Essential Clauses to Consider When Reviewing Your Sale and Purchase Agreement

Posted on 12 November 2024

Agreements for Sale and Purchase are typically structured to favour the Developer or Builder, which is a logical approach given their reliance on financing from banks to complete their development or construction projects. Typically, these agreements stipulate that payment is only required upon completion of the work, providing the Developer with a safety net while they manage their cash flow and project timelines.

Therefore, it's essential to include not only a robust due diligence clause but also to focus on several key elements within these Agreements to protect the interests of the buyer.:

Pay Attention For These Essential Clauses

Deposit Payment Dates - You should only be required to pay the deposit once your purchaser conditions are met and the purchaser’s solicitor has advised, the vendors solicitors of such. This deposit should be held by the vendor's solicitor, in an interest-bearing trust account, until the Title and Code Compliance Certificate (CCC) are issued for turnkey properties, or just the Title for land if a home and land package.

Sunset Clause - This clause establishes a time limit on your legal obligation to the purchase contract in the event that the Developer or Builder experiences delays in completing the project. This provision allows you to cancel the contract and recover your deposit if the project is not completed within a reasonable timeframe. Purchasers should not want a Sunset Clause that is too close to the expected completion date. Often the Sunset Clase may state 12 – 24 months after the expected completion date.

Material Substitution - A developer or builder typically includes a clause in their contracts that permits them to alter nearly any aspect of the development or construction plan—such as materials and fixtures—without requiring your consent or approval. Consequently, you are still obligated to complete the purchase without any compensation. It is important to note that any changes made, or materials substituted must be of equal or higher quality.

Possession/Settlement Date - Many developers and builders seek to have purchasers agree to a five-working-day settlement period. However, this can be unnecessarily stressful when it comes to "off the plans" purchases. There is typically a significant gap between signing the agreement, securing initial loan approval, and the actual settlement. Additionally, your bank will likely require a valuation of the completed property (or a Completion Certificate) before re-approving the loan and issuing instructions to your lawyer, which is necessary for a timely settlement. Therefore, it is advisable to aim for a minimum settlement period of ten working days. This approach helps avoid excessive penalty rates from the vendor for failing to complete settlement within the challenging five-day timeframe, especially when bank financing is involved.

This is why comprehensive due diligence clauses are essential in your agreement, providing reassurance as you sign a Sale and Purchase Agreement to remove the property from the market. This allows your lawyer sufficient time to review the signed agreement and related documents concerning your proposed purchase. They can then advise you on whether to proceed, suggest modifications to the agreement, or recommend other actions.

Note: The information provided here is designed to offer you some "legal insight" into your property purchasing journey. It is not meant to serve as comprehensive legal advice for any specific transaction. You should not rely on it for protection in any particular property purchase situation, as laws are constantly evolving, and each property purchase is unique and dependent on its specific circumstances.

If you're considering a property investment, we encourage you to connect with your mortgage adviser to explore your lending options. Additionally, our team at Equiti is here to help you find properties that meet your investment criteria, get in contact here!