Key Conveyancing Terms – A Guide

Key Conveyancing Terms – A Guide

Are you hoping to, or have already entered into, a Contract to purchase or sell a property? It can be a struggle to understand the new wave of terminology coming your way. Let us help you better understand a few of the key terms that will come up during the purchase or sale of your property.

Building and Pest Inspection Condition

If the Contract is subject to this condition, the Buyer arranges for a licenced inspector to visit the property and provide a report prior to the Building and Pest Inspection Condition Date.  If the report is unsatisfactory, the Buyer has a right to terminate the Contract and, generally receive a refund of any Deposit paid.

There are a few additional things to know about this condition:

  • The Buyer must take all reasonable steps to obtain at least one report.
  • The Buyer must use licensed inspectors and the reports must be in writing.
  • The Buyer must notify the Seller in writing on or before 5:00pm on the inspection date as to whether they are or are not satisfied with the B&P reports and wish to terminate the Contract.

For what to look out for on the report, please see our tips and tricks: http://www.jhklegal.com.au/building-inspection-reports-tips-and-tricks/

Chattels

Opposite to a fixture, a chattel is property not affixed or attached to the land. An example of a chattel is an outside water feature or curtains. If a chattel is referenced in the Contract, this means it will stay with the property post settlement.

Community Title Scheme

A Community Title Scheme, commonly referred to as a “CTS” or “Body Corporate Scheme” is comprised of individually owned lots and jointly administered common property (scheme land). The community management statement (CMS) is the document that governs the administration of the CTS.

If you are purchasing or selling a unit in an apartment blocks or a townhouses etc, you are likely purchasing or selling in a CTS.

Default Interest

If a Buyer is unable to settle on the Settlement Date, and wishes to extend settlement, the Seller can contractually apply default interest on top of the Purchase Price. It is interest for the late payment of the property. The rate is noted in the Contract, and if not specified, is the current rate fixed by the Queensland Law Society.

Easement

An easement is a right to use and/or enter onto the property of another. For example, a shared driveway.

Finance Condition

This condition is important if the Buyer is obtaining finance (eg a loan) to purchase the property.

Like the building and pest condition, if the Contract is subject to finance, the Buyer must take all reasonable steps to obtain finance approval by the Finance Date.

If you are a Buyer, this includes making a finance application shortly after the Contract Date and pursuing the application diligently.

The Buyer must notify the Seller in writing as to whether they have satisfactory finance approval on or before 5:00pm on the finance date.

If the Buyer do not obtain satisfactory finance approval from the financier specified in the Contract, the Buyer can instruct their solicitor to terminate the Contract or seek an extension of time for finance.

Fixtures

A fixture is physical property that is attached to the land. Examples include ceiling fans or wall sconces. If a Seller wishes to take any of these items with them, it will need to be included as a term in the Contract of Sale.

Joint Tenants

Joint Tenancy is one of the tenancy options available when two or more people are purchasing a property. The effect of joint tenancy ownership is that on the death of one owner their share in the Property passes to the surviving joint tenants despite any contrary provision in a will.

PEXA

PEXA is an electronic conveyance platform. Until recently, settlements have occurred via ‘paper’ meaning paper transfer documents and cheques. On PEXA and other electronic conveyancing platforms, settlement occurs online. For more information, visit https://www.pexa.com.au/.

Pre- Settlement Inspection

A Buyer is entitled (after giving reasonable notice to the Seller) to enter the Property once before Settlement for the purpose of conducting a pre-settlement inspection.

The Buyer should let their solicitor know if the Seller has made any changes to the Property after the date that the Buyer signed the Contract of Sale, as this may entitle the Buyer to terminate the Contract or claim compensation from the Seller.

Inspections are important even if you are purchasing vacant land, for example, to ensure no earthworks or construction has occurred on the Property post Contract Date.

Registered Plan or Survey Plan

Two commonly used categories of property plans.  The plan of a property will provide the details of the boundaries of the property, its area and any encumbrance on the property.

Settlement

Settlement is the final step in the conveyancing process.

For paper settlements, documents and funds are exchanged between Buyer, Seller and their respective banks (if applicable) at a pre-determined location. It is uncommon that you will need to attend settlement as we will usually attend on your behalf.

For electronic settlements, all information and finances are organised through the platform, and then settle at a certain time of the day.  Again, we will coordinate this from our office, and you will not be required to undertake settlement yourself.

Special Conditions

Either party may wish to include special conditions in the Contract of Sale. This is essentially any condition other than those included as standard in the contract.   An example of a special condition is if the Contract of Sale is conditional upon the Buyer selling their house (to fund the purchase).

Stamp Duty

Stamp duty is a tax payable on the purchase or acquisition of certain rights and/or property.  It is imposed by the state and territory governments and varies depending on the state or territory. Depending on where you are purchasing or selling your property, this tax may be called stamp duty, transfer duty or general duty. In the conveyancing sphere, stamp duty is applied to the Contract of Sale, and is payable by the purchaser.  It is important to note that it most cases, Stamp Duty is payable prior to Settlement.  If you are obtaining a loan to purchase your property, you should speak to your financier and/or mortgage broker about Stamp Duty to ensure that you have sufficient funds to stamp the Contract of Sale.

Tenants In Common

Tenants In Common is the other tenancy option instead of joint tenants. If you purchase a property as tenants in common, then on the death of a co-owner, their share in the Property will pass in accordance with their will or with the laws of intestacy if they do not have a valid will. Tenants In Common can hold the property in such shares and interests to suit your particular circumstances. For example, one person can hold 99% share, and the other will hold the remaining 1%.  This can be of particular relevance for asset protection reasons.

Title Search

A Title Search is exactly that. It is a search that will show key elements of the property including:

  • Owners name
  • Title Reference
  • Lot and Plan Description
  • Mortgage/s
  • Easements
  • Whether there is a paper Certificate of Title
  • Other encumbrances and interests

JHK Legal’s subsidiary MKP Property Lawyers can assist any potential Buyers or Sellers by reviewing, drafting and advising on Contracts of Sale. Should you have any questions about the above terms or require assistance with your next conveyance, please give MKP Property Lawyers a call on (07) 3859 4500.

By Lauren Clarke, Lawyer

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Building Inspection Reports – Tips and Tricks

When buying a property, it is important that buyers protect themselves by engaging professionals to complete building and pest inspections to identify any defects prior to purchasing.

To do this, it is important to ensure that, where you want to negotiate or can negotiate for conditional clauses, clauses allowing for the completion of building and pest inspections are not only included in the Contract of Sale but worded carefully to enable a buyer to withdraw from the Contract of Sale and have their deposit refunded in full should the inspection reveal defects.

In particular, there are significant differences between the terms “defects”, “major structural defects” and “structural defects” and it is important to ensure that care is taken to make certain that the conditions are negotiated and drafted correctly prior to signing the Contract of Sale. If not, it may cost the buyer thousands of dollars down the line.

When getting a building inspection report completed, it is important to carefully consider what is included and excluded from the inspection and report. For example, a building inspection will usually include:

  • what the inspector can easily see (building inspectors usually need approximately 600mm clearance under floors and around objects to inspect safely);
  • minor defects (items requiring regular repairs and maintenance which is common to homes of a similar type or age);
  • major defects (internal or external primary load bearing building element which seriously affects the structural integrity of the home); and
  • urgent safety hazards (a defect where something is no longer fit for use, requires urgent repair to avoid unsafe conditions or to avoid further substantial deterioration of the property).

However, building inspections usually do not include inspections of items such as:

  • anything over 3m high;
  • anything behind or underneath furniture;
  • compliance with building regulations, legislation or local laws or by-laws;
  • identification of unauthorised or non-compliant building work;
  • roof plumbing, general gas, water and sanitary plumbing;
  • electrical wiring, alarms, garage doors;
  • identification of toxic mould;
  • asbestos;
  • swimming pool fencing;
  • grey water and rainwater tanks; and
  • anything below the ground

It is therefore recommended that buyers request a copy of their building or pest inspector’s disclaimer disclosure and scope document and consider it carefully prior to engaging them to complete the inspection. After reviewing these documents, if a buyer has concerns about what is excluded, then the buyer may wish to request add-on services to their inspections such as plumbing, gas, electrical termite, pool fence or asbestos to suit the buyer’s specific needs.

Building and pest inspections can also be used to negotiate savings should issues be identified in a buyer’s building or pest reports such as termite damage, cracks or leaks structural issues or other complaints. If issues such as the above are identified, provided a buyer has a correctly drafted condition in their Contract of Sale, then consideration will need to be given to whether the buyer still wants to proceed with the purchase. Provided the buyer does decide to proceed, then it may also be possible to negotiate with the seller to either to have the items remedied by the seller prior to settlement or for a price reduction to compensate the buyer for the anticipated cost of the repairs to remedy the identified issues.

JHK Legal’s subsidiary MKP Property Lawyers can assist buyers to protect themselves by reviewing, drafting and advising on Contracts of Sale and in particular building and pest conditions prior to execution.  MKP Property Lawyers can also assist with negotiating with the seller over the results of the building and pest reports. Should you have any questions about building and pest reports or require assistance with your next conveyance, please give MKP Property Lawyers a call on (07) 3859 4500.

Associate, Michelle Kelly

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Project Bank Accounts to roll out across the country? WATCH THIS SPACE….

The prevalence of unethical behaviour and poor payment practices within the building and construction industry saw the Queensland Government recently announce new legislation, which among other reforms, included the introduction of Project Bank Accounts (“PBAs”). In October 2017, the PBA system was set up under the Building Industry Fairness (Security of Payment) Act 2017 (“the BIF Act”) for State Government building and construction projects between $1 million and $10 million.

A PBA is a set of three bank accounts, which is created by a Head Contractor and operates as a trust account. It aims to provide security to subcontractors by ensuring they are paid on time and reliably. Furthermore, PBAs protect subcontractors’ retention and disputed monies.

What does a PBA consist of?

There are four parties involved in a PBA, which are as follows:

  1. The Principal being the party to a building contract for whose benefit building work is to be carried out under the contract.[1]
  2. Head Contractor being the party to a building contract who is required to carry out building work under the contract.[2] This can include principal consultants, building inspectors and architects.[3]
  3. Subcontractor being the first-tier subcontractors who are subcontracted by the Head Contractor to carry out the work under the contract.[4]
  4. Queensland Building and Construction Commission being the body which monitors whether the PBA is being complied with, and also acts as an investigative body whether discrepancies and payment concerns between a Principal or Subcontractor arise.

A PBA includes the following three accounts:

  1. General Trust Account – this is for the management of progress payments. The Principal makes payments into this account that are owing to the Head Contractor, and the Head Contractor will then pay the Subcontractor from this account.
  2. Retention Trust Account – this account holds the Subcontractor’s retention money. The retention money is held until the retentions are required to be returned to the Subcontractor, or used by the Head Contractor pursuant to the subcontract.
  3. Disputed Funds Trust Account – this account is for any amounts that are in dispute, which are held on behalf of the Subcontractor. The account will hold any amount that is subject to particulars disputes, until the point at which these disputes are resolved. The amount in this account is the difference between the amount that has been scheduled by the Head Contractor to be paid to a Subcontractor and the amount instructed to be paid to the Subcontractor by the payment instruction (i.e. invoice).

When and how to enter into a PBA

Firstly, it is the Head Contractor’s role to decide whether or not a PBA is required under the building contract. The following link provides examples of when a PBA is required: https://www.business.qld.gov.au/industries/building-property-development/building-construction/project-bank-accounts/when-pba-needed.

In most circumstances, if there is a building contract in place, a Head Contractor will be required to set up a PBA where the contract involves “building work”. Building work is defined in the BIF Act and includes but is not limited to “the erection or construction of a building” and “the renovation, alteration, extension, improvement or repair of a building”. [5]

Before a subcontract is entered into between the Head Contractor and the Subcontractor, it is up to the Head Contractor to provide notice to the Subcontractor that a PBA will be used. The Head Contractor must then provide the Principal with information such as the name of the Subcontractor (i.e. registered business name and/or trading name), the Subcontractor’s financial institution and their bank account details. This information must be provided by the Head Contractor (in approved form) within 5 days of entering into the subcontract.

How do PBAs affect contractual rights?

The answer is: they don’t. PBAs will not alter any existing contractual rights and responsibilities of the contractors. This means that the contractual agreement between a Head Contractor and Subcontractor will not be affected. In addition to this, a PBA will not prevent a party from commencing legal proceedings if a dispute arises, and will not constrain parties from seeking or applying for adjudication.

Benefits of a PBA

Considering that the main purpose of PBAs is to protect the interests of subcontractors, it goes without saying that it is the subcontractors who experience the greatest benefits from this type of payment mechanism.

If a Head Contractor is facing financial difficulties, a PBA will ensure that the Subcontractor is protected, particularly in the event of insolvency of the Head Contractor. This is because monies in a trust account can’t be legally distributed to creditors in the event of insolvency.

A PBA will also ensure a faster payment process for all parties involved, and will ensure Principals and Head Contractors and being transparent and held accountable throughout the entirety of the payment process.

Watch this space…

In NSW, the Building and Construction Industry Security of Payment Act 1999 (“the SOPA”) aims to reduce insolvency and unethical behaviour within the industry. Recently, the NSW Government has been looking at ways to amend the SOPA to mirror reforms recently made by the QLD Government.

In August 2018, the NSW Department of Finance, Services & Innovation published a consultation paper which looked into a proposal for “deemed” statutory trust. Despite a few minor differences, the “deemed” statutory trust is similar to that of a PBA whereby when a progress payment is made by a Principal to a Head Contractor, the Head Contractor is then required to hold the part-payment in the trust account until payment is made to the Subcontractor.[6] The proposal aims to ensure that when the time comes for a progress payment to be made, the monies within the trust remain protected.

In the Australian Government’s report on the national Review of Security of Payment Laws, the report concluded the following:

“…the most effective way that payments can be secured from misuse and the risk of head contractor insolvency is by implementing a cascading statutory trust. Only such a statutory trust would secure the payments of all subcontractors, including the most vulnerable at the base of the contractual chain.”[7]

As of August 2018, 20% of national insolvencies were within the building and construction industry, and due to the current hierarchical system within the industry, there is clearly a need for further reforms to current legislation to ensure the rights of those at the bottom of the chain are protected.[8] It is still too early to tell the full impact of PBA’s, however if all goes well in QLD, the test pilot is likely to roll out across NSW and the entire country.

Watch this space…

How JHK can assist

Whether you are a Head Contractor who requires advice on the applicability and operation of a PBA, or a Subcontractor who would like to know how PBAs may affect you, JHK has extensive knowledge in this area and can assist in all aspects of building and construction disputes, as well as general enquiries you might have. Please don’t hesitate to call our Brisbane office on (07) 3859 4500 for further information in relation to PBAs or our Sydney office on (02) 8239 9600 for any building and construction disputes within NSW.

Lawyer, Anna Hendriks

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[1] Part 1, Section 8 of the Building Industry Fairness (Security of Payment) Act 2017.

[2] Ibid.

[3] Queensland Government, Project Bank Accounts <https://www.business.qld.gov.au/industries/building-property-development/building-construction/project-bank-accounts/what-is-pba>

[5] Part 1, Section 8 of the Building Industry Fairness (Security of Payment) Act 2017.

[6] NSW DFSI, Securing payments in the building and construction industry – a proposal for ‘deemed’ statutory trusts, August 2018 <https://www.fairtrading.nsw.gov.au/__data/assets/pdf_file/0009/396522/Deemed-Statutory-Trust-Proposal-Consultation-Paper-August-2018.pdf>

[7] Murray, J. (2017), Review of Security of Payment Laws: Building Trust and Harmony, Department of Jobs and Small Business, Canberra, Australia, December 2017, p. xv.

[8] Ibid.