When the property market is as tight as it is right now, prospective purchasers often feel pressure to get their offers on the table as fast as possible. However, pausing to get your lawyer to check over the contract before signing is absolutely vital.
Solicitor’s approval, due diligence and COVID clauses all have their place in protecting purchasers, but must be drafted and used correctly. When done wrong, buyers can find themselves involved in costly negotiations trying to amend or exit an agreement which could have been avoided by taking time at the outset to check the agreement.
Solicitor’s approval clause – not the catch-all you might think
Some people mistakenly believe that adding in a “solicitor’s approval” clause into the sale and purchase agreement acts as a “get out of jail” free card if they change their mind on the property later. Just ask your lawyer to say they don’t approve, and the deal’s off right? Wrong. The Court has taken a very narrow interpretation of this clause, and there is in fact only very limited scope for the grounds lawyers can use to cancel a contract using this clause. If you’re not sure the property is perfect for you, but you want to make an offer, a well-drafted due diligence clause would be a better solution.
Choosing the right due diligence clause
When your lawyer reviews your contract, one of the things they will do for you is make sure any due diligence clause inserted is fit for purpose. Do you need the scope and time just to review the physical aspects of the property, or work through discussions with your family or test the feasibility of a related project in the background? The DD clause needs to be drafted in such a way you can rely on it should you need to change your mind.
Obviously the COVID-19 pandemic we are in is unpredictable, and restrictions on people’s movements are constantly shifting depending on where the virus flares up and the government’s response at the time. Agreements may require a COVID-19 clause, but again, it needs to be drafted well to match the specific needs of your situation. Trying to align the dates using a catch-all clause, particularly when transactions are reliant on each other (for example, a purchase conditional on another property selling), can quickly make timeframes confusing and, sometimes, unworkable. A good lawyer will be able to draft a condition that allows for changes to timeframes due to COVID-induced restrictions, without overcooking it.
Reasonable efforts to satisfy conditions
One more tip when it comes to getting out of a contract. As a purchaser, when you sign a sale and purchase agreement you are obliged to “make reasonable efforts” to satisfy the conditions in the agreement. If you change your mind about the property for some reason, you can’t just stop trying and say you didn’t meet the condition. For example, if your contract to purchase a new house is dependent on selling your old house by January, taking the house off the market in October because you’ve changed your mind would not be demonstrating “reasonable effort” to satisfy the condition, and the vendor could make a case against you to go through with the deal.
On a similar note, if you fail to satisfy the finance condition and the vendor requests it, you must provide proof, such as a letter from the bank. It is no longer enough to just say “we couldn’t get finance”.
Communication is critical
Lastly, sale and purchase agreements may state that if a condition fails to be satisfied (or waived) by the due date/time, either the vendor or purchaser can cancel the contract. So, if you’re happy that a condition has been met, or that it no longer needs to be met, you must tell your lawyer so they can let the other party know. If there is no communication that a condition has either been satisfied (“yes, we have finance”) or waived (“we know that there is unconsented work but we’re ok with that so we’re waiving the condition”) then, depending on how the condition is worded, either party has the right to cancel the contract.
Making sure you understand what is expected of you under the agreement, whether you’re buying or selling, will help your transaction run as smoothly as possible. A good lawyer will help explain your contract and obligations to you. This means you can avoid issues from the outset, save a lot of stress, and keep costs to the expected level.
How we can help
Our property team is here to help you work through any transaction. We are able to discuss your needs with you on the phone or through video chat, access all of our files electronically through our digital office and witness the signing of various documents through live video recording, to help you keep moving in a safe way.
Our thanks to Natalie Robinson and Jared Cains for writing this article.
Every effort has been made to ensure accuracy in this article. However, the items are necessarily generalised and readers are urged to seek specific advice on particular matters and not rely solely on this text.