bank Guarantee (for example 10%), then on settlement, you will need to prepare the full contract price, instead of 90% of the purchase price, because the Vendor will return the bank guarantee to you on settlement, instead of cash the bank guarantee;
3.Any time before settlement, you will be able to provide the Vendor solicitor a cheque for your deposit sum for the return of the bank guarantee.

Deposit Bond

Deposit Bond is not a “real” form of deposit. It is an insurance policy. Purchasers purchase the policy from the bank. On settlement, the purchaser will need to pay 100% of the purchase on settlement. If the purchaser defaults, then the bank will pay the deposit to the Vendor and claim it back from the purchaser.

However, make sure that the vendor does agree to take deposit bond as deposit. Sometimes the vendor might wish to ask purchaser to release deposit earlier or the selling agent wishes their commission to be paid from deposit. For these reasons, the vendor might not always allow the use of Deposit Bond.

So make sure you ask before using deposit bond.

Interests on account

For contract with a long settlement period, such as an off-the-plan property yet to be built, deposit paid will almost always be deposited into a term deposit account. These accounts generate very low interests, so over two years period your account might only accrue $1,000.00 – $2,000.00 interests. Depending on the term of the contract, the interests might go to you, the vendor or both of you (sharing the interests) on settlement of the property.
For settlement with shorter period, the deposits are not generally placed in an interest bearing account, because of the nominal amount of interests it generates.

What happens after exchange of contract?

Now that you have signed the contract, paid deposit, received the purchaser’s counterpart of contract and the cooling off has passed, your contract becomes fully operational. What needs to be done next? There is a difference between existing property and off-the-plan property.

Signing a Transfer

A transfer is a formal document that instruct the Land and Property Information to transfer a property from one party to another. It specifies the folio number of the land, transferor, transferee and the price paid.
For NSW purchasers, your solicitors can sign the transfer for you, so that you do not have to be concerned about it.

For Vendors, you will need to sign the document yourself or you may sign on someone else behalf if you have a “registered” Power of Attorney.

Stamp Duty

When should I pay stamp duty?

The general rule is that stamp duty is payable within three months of contract date or by settlement, whichever is earlier.

For off-the-plan properties, the NSW government allows a 12 months concession in addition to the 3 months standard period, so stamp duty is payable within 15 months of the contract date or the settlement date, whichever is earlier.

So for off-the-plan purchasers, although there will be a long period, where you feel nothing is happening, do mark the date of stamp duty payment. Otherwise interest will apply for late payment of stamp duty. Of course your solicitor should generally remind you around 2 or 3 months prior to payment.

You may find very accessible and easy to understand answers on the Office of State Revenue website.

How is stamp duty calculated?

Here is a link to the official stamp duty calculator of Office of State Revenue (“OSR”). Just insert your contract date, choose “land”, put in your property price and choose no for claiming HCAP. Then click calculate. If the property you are purchasing is over $3 million, you will be asked to provide the price over $3 million, so that the Premium Duty may be calculated. This calculator will give you the full stamp duty amount. You will also need to add $20.00 on the top, so that both your contract and your transfer can be stamped.

Am I eligible for stamp duty concessions?

New Home Grant Scheme—it used to be the case that any purchaser (foreign or not) who purchases a new property below $650,000.00 may enjoy a $5,000.00 stamp duty concession. But after 1 July 2014, only Australian permanent residents and citizens would enjoy this concession. Each purchaser may receive one concession every year.

First Home-New Home Scheme—If it is the first time you (or your spouse) purchases a property and you are purchasing a new property less than $650,000.00 and intend to move in there and live there for over 6 months, you will be eligible for this stamp duty concession. Stamp duty will be waived for property under $550,000.00 and concession will apply for property between $550,000.00 – $650,000.00.

How do I pay the duty?

There are a range of payment methods that the Office of State Revenue accept for the stamp duty payment, details of which you can find through this link.

Pre-Settlement Issues

I was advised that the plan of my off-the-plan property changed, should I be worried?

It depends on the degree of variation.

It is normal for the plan an off-the-plan property to go through a number of versions of variation before settlement. This might be due to a change of common property or the lay out of the plan. Some of the amendments are very minor, but some are noteworthy.

For example, some properties are sold subject final development approval by the local council. It turns out later that, council does not approve the existing plan that has been disclosed to purchasers on exchange. In this case, the developer might have to amend the plan substantially or even all together in order to satisfy the council’s requirement. In this situation, Vendor may change the size and layout of some properties. In worse cases, the property you purchased might be removed entirely from the plan.

If the property size is changed over 5%, it is generally considered a material change of the property. This might entitle you to rescind (in common word, withdraw from contract) the contract and seek refund for your deposit

It might sound unfair that you simply lose the property without any recourse, but you can be sure that there is a clause in your contract that exempt the vendor from such liabilities. This goes back to what we discussed previously. Purchasing off-the-plan property is an investment and investment has risks.

The Vendor would like to invoke Sunset Clause to rescind (withdraw) the contract or extend the sunset period. Can they do that?

Sunset clause is the latest date the developer must complete the project. For majority of the off-the-plan property we see, the construction will be completed well within the sunset period. For these properties, Sunset Clause is just there to allow contingencies, such as weather, industrial action etc.

However, during practice, we do see developers either extend sunset date or, in worse cases, rescind contract after sunset date. Some of these are due to genuine reasons. However, some developers have taken advantage of the clause simply to rescind the current contract and sell the properties at a higher price.

Law has recently been changed due to a number of incidence for abusive use of sunset clause. Now if the developer wishes to rescind contract invoking sunset clause, they would have to explain their reasons to the Supreme Court and satisfy the court that the delay of project is due to genuine reasons.

Even with this protection, purchasers and investors shall still be cautious in terms of researching the background of the developer and take into account the risk when entering into a contract.

When shall I start to arrange finance?

For purchasers of existing properties, you should start to prepare your finance before you enter into the contract, because the time for settlement is relatively short. You can get a bank’s pre-approval, so that you know how much you will have to prepare yourself.

For purchasers of off-the-plan properties, although you should also consider your financial position before signing a contract, the actual application for loan would not start until later. Generally, we suggest that you start to apply for finance 2 – 3 months before expected settlement date. The Vendor, the agent and your lawyer will be giving you updates when the property is close to settlement date.

Remember, after obtaining finance, provide your client with your broker or your banker’s details, so that they can get into contact with each other to finalize the settlement.

How much money do I need to prepare myself?

You can make a rough calculation using the following method:

Property Price
– Deposit Paid
+ Stamp Duty (if haven’t yet paid)
+ Legal Fee
+ Adjustment (normally $1,500.00 – $2,000.00, but can be more if there are rent and special levy)
________________________________________________
= Total Payable on Settlement
– Loan Amount
– Allowance for Bank Fee
________________________________________________
= Rough Estimate of the Money to be Paid

Exact amount might not be known until a few days before settlement, so it is suggested that you should allow for some contingency amounts. The common mistake here is to treat the loan amount as the amount available to use. This is not correct. For example, if the bank lends you $600,000.00, you might only end up with $595,000.00 on settlement after deducting all bank fees. The $5,000.00 discrepancy can cause last minute panics or even delay of settlement.

What is adjustment?

From the property law point of view, property belongs to the Vendor before the settlement, but belongs to the purchaser from the moment of settlement. So vendor shall bear all the costs before settlement and purchaser should bear all costs after settlement.

On most occasions, Vendor would have prepaid some fees for a quarter or a year before the settlement and might have received prepayments for rent. This is why we need adjustment—for the parties to fairly apportion the fees they should be paying.

Some commonly seen adjustment that is payable by purchasers are: water service fee (prepaid each quarter), council fee (prepaid each financial year), strata levy (prepaid each quarter), land tax (prepaid each calendar year), fees for obtaining s 109 strata certificate.

Some commonly seen adjustment that is payable by the vendor are: rent (often prepaid each fortnight or month); water usage charge (because reading often take place sometime before settlement, when next reading take place, the fee before settlement will be charged on the purchaser), interest on deposit (for off-the-plan properties, sometimes instead of giving the purchaser a cheque for interests after settlement, the vendor will simply deduct the interest from the settlement sum.

The balance of purchase price plus the sum of adjustment, is the total amount of money the purchaser shall pay to the vendor on settlement.

As purchaser, why did my lawyer draw cheques to parties that I do not know on settlement?

One often asked question by purchaser on receiving a settlement statement by their solicitors is, why there are several cheques to parties I do not know, for example, the vendor’s lawyer, to a bank or to some other random parties?

This can be puzzling to many purchasers, but the reason is actually very simple. It is for convenience. Remember in the last question, we said the balance of purchase price plus adjustment is the price purchaser has to pay on settlement?

In an ideal world, of course, the purchaser may pay the whole amount to the vendor. After vendor receives the money, he can use it to pay his lawyer, pay out his mortgage or pay his neighbour for mowing his lawn.

But in the real world, there are parties who wish to make sure that their money is paid on the spot. For example, the vendor’s bank will not let go the title deed without their debt being paid out. Vendor’s solicitor who is attending to the settlement would want their fees to be received on settlement.

So instead paying all his/her creditors afterwards, the Vendor simply say to the purchaser: “draw 5 cheques on settlement with the money you should pay me. One for my lawyer, one for the bank, one for the water company, one for the strata fee and the rest for myself”. The total amount of these five cheques should be equal to the total amount you need to pay the vendor.

Settlement

Settlement

The actual settlement does not need to be attended by the vendor or purchaser themselves. The lawyers and the representative of the banks will meet together to complete the process. (With the advancement of technology, in the short future, the lawyers might not even need to meet for settlement).

The buyer pays the money, the seller delivers the title. If there is a bank for the purchaser, the bank will take the title deed.

Once everyone is happy with the document they have got, then the property is settled. Your lawyer will authorize your agent or vendor’s lawyer to release the deposit purchaser paid from the trust account and the purchaser will be able to collect the keys.

What if I cannot settle the property on time?

There are many reasons that may cause a settlement not to take place at the time scheduled. For example, purchaser’s finance not ready, vendor unable to move out property on time, the parties unable to agree on settlement figure.

If settlement cannot take place on the date it is scheduled, then two things could happen:

1.The parties may negotiate for an extension of settlement time. Sometimes the vendor will allow an extension without payment of penalty interest, sometimes the vendor will insist on the penalty interest;
2.If the parties are unable to reach an agreement for extension, then the party who is “ready, willing and able” to settle may issue to the other party a “notice to complete”. The notice to complete will state that if the other party is not able to settle in a reasonable amount of time (generally 14 days), the party not in fault may either terminate the contract (and sue for damages) or asking the court to compel the other side to settle. If Vendor terminates the contract due to the purchaser’s default, the Vendor may retain the deposit paid by the purchaser and sue the purchaser for damages caused by failure to settle.

Post Settlement

After settlement takes place, the relevant authorities (Sydney Water, Council, Strata and LPI) will be notified of the change in ownership of the property. Transfer document will be lodged with the Land Titles Office officially for recording purchaser’s name on the title.

If you have a bank, the mortgage information will be recorded on the title deed as well. Title deed will then be held by the bank until all loan is repaid. NSW is now adopting eTitle and attempt to move away from the paper based title deed.

If you do purchase with cash, remember to ask the title to be delivered to LPI as soon as possible for registration and collect your title deed from the person helping you with the registration.

If you purchase an off-the-plan property, contract will sometimes allow you to report defects of building or your property within certain period of time. So do keep your eyes open for matters that should be rectified and inform the strata or the developer as soon as possible.

If the property is purchased subject to tenancy, make sure that the tenant is informed of the change of ownership, so that the rent is paid to the new owner’s account. The seller will generally give a document called “notice of attornment” to the purchaser on settlement. The purchaser may then present the letter to the tenant as a prove of changing ownership.