Buying or Selling? Ensure your contract is the latest edition

residential contract changes

New editions of the REIQ Contract for Houses and Residential Land (17th edition) and the REIQ Contract for Residential Lots in a Community Title Scheme (13th edition) were released on 20 January 2022.

If using a residential REIQ contract, you must ensure that all contracts signed on or after 20 January 2022 are prepared using these new editions.

The new terms will only apply to new versions of the contract, any prior version that has been signed will not be affected by these changes.

Contracts are updated from time to time to accommodate new case law and any new or amended legislation.  Below is a summary of the most significant changes.

Unilateral right to extend Settlement Date

The most significant change to the Contract gives both parties a unilateral right to extend the Settlement Date by up to 5 business day after the Scheduled Settlement Date.

This new provision is designed to protect a party where they are faced with small delays that are out of their control.

For example, if there is a small delay with a Buyer’s financier being ready, or if there is a small delay with a Seller’s removalist, that party may give notice to the other party that the Settlement Date is extended to a date that is no more than 5 business day after the Scheduled Settlement Date.

Notice to extend can be given any time before 4pm on the Scheduled Settlement Date and the Settlement Date may be extended multiple times but cannot be extended beyond 5 business days after the Scheduled Settlement Date.

Note, both parties have the right to extend, so if for example the Buyer has given notice to extend the Settlement Date for 5 business days, the Seller may, before 4 pm on that extended Settlement Date, give notice of a further extension of not more than 5 busines days after the extended Settlement Date.

Default interest will not be payable by the Buyer if either party gives notice to extend.

The party extending the Settlement Date does not need to provide evidence of why they need the extension.

The right to extend does not apply to other conditions such as finance or building and pest inspections.

Previously, if a Buyer or Seller could not settle on the Schedule Settlement Date for any reason, that party would have been in breach and the other party would have had a right to charge default interest, if the non-breaching party was the Seller, or terminate the Contract and seek penalties from the party in breach.

There is therefore a risk to a party who needs a Contract to settle on a particular date that settlement may not happen on that date and that party will have no recourse against the extending party for any compliant extension.

Care will need to be taken when choosing a Settlement Date particularly if a party has obligations that depend on settlement taking place on a particular day, for example a purchase dependant on a prior sale.

If it is essential that a Contract settles on a particular date, a special condition can be inserted to remove the right to unilaterally extend the Settlement Date.

Compliant Smoke Alarms

Compliant smoke alarms must be installed in any domestic dwelling prior to the Settlement Date.

If a domestic dwelling does not have compliant smoke alarms or if a Seller fails to have compliant smoke alarms installed by Settlement:

  • the Buyer is entitled to an adjustment at Settlement of 0.15% of the Purchase Price if it gives notice to the Seller;
  • the Buyer cannot terminate the contract or seek any further damages; and
  • the Buyer is obliged to install compliant smoke alarms after Settlement.

The Buyer has a new right to access the Property to inspect the smoke alarms.  Buyers should consider having a properly qualified person inspect the smoke alarms before settlement to make sure they are compliant.

Deposit paid by direct debit or EFT

The Contract now provides that an electronic payment of a Deposit is taken to be received on the day the electronic payment is made, on the following conditions:

  1. written evidence must be provided to the Deposit Holder that the electronic payment has occurred; and
  2. the Buyer must not take any action to defer or cancel the payment made.

Despite the above, if the Deposit Holder has not received the Deposit by the due date, usually the Contract date, the Seller can issue a notice to the Buyer notifying them that payment of the Deposit has not been made by the due date. If the Deposit Holder does not receive the payment within 2 business days of the date the Seller provides the notice to the Buyer, then the Buyer will be in breach of the Contract and the Seller can terminate the Contract.

Previously, a Buyer would be in breach if the Deposit was not paid on the due date, however it was paid, and the Seller could immediately terminate the Contract without giving any prior notice to the Buyer.

Swimming Pool Compliance Certificate

The swimming pool clauses have been changed to require the Seller to provide a Pool Compliance Certificate for each regulated pool on the Land to the Buyer at settlement, unless:

  1. the Seller provided the Pool Compliance Certificate to the Buyer before settlement; or
  2. the Seller provided the Buyer with a Notice of No Pool Safety Certificate before the Buyer signed the Contract.

If a Seller does not provide the relevant Certificate to the Buyer within the required time frame, the Buyer may terminate the Contract.

Best practice would be to attach the relevant certificate to the Contract presented to the Buyer for signing.

Seller warranties

The Contract already includes several warranties or statements from the Seller in relation to the state of affairs at the Property. A Buyer relies on these warranties and will have a right to terminate the Contract or to seek compensation if a Seller is found to have breached these warranties.

A new warranty has been added to the Contract that states the Seller has not received any communication from a competent authority that may lead to the issue of a Show Cause Notice, an Enforcement Notice or other notice to complete work.

This new clause is included because, in practice, local councils will often communicate or negotiate with landowners for a significant amount of time before a formal Notice is issued.  Previously a Seller would have been able to sell a property knowing a formal Notice is likely to be issued in future however would not have been in breach of Contract provided the Notice was not issued by the Contract Date. This practice would lead to an unfair result for the Buyer and this new clause is intended to overcome this issue.

Notice to complete work

The responsibility to complete work set out in a Notice to complete work or Order has now changed.

A Seller can now be relieved of its obligation to comply with a Notice or Order if the Notice or Order is disclosed to the Buyer before entering the Contract.  The Notice or Order may be disclosed to a Buyer either as part of the Contract or by other disclosure in writing before the Buyer signs the Contract.

If a Notice or Order that has not been disclosed to the Buyer before signing the Contract requires work to be completed before the Settlement Date, the Seller must still comply with the terms of the Notice or Order, however the Buyer must pay the reasonable costs incurred by the Seller in doing so.  However, the Buyer may direct the Seller in writing not to comply with the Notice or Order if the Buyer indemnifies the Seller against all liability incurred for failing to comply with the Notice or Order.

If the Seller does not disclose a Notice or Order issued before the Contract Date to the Buyer before entering the Contract, the Seller must comply with the terms of the Notice or Order.  If the Seller does not comply with the Notice or Order, the Buyer may do one or both of: terminate the Contract; and seek compensation from the Seller.

A number of other definitions and amendments have been made to the 17th Edition and 13th Edition contracts.

If you are currently buying, selling or negotiating a new contract, please apply particular caution to the version of the contract being used and telephone our Property Team on 07 4671 6000 who can assist with any queries or concerns you may have.