Conditional commitment: understanding ‘subject to finance’ in property deals in WA

Transcript

Peter Fletcher

Welcome to the WA Property Q& A, the podcast where I explore the ins and outs of buying property in Western Australia. I’m your host, Peter Fletcher, and each week I interview local property experts to help you to develop a deep understanding of the nuances of buying property in WA. From market trends to legal considerations, no topic is off limits.

But before we dive in, a friendly reminder, while we provide valuable information, it’s important to note that nothing discussed in this podcast should be construed as personal investment advice. Always remember to seek the appropriate professional advice for your specific circumstances. Now, let’s get started and unlock the secrets to successful property buying in WA.

So, welcome to another episode of the WA Property Q& A Podcast, and today I’m with Legal heavy Hitter Mr. Les Buchbinder and Les is a director founder of Bowen Buchbinder Valinsky. BBV Legal is one of the mid-term, mid-tier law firm in St. George’s Terrace. So Adelaide Terra. And they do all sorts of commercial wills and estates, property, all sorts of law.

And you know, like Les is what Les doesn’t know about, Les has forgotten more about law than we will ever know. And before I get started, it’s important to to reinforce that this session, this conversation is not legal advice. So if you hear something that is resonating for you and you think, Oh, that applies to me.

It doesn’t it, you might think it does, but go off and see your legal advisor, go and talk to Liz and get specific advice for your circumstances. But It’s just designed as a way of us unpacking things in the REWA Offer and Acceptance and and having a look at some of the application of that in the real world.

Les, welcome to the show. Thank you very much, Peter. It’s a pleasure to be here. Do you want to tell us a little bit more about yourself? A little bit of some of the things that I’ve missed? Well, I’ve been around for a while, Peter. So, I’ve been in the legal profession for over 40 years.

Most of my experience has been in the courtroom scenario, dealing with various forms of litigation estate planning personal injury litigation, commercial litigation, fairly broad. and has given me a fairly rounded sort of experience and exposure to the law and two issues that come up. Okay. And what I was going to say before is there’s a bit of a coincidence that your brother, who is an academic at, is it UWA or Curtin University?

Yeah. Yeah. That’s right. Yeah. That’s where I did my honors thesis and he marked my honors thesis. It’s a small world, Peter. They talk about six degrees of separation. It really is about three degrees. It’s frightening. So today, Les, I want to talk about issues that come come across my desk often. They are often raised in, in property forums online and Facebook groups, and you know, people argue about them and they get themselves wound up in knots about them.

So I just want to start out with a few questions about the REWA offer and acceptance. First one, Les, is so the offer and acceptance on page one on the front page, it contains a finance clause is applicable and finance clause is not applicable. So the effect of simply signing that clause instead of filling it in, what’s the, is there like, is there anything we should know about that?

First of all, if I can just reiterate, Peter, what you’ve said to your audience, and that is I’m giving very general comments and advice. It’s not specific legal advice. It’s by way of general comment and you should obviously take your specific issues and problems to your lawyer and make sure they’re dealt with.

So please, for everybody who’s listening and watching, this is by way of general comment. I think the first comment I would make, Peter, and it’s a basic one but fundamentally we need to understand that the offering acceptance is a legally binding contractual document. Unlike some of the other states in Australia, we don’t have a cooling off period.

Unless you build one into the, it’s a special condition. So once it’s signed up by all parties, subject to not there being any technically irregularities, it’s a binding agreement. So those who are buying property, particularly to appreciate and understand that this is not just a holding document. Once it’s signed up, you’re buying by its terms and its conditions.

So when we talk about the finance clause generally speaking, once the Boxes filled in it’s deemed to be subject to finance. Mm hmm it depends on the terms and the conditions that you put in there So that I have seen documents which simply say subject to finance nothing else which leaves a lot of questions open a lot of room for debate a lot of room for arguments and lawyers love those sorts of clauses because we enjoy the arguments but equally i’ve seen subject to finance clauses completed with Some details and with a lot of detail, generally what you will find is you will find that it’s completely subject to finance and an amount is put in.

However, the amount, much the amount is that is sought. Again, one needs to appreciate if you have a look at, I think it’s clause one in the standard REWA O

and A, you’ll find there’s a lot of applicable terms and conditions that go with this subject. It’s not just simply saying subject to finance.

There are obligations that go with it and the obligations. That arise are first of all, you have to act in good faith. You have to be genuine. You have to be honest. You have to actually be serious about what you’re doing. And second of all, you have to use reasonable endeavors to get the finance. So if you have a fairly general clause and there’s no lender nominated, for example, then the obligation might well be for you to go and demonstrate you’ve gone to two or three different lenders and sought finance from them.

of whatever the amount is and demonstrate that none of them are prepared to fund you in order for you to be able to rely upon that as an exclusion clause. So therefore I will always recommend to my clients, if you’re going to put in a subject to finance schools, put in an amount and also put in a lender or two lenders or three lenders, however you want to do it.

But that allows for much more clarity and certainty in terms of anybody comes back later on and says, well, hang on a second, You know, you haven’t used your best endeavors. There’s another 15 or 25 lenders out there you could go to. So if you put in subject to finance of 500, 000 from ANZ Commonwealth Bank NAB, you would be required to make.

You know reasonable endeavors to obtain finance from each one of those if you then produced evidence that said well neither of them None of them are prepared to give you any finance. Well, then you will have complied with your best endeavors Obligations and if you can’t get finance, you can’t get finance and the contracts ceases to be binding.

Mm hmm So it’s always better to have more clarity in any sort of contract But particularly when you’re dealing with this sort of aspect of the ONA You really need more clarity. It’s much better. It’s better for the purchaser because it gives clarity and certainty to the purchaser in terms of what their obligations are and what they’ve got to do.

From the vendor’s point of view they prefer clarity as well. They know where you’re going and you’re not running around up and down the terrace looking for somebody to lend you their money. Mm hmm. Yeah, I think that’s a really good point that If one lender is nominated, and I believe the definition of lender could include it does include a finance broker then if you nominate one lender for an exact amount, then if neither of those come true, the deal’s terminated.

Yes. Yes, you can rely on exclusion. It’s important to appreciate that there’s been recent cases which talk about the situation of the mortgage broker. And yes, the standard ONA has been, or sorry, the offer and acceptance has been modified to allow the definition of lender to include a mortgage broker.

But you still have to apply for the finance. Yes. And the, it’s going to be a problem if you simply go to the broker and the broker says, well, look, I’ve assessed your form Liz. I don’t think anybody’s going to lend you the money. So go away and say you couldn’t get it. Cases have indicated that’s simply not acceptable.

That’s not compliant. The broker actually has to, or the mortgage broker has to go and actually seek the funds from a nominate, a real lender, a bank and demonstrate then that’s been rejected. Mm hmm. So Again, it’s not a matter of simply saying to your mortgage broker, well, you know, am I going to qualify?

And they’re going to look at your numbers and say, well, I don’t think you’re going to make it Liz. So you better tell them no, that will not suffice. There needs to be a genuine attempt to find it. And you using the broker to find the right lender. So if you just simply say funding through a mortgage broker, that allows the mortgage broker.

the flexibility to go to a number of their raft of potential lenders and see if they can get you the finance. But they’ve still got to make the application. Correct. Correct. Otherwise, you will be deemed not to have complied with the conditions in the finance clause. Okay. We see finance approval letters.

come across our desk that are subject to evaluation. Now, I believe that the finance clause says something along the lines of that the approval letter is subject to the lender’s usual terms and conditions. So we’re you know, and what is, what are the lender’s usual terms and conditions?

And is Is a finance approval that is subject to evaluation subject to their usual terms and conditions? Okay, so usual terms and conditions will generally, in my experience, refer to lending rates and duration of the loan and meeting some fundamental. requirements like that. The normal terms and conditions that would be imposed on a loan, if you or I approach them directly.

Subject to valuation, we’ll generally watch the value of a property. It’s what the property will sell for in the market. And so generally, if I’m buying a property and I’m offering you 500, 000 and you’re prepared to accept it. That’s generally taken to be, that’s what the value of the property is.

But if you have a letter from a lending institution, bank or second or third tier lender, which is subject to valuation, that’s not an that’s not an acceptance, that’s not an offer of funding. It’s still a subject condition. What they’re basically saying to you is we will look at it, but we want to satisfy ourselves whether or not what you’re borrowing matches our pre requirements for funding.

So. Funding hasn’t been approved. Okay, so in other words, a subject to valuation finance approval letter doesn’t wouldn’t satisfy the requirements of a finance approval letter. What about, Les, so the, the bank’s usual terms and conditions would say something along the lines of. Subject to your your financial position not changing.

Okay. So, you know, the things like, redundancies which is a substantial change in a person’s financial position. What would happen if they, Issued a finance approval letter, and then a person’s finance, financial circumstances changed prior to settlement, and the bank withdrew the offer.

It’s a very unfortunate situation, Peter, if that occurs, because essentially once finance is approved, it’s approved, the condition is met, and the contract becomes unconditional, at least from a finance point of view. So if you get the financial approval letter and says yes, you’re good to go Generally settlements are within a fairly short period of time But occasionally we see settlements which might push out to 30 60 90 days on odd occasions if finances in the interim is Withdrawn for whatever reason that leaves the purchaser in a really difficult position contract remains binding once that clause becomes deemed to have been complied with It’s not, the contract is no longer subject to finance and the the purchase then committed.

So this then leads to another consideration and it depends on the circumstances, but if we have a purchaser who has a concern about that, there may have been, you know, comments made in the wind that suggest that maybe things aren’t all quite as they should be. You could look to build in a condition to your contract, which might say that, you know, if between now, between finding approval and settlement.

Funding is withdrawn, then the contract is off, but you’d have to, you wouldn’t know though, would you? Well, in most cases, you don’t. In most cases, you don’t. And in most cases, it comes out of left field and hits you in the head. There are occasions when people do get a, a gut feeling, or they see certain things happening, which might give them a clue.

But the short answer to your question is once that condition is met, it’s met. Can’t be unmet afterwards because of a change in circumstances. So clause 1. 1,

so the finance approval finance condition places a requirement for the buyer to immediately apply for finance, but there’s no requirement to show any evidence.

Well, there is a requirement in the sense that there’s no specific No specific provision that says you must, within 48 hours, make application to, you know, your mortgage broker or the bank. But the clause does make a provision, usually there’s a provision of a timeframe within which finance might be approved.

So it’ll say finance within 30, approval within 30 days or 60 days or whatever it happens to be. So you’ve automatically got a timeframe within which you’re operating. Where within that timeframe you need to be lobbying in your application for finance becomes a question of each case is different depending on the circumstances, the lender.

But bear in mind, we have the obligations of acting in good faith. We have the obligations of using best endeavors. They’re pretty broad. And they apply to a lot of things. And you would find that if, if somebody was dragging their feet and not making application and was being dilatory about it, they could well be in breach of either or both of those conditions.

If that were to occur the vendor could seek to terminate the. Contract on the basis that the finance conditions haven’t been complied with and or they’re in breach of their obligations under the general provisions there to act in good faith or to, to use their best endeavors. And if that were to happen.

What happens to the deposit? Well, it’s provision in the offering acceptance there for what is to happen if the contract doesn’t proceed. I think it’s around clause 1. 7 or thereabouts. Which says there are certain steps that have to be taken in order to get the deposit back. If the contract doesn’t go ahead, generally speaking, the deposit will be returned, but there’s a good, safe way to go with that is to make, to specify that in the event, as a special condition, in the event the finance is not provided, the deposit in full will be returned to the purchaser.

Hmm. Hmm. Hmm. Yeah, well, that’s yeah, that, that becomes a tricky one, doesn’t it? Because you Where the, where it becomes in contention as to whether somebody made a genuine attempt to find, to obtain finance. And the finance approval doesn’t come through and they say, Well, here’s a letter saying we didn’t get finance approval now we want our deposit back.

And then the seller goes, well, we don’t think you made a sufficient attempt. We’re not giving you the deposit back. Is it? Yeah, that’s, well, in essence, what the vendor is saying is you have not complied with your legal obligations under

the contract. You are in breach of the contract and therefore we are entitled to take the remedial steps Terminate the contract reset it sue you for any shortfall in price In the current market that may not be a problem because prices are going up so that you know the vendor the purchaser would be fortunate, but there are other circumstances where there could be a Significant shortfall in what the contract price is and what the vendor is actually able to recover on the resale Yeah, in a rising market, it really is whatever.

Yeah. But you know, in a falling market, that’s where all the nasties come out. That’s true. That’s true. The issues I’ve come across with deposit, Peter, have been often a case of, you know, the real estate agency, well, I’ve now expended X dollars, X thousand dollars on advertising and this, that, and the other.

Or we’ve taken steps in terms of getting ready for settlement, they want to be reimbursed. The other one is commission. What do they do about their commission on the sale? So if the purchase is in breach of the contract, it may well be that the the real estate agent can hang on to the deposit and say, well, I’ve done my bit.

Yes. And you know, it’s effectively their damages, their loss they’ve suffered for that breach. Which is why very often you will find the deposit on a sale equates to at least the amount of the real estate agent’s commission. Yes. So if it all turns to porridge the real estate agent gets to have a feed.

Yep. Yep. Yeah. Okay. So Liz Over the years, I’ve advised buyers to not waive the finance clause. Quite often we see it where the finance approval comes through and the approval letter comes through from the bank and that’s used by the two settlement agents to start the process. process and the real estate agent as part of their like shoring things up will get the buyer to sign a waiver of clause one, which is the finance approval letter.

And I’ve always said to buyers, do not sign that. Because you know, as much as you know, once finance approval is in place, once you waive that clause, you’ve waived any benefit that it might give you. Your thoughts on that? It’s a very cautious approach, Peter. Is there a difference? There is a difference and it’s an important difference.

The subject to finance clause is really a condition. It makes the contract, it’s binding in all respects, save and accept for payment of the purchase price. And it is conditional upon finance in terms of the wording of the condition being completed and the finance being approved. So it is a conditional sale still.

From the purchaser’s point of view, it’s what I refer to as a backdoor. If it doesn’t work out, they’ve got a backdoor to go out and they can walk away from the sale. Once you waive that condition, that’s a completely different story. What you are saying is, I no longer want to rely upon or have the benefit of that condition.

In its entirety. In its entirety. Mm. Mm. And there are, as you say correctly certain benefits that are within clause one. Mm. That finance might be approved. That would mean that condition has been complied with and effectively, you know, the other clauses that are in clause one, which talk about timeframes within which and notification and in notifying and writing all that, they become obsolete effectively.

But like you, I am not in favor of giving up. any sort of beneficial clause, unless I have to, because you just never know what the position is. Ultimately, there’s probably little difference in the sense that if finance is approved, genuinely approved, and there’s no issues with it, well, that subject, that conditional clause falls away, and the contract becomes binding.

If you waive the clause it falls away, and the contract becomes binding, save for any other conditions that need to be met. So from that perspective, it may not make a lot of difference, but I think waiving of subject, waiving that subject to finance clause really only should be utilized where there is a really good reason for you not to require it.

You’ve got funding from elsewhere. You’ve just one lotto. Because once you’ve waived that subject to finance clause, and if you can’t fund it, you are in deep trouble. Mm hmm. Because the contract becomes, from a financial point of view, unconditional. You are bound to find the money and you’re bound to pay for it.

Mm hmm. At least if you retain the subject to finance clause, if something happens that without approval for some reason, you’ve at least got some leverage point to utilize. Yeah, there might be some wiggle room. Might be some wiggle room. Also, often with these sorts of matters, it might be a case of negotiating.

And if you don’t have a leverage point, you’re not going to be negotiating too much. But if, if you can find yourself a leverage point, then you’ve got something to bargain with. So finance is approved. Sorry, correction. Finance has declined. Is there a requirement for a deposit holder notice? I’ve always believed there’s not.

But generally speaking, there needs to be notification that the Finance has not been approved. There is then, I think, in the, offering acceptance, there is a requirement for a process for the returning of the deposit, and that needs to be complied with. It generally isn’t, but that ought to be followed, and that, that should be the process by which you go to get your deposit back.

The problem with not following it, and in my experience, in most cases, it’s not followed but it’s like all things law. It’s not worth anything until you need it. And so if you have a situation where, for example, a deposit is not returned the purchaser gets a bit nervous about it, starts to commence legal proceedings for the return of the deposit and the judge looks at it and says, well, hang on a second.

Have you complied with this particular clause? Have you issued the notices? Blah, blah, blah, blah, blah. And if you haven’t, then the Mm. Start again. Mm. So it really becomes a question of, being aware that they’re there, and if you’re going, if you’re not going to comply with that, then there are risks associated with that.

So my reading of, the finance clause is that if you’ve got a genuine finance decline letter, Mm. Yeah, made an application through NAB, NAB said no, I send my finance decline letter to the real estate agent, at which point the contract is terminated. It’s at an end, and you’re entitled to your deposit back.

Yes, without any further, I don’t have to do anything more, as I understand it. No, look, there is a provision, I can’t remember the exact clause number, but there is a provision that talks about a process, so we’ve got to give notice etc. One amount of the notices often is saying, the notice would be sufficient saying, here’s my decline letter, can I have my deposit back?

That would probably comply and meet that requirement. So you probably will have met that. That’s usually what happens in my experience, that the purchaser or the purchaser’s agent simply writes to the vendor’s agent and says, look, here’s a decline letter, please return the deposit. Mm. Mm. Mm. So, a non approval notice.

Yes. As opposed to a finance decline. So we get two. the end of the finance period and my finance is not approved. Now technically I could hand in a non approval notice which would also bring the contract to an end. A non approval notice is really simply saying your application for finance is declined.

There’s no magic, I don’t think, in the word declined. The issue here is, is finance Has finance been approved or it has not been approved? The word

declined is used in the offering acceptance. But essentially, fundamentally, it’s a question of whether or not the finance has been approved or it hasn’t been approved.

So the question becomes is what is a non, what is the letter that says your application is not, approved? Well, it would typically happen If you had, let’s say, a complex financial situation, like you had like complex finances, you made an application and you thought, well, 21 days is going to be enough.

But due to the complexity of your circumstances, it was going to take six weeks. And you went, well, At the end of that 21 day period, the seller could terminate the contract. The seller can because you haven’t had a finance approved within the designated period of time. Yep. Equally, the buyer could issue a non approval letter, a non approval notice to say, I’ve tried, it’s got too hard, I haven’t had a decline, but I haven’t had an approval, here’s my non approval notice.

Yeah, Peter, it depends very much. And again, we’re back to the use based endeavors and the requirements to, to to be genuine in terms of what your applications are. If the person in that circumstances produces a letter which says, you know, Producers four letters, shall we say, four different institutions, all of them saying, no, we’re not approving it.

We’re not approving. We’re not approving it. That would probably be sufficient. If you have somebody who comes along and says here’s a letter from a single institution, which says you’re not approved for the line. The purchaser, sorry, the vendor could turn around and say, well, i’m not satisfied that is really complying with your obligations to use best endeavors.

Mm hmm And to act in an honest and genuine way, what other applications have you made? What other attempts have you made? So this is why it becomes really important to be clear about how much your finance is you’re looking for, to be clear about what institutions you’re going to use, or how you’re going to make it quite clear.

So we know what we’re dealing with. You’ve nominated three banks. Here’s three letters from three banks saying, no, we’re not approving your loan. That will get you over the line. Yeah, so the complexity there is that you might have, let’s say we’re just going through one bank for simplicity’s sake, you might have a bank saying, we’ll approve the loan subject to valuation and subject to, You selling your caravan and the valuation doesn’t come in and you couldn’t sell your caravan.

The finances, the bank hasn’t issued a finance decline. They’ve actually issued a subject to finance, but the conditions attached to that approval are so onerous that, and now I’m, I need to use this finance non approval notice to Say, look, I’ve tried, and I’ve failed. My, my advice to, to, to my client in those circumstances would be as follows.

Number one if you still want to pursue it seek an extension of time within which you can get your finance approved, explain to the the vendor’s agent, this is right, we’re in the process, we’re not going to meet the timeline, we want to extend it by another, whoever, whatever the period is, and if they agree, all well and good, you go through the process with the bank.

On the other hand, if you’re looking at a bank saying, we need this, we need that, we need the other, what it’s saying is that the finance has not been approved, so you’re not meeting that requirement, and if you don’t extend the time, the vendor is entitled to say, well, you haven’t produced a finance approval within the specified time.

It’s now two days over that time. You’ve missed the boat. Terminate. Terminated. Yeah, so this is why I said when I, when we started, I said we have to understand that this is a contractual document. It’s a legally binding document and therefore we must operate within the terms of what’s there. And if you’ve got a specified time period within which finance has to be approved, it’s not approved within that period of time, within the meaning of the clause, but the vendor is quite entitled to turn around and say, well, you haven’t complied, you haven’t met that clause requirement.

Yeah. I think we’ve covered finance approval pretty well. I’m going to stray into some areas that we, that I didn’t cover in my questions that I’ve sent you. Number one is conditions on a contract that where you have some, a real estate agent who tries to explain the terms of a con, of a, of another condition.

Like they, they would write in things like you know, subject to timber pest inspection, see annexure A, and. You know, my advice has always been just write in annexure A forms part of this agreement and leave the annexure to do the work. Don’t complicate things. What’s your thoughts on that?

Look, I think in, in, in many respects, I agree with you, Peter, again, sounding like a broken record. We’re dealing with a legally binding document. The court will look at that cause and try and make some sense out of it if it can. The problem is, is that sometimes by trying to expand on what’s there. The person writing up the offer can create problems and can cause other difficulties because of the very words they’re using.

It might create vagueness, it might create confusion. A question to whether there’s a condition binding or there’s not a condition binding. So at the end of the day if you’re going to put in any sort of condition, it needs to be wording that is very clear, very precise and well understood or approved by the courts in various cases, or alternatively don’t, you know, pest clearance certificate and actually see an actuary.

So we know what annexure A is and we’re making it clear that it’s subject to that. So you’re linking the two together, but beyond that, you could leave it. And my view would be you either leave it or you have to be very clear and precise with your wording. Being verbose, it’s like giving somebody room with which to hang themselves.

Sometimes, particularly if we did, if people, and this is no criticism of real estate agents or settlement agents, but, Sometimes there can be legal consequences for the wording used or not used, the stuff left out, and if that’s not properly covered, if you haven’t got the advice as to what that means, that’s why I will often say, a client will say to me, look, I want to make an offer to purchase the property, if it’s a straight purchase, if it’s a straight, simple, you know, I buy, you sell, then it’s not a problem, but if there are issues in there, And quite frankly, we talk about the complex sort of financial circumstances.

I will usually say, I want to see it before you submit it because I need to see what the clauses you’ve put in there in terms of the special conditions, what they, what the wording is and what the impact of that’s likely to be from a legal perspective. And it’s far better to do that and pay a few dollars to get it checked and be confident and comfortable with what’s there than to have to try and untangle the mess afterwards.

Huge expense to everybody.

The as is clause, Les, and I appreciate that I’ve, I’m popping questions to you without notice. And so if I don’t do gotcha questions on this show so if you need to say to me, look, I need to do some research, feel free. So we quite often get contracts that come in that will say something like this property is sold as is.

And no repairs will be undertaken. And then it will be, the same contract will have a, a working order clause in there. And it’ll say the seller warrants that all plumbing, gas and electrical appliances shall be in working order at settlement. The two clauses fight with each other. They contradict each other.

And that exemplifies exactly what I was saying before, that, you know, it’s somebody who is. Perhaps not fully aware of the legal consequences of putting

those two clauses in together because they contradict each other. In that circumstance, if they can’t reach an agreement as to what that all means, ultimately it ends up on a magistrate or a judge’s desk on their bench, and they have to try and figure out what this means.

So you then have to go through a process of saying, well, what does as is mean? Is it an industry understood term? Is there a definition or meaning that everybody in the industry uses or knows what it means? If it’s not, then the court has to try and interpret it. You then put the other clause next to it and you say, well, is it trying to say the property as is, but it’s subject to this?

It becomes a complete disaster. And then it just depends. And this is where not only what’s written, but. The circumstances in which it was written up and who said what, we try to get down to the intention of what the parties were trying to achieve and see whether in fact that’s actually doable.

As my understanding is of the As Is Clause, it is completely redundant in that the general conditions is quite clear that The property is sold on the condition it was on immediately prior to execution of the contract. So you don’t have to go any further than that. it is what it is on the moment before the contract was signed.

That’s what you bought. And you don’t have to, all you’ve done is created a problem. By inserting those words, I mean, you say, well, what did they mean by that? And this comes back to what I’ve said before, that the conditions have to be articulated. Do they need to be in there? Are they already covered by the the general conditions?

And if they aren’t, don’t tamper, don’t fiddle with them. Don’t try and add anything to them. If there is something that is not covered by the general conditions, or you want to modify one of those conditions, one of those general conditions, then you need to put it in your special conditions, but it needs to be very carefully worded and considered before it goes in there.

So you might, you know, simply say, you might I’ve seen, for example offers and acceptances where within the special conditions there’s a condition that says that the purchaser is aware of a particular defect in the property or in some of the whatever’s coming with it, like the pool’s not working or the ball’s not working, and they’ll put in a clause which says that the purchaser is aware and accepts that.

Now that’s just trying to be

I suppose avoid what might otherwise be a dispute and make it quite clear that everybody knows everybody understands the purchase correctly knows this and it’s on the form. That’s okay for a couple of things But you don’t want to have reams of paper putting all of that sort of stuff in there So the idea of the general conditions is It is as you saw it If there’s nothing in there that says then a special condition says well, for example The vendor is responsible for repairing the fence or repairing the pool or the pool pump prior to settlement Then you rely on the general conditions having as is in that really adds nothing Other than perhaps confusion Real estate agents have an obligation under their code of conduct to disclose all material facts.

Things such as stigma, so if there was a violent crime. committed murder, for example or, you know, something similar, they would need to disclose that. They would need to disclose, you know, known boundary defects, those sorts of things. So, What’s your, what are your, what’s your advice for sellers there?

Can sellers say well, I knew that the boundaries weren’t in the right spot, but I just thought I’d keep it a secret and I just, you know, if the real estate agent didn’t disclose it, then I don’t have to. All right, yeah, very dangerous. The obligation that rests on the real estate agent from that ethical perspective is an onerous one.

It’s not one that you can shun. Or avoid. If you, as a real estate agent, if you become aware or you ought to be aware by making reasonable inquiry that there is an issue with the boundaries, there’s a dispute going with the boundaries or whatever, then you have an obligation to make that loan and disclose it.

If you fail to do that, then you leave yourself open to legal action by the purchaser saying, well, you didn’t disclose that. He should have told me that was there and the purchaser could then take legal action against the vendor and the real estate agent on the basis of the real estate agent, has failed in their duty and obligation and is therefore jointly responsible liable, potentially liable.

Mm-Hmm. With the vendor the vendor can, again, can’t simply hide behind it because if the vendor knows about it. And tries to hide from, they might still be exposed. So let me give you two scenarios. The vendor, there’s a boundary dispute. Vendor discloses it to the real estate agent.

Real estate agent decides not to disclose it. Real estate agent might well be solely liable because the vendor says, well, I told you about it. You have obligations. That’s for you to comply with. I can’t discharge your obligations for you. But if you have a situation where the vendor says, I’m not going to tell anybody about it, I’m just going to stay stum on the whole thing, then becomes a question of, well, certainly they could be argued.

They are liable to the purchaser failure to disclose it. Second of all, the question becomes one of whether the real estate agent ought to have made inquiries about that. And so this is where things like requisitions and so on and so on become quite important. The theory with requisitions was that they would all, the theories, they always get issued that everybody’s supposed to answer them because it reveals all of those sorts of things.

But in my experience there, it’s observed in its breach more than it’s observance. And that in itself can create an issue because a court might say, well, what inquiries did you make Purchases, you issue requisitions, did you make the inquiries? So I, I think there’s a potential exposure there for real estate agents and for vendors themselves.

If they, depending on what the breach is and what the circumstances are, but there is a potential for exposure there. We’re settling a property right now where the, it became quite obvious during the process of the settlement that a patio that had been Enclosed and that was advertised as a, I think it was a games room, never, never approved as a, an enclosed structure.

So a number of issues arise depending on the factual circumstances at hand. I had a similar case some years ago where there was a pergola put up in the backyard, quite a big one, and somebody purchased the property next door and decided they didn’t like it. I saw and people were making noise. In that situation, they said it was built without council approving the council issued notice saying remove it.

In that case, we were fortunate because we managed to actually track down the actual person who erected the pagoda like 25 years previously. Who was able to produce evidence that he’d actually got approval from the council there to have the records. Wow. He had the records. That’s very unusual. That is unusual.

Very unusual. Wow. But in your circumstance, it becomes a question then of what happens. Does the council now come along and say, pull it down. You didn’t get approval. And in case who’s responsible for that, who’s responsible for paying for that and what’s the implication of that in terms of the value of the house.

That then becomes a dispute because the purchaser would be entitled to say, well, I’ve now lost that room. It was a significant to me. It was a games room. You know, I’ve got teenage kids. They were wanting a games room. Now it’s you. So I’m gonna have to pay X thousand dollars to put a proper one there.

And I want you to pay for it. It becomes an issue with again, with the real estate agent, if they became aware of that. So if in the process of inspecting the house, You have a reasonable suspicion that because it’s got, you know, bare concrete, brick paving floor and, you know, it’s got no windows.

Then, you know, at that point in time, you have a duty to raise the question. And it’s very, it’s not that hard to find out whether it’s been approved or not. And you would suspect, I would suspect the same could be said with swimming pools that agents would have a, a duty, a responsibility to ask the seller, does this pool comply with legislation?

It would be a wise real estate agent who would ask that question. So in other words, again, it’s not hard. It’s a matter of saying, look, we’ve got the house. You want me to sell it? That’s fine. What’s its condition? Are you aware of any issues with the house, white ants, cracking, subsidence, that sort of stuff.

What about your fencing? How’s the fencing? Let’s have a look. You’ve got a pool. That’s terrific. What conditions it in? You know, as you’ve had, you’ve got all the approvals, and again, it depends on what it looks like. Particularly if you’ve got a, what looks like appears to be a, you know, fairly temporarily rigged swimming pool, you might well say, well, has that been approved by council?

Let’s go and check that. So the idea that a real estate agent can simply stick their head in the sand and ignore everything and say, you know, it’s all the vendor’s problem is not correct. There can be liability attached to the real estate agent in certain circumstances. What we’re seeing in the current market, which is very hot, a lot of there’s a lot of disclosure being sort of, shall we say people glide over the facts and purchasers are willing to accept properties.

for what they are, knowing that, well, if they make a song and dance about it, someone else will buy it and they’ll miss out. And I guess a danger that at some point people are going to go, you know what? That was two years ago. And this is now I’m a little bit annoyed that somebody didn’t disclose about the swimming pool.

Yeah, look, I think that’s that’s no doubt correct because people are desperate to acquire a property and they might well say at the time, well, I’m prepared to compromise, prepared to make all sorts of compromises in order to acquire the property, the land, the house, et cetera. And that’s fine if they’re prepared to make that compromise and they may well live with the regret, you know, two years down the track.

And that’s their problem at that point in time. However. Where the question arises, if that’s the case, what have we got in place? What does a real estate agent got in place? What does the vendor got in place that all of this was disclosed and made known to the purchaser and they agreed to take the property in that condition and with those potential problems, potential risks, potential litigation.

You know, the ones I’ve seen have been cases where dividing fences or more particularly you’ve got a dividing fence then with a retaining wall because the property next door is lower and arguments are starting to brew with the dividing fences issue and that can become quite nasty. And the purchaser is not made aware that’s an issue.

Yeah. I’ve had that a few times. Yeah. That is a problem. Hmm. Les, are there any other legal things, legal issues surrounding the offer and acceptance, special conditions, those sorts of things that you think that real estate agents and property buyers should pay better attention to? I think, coming back to my original point, buyers need to understand that when they sign an offer and accept it, it’s a binding agreement.

Therefore, they must satisfy themselves. that they understand what the offer is that they’re making and what those terms and conditions are. Don’t make assumptions. Get advice if you need it. In this market, it’s going to be hard because if you say, look, I’ve seen in a week’s time after I’ve seen my lawyer, the property may not be there.

If that’s the condition, that’s the position, look to build in special conditions that can afford some sort of protection. In terms of special conditions about, you know, warranties that the vendor can produce about no dividing fences issues, there’s no council outstanding orders, those sorts of things can be built into special conditions, give you, afford you some protection.

So I think that’s really important from a purchaser’s point of view. From a vendor’s point of view, I think it’s really important to appreciate the same thing. It’s a legally binding document, and if you suddenly get cold feet about the sale, you may have a problem. But you also have to be also acting good faith, and failure to do that can leave you open to claims by a purchaser down the track, and you really don’t want that.

The other issue that has arisen from time to time in two different circumstances has been actually the identity of the true. owner of the property. For example, you might have a situation where a property is owned by a family discretionary trust. And you suddenly end up with an offer or an acceptance by pretty blocks Happens to be a beneficiary of the trust, but pretty blocks doesn’t own the

property And then suddenly you have to rewrite the offer and acceptance because they’re on Selling it etc.

So work out who owns what property the property’s in question the other One that we see from time to time is a matter you raised with me before and that is an estate situation So you have an executor You They have a person, they die, they have a will they, then, the will has to be probated. Mm hmm. A will is, has certain technical requirements that it must meet under the Wills Act.

It’s got to be in writing, it’s got to be signatures get off the deal, the willmaker’s got to be witnessed by two people, et cetera, et cetera. And in order to ensure that’s happened, a will has to go to the Supreme Court, to the probate office, they check it. And if it meets all those requirements, they give it their seal of approval, which is the grant of probate.

The grant of probate legally enlivens the will and gives the legal authority to the executor to then deal with the assets. Now, from time to time, we see situations where the executives get, gets quite enthusiastic. And before probate is granted, they race off and they’ve, you know, got a terrific offer on the property.

Is that legally binding? Situation, who owns the property? Well, at the time they entered into the plot, they offer an acceptance. They really technically legally didn’t have the legal authority. To bind the estate. So what we do with that is, is we deal with that on the basis that they ratify that sale after probate is granted.

That can be done by letter, by various ways. But after the fact, it’s remedied by the executive, but people need to be aware of that. I’ve had situations where I had one client who came to see me, her mother had passed away, mom had gone to the post office and god forbid, had filled out a media Post office do it yourself will and left property, most things to, to, to the daughter.

The will by the way was partially if not wholly invalid because of the way it had been filled out. But more, more to the point, one of the assets was a house. It was worth five or six hundred thousand dollars. No probate had been obtained. Daughters sold the house, kept the money. Legally speaking, It’s not her money not her property.

It’s technical theft. Yeah So one has to be a bit careful about these things And again when you when you’re dealing with experienced people experienced businessmen experienced real estate agents such as yourself People who know what they’re doing you don’t run into these problems as a general rule The problem arises with the inexperience, the, you know, the do it yourselfers, as I

call them, whether it’s doing a will or doing a, you know, an offer and acceptance, and then trying to figure out what’s going on with it.

It creates more problems than it solves.

I’ve seen it right now with a, with a client’s come to see me with an employment agreement, which Chet GPT apparently produced and didn’t produce it particularly well. Perfect. And It’s going to cost a lot more money now to remedy that. Yeah. Liz Very much aware of time. I know you’ve got lots of things to do and as do I thank you for sharing your time.

It’s been super valuable and that you’ve helped clear some of these things up and some of these issues around the finance approval letters and finance clause is super valuable. Now. If people wanna engage your services, where would they go? What would they do? They are most welcome to contact me.

My phone number’s oh eight nine three two five nine six four four. Please feel free to give me a call. Happy to have a chat to you on the phone. And we don’t charge for that initial call. Yeah. And for. I would just reiterate that you are very generous with your time. And that wraps up another episode of the WA Property Q& A.

We hope you found our discussion valuable and gained some valuable insights into the world of property buying in Western Australia. Remember, while we strive to provide useful information, It’s crucial to consult with the appropriate professionals before making any investment decisions. Don’t forget to tune in next week for another exciting episode where we continue to unravel the mysteries of the WA property market.

If you have any questions or topic suggestions, feel free to reach out to us. Until then, happy property hunting, and remember to seek the right advice for your personal circumstances.

Thank you for listening