It’s about bloody time I wrote about something relating to my day job. I am a legal secretary and have been since 1998, predominantly in conveyancing. I was studying conveyancing in New South Wales, then the Global Financial Crisis happened in 2008 – and I moved to Melbourne from Sydney shortly thereafter. I continue to work in conveyancing, and will probably eventually get my arse into gear and become a licensed conveyancer (which I keep being told because I have the mindset for it), even though working in other fields of law have their merits.
First things first, let’s get this disclaimer in – this blog post should not be taken as legal advice, if you need to get legal advice on a contract of sale of land, take it to a licensed conveyancer or a lawyer that does a lot of conveyancing work. However, I have seen a lot of things that, from even a secretary’s viewpoint, is a no-brainer. For instance…
#1. Never rely on representations made by a real estate agent
Look, the job of the real estate agent is to market the property for sale, and get the best price for the vendor. The only thing they’re really concerned about is their commission after settlement of the sale, so they’ll tell you anything to get you to sign on that dotted line (within the confines of the law, of course). They may seduce you with buzzwords like “renovator’s dream”, but in one particular file I worked on a few years ago, the “renovator’s dream” turned out to be “asbestos in the garage”. The reason the client found out about the asbestos in the garage was that they got themselves a pre-purchase building report, which not only revealed the presence of asbestos, but also provided an estimate of the cost associated with its removal (as the client intended on carrying out extensive renovations after settlement). This provided an advantage to the client in negotiating a purchase price, and was able to get a reduction on the original asking price. Building reports can also report on pests such as termites and borers. They do attract a fee, but it’s a small price to pay, especially if the report reveals something that would otherwise cost you dearly later down the track.
Oh, and another thing – any real estate agent worth his/her salt will let you take a copy of the contract for a lawyer to go over and advise you on before you sign. If a real estate agent starts putting on the pressure to sign up, tell them to jump in the lake. You’re entitled to get legal advice on a contract before signing.
I worked on several off-the-plan purchase files a few years back. Most of the existing clientele had signed their contracts about a year or two before I started working at that particular firm, and settlement had been triggered about three years after the contract was first signed. When you’re buying “Off-the-plan”, it essentially means that you’re agreeing to buy a property (usually an apartment, but it can also be a house and land package in a new subdivision) that has not yet been brought into existence.
The common complaints that we got were the banks whose valuations returned at a much lower value than the contract price, clients who could no longer proceed with the purchase because of change in circumstances (for instance, losing their job), and banks refusing to provide finance because the finished property was smaller than the minimum size they would approve for loans on apartments (and in all those cases, the clients signed up before we saw the contracts). These are the risks you have to consider when contemplating buying off-the-plan – make sure you read through the contract with a fine-tooth comb and flag anything that either worries you or you don’t understand, so that your lawyer or conveyancer can explain it to you.
A good example of the worst case scenario in developments where apartments had been sold off-the-plan, is the Verge Apartments saga in Melbourne’s Southbank precinct.
#2. Do your due diligence
Make sure you explain to your conveyancer or lawyer your intents and purpose of the purchase – e.g. new home, upsizing, downsizing, investment, and whether you intend on doing any renovations or extensions to the property after settlement. One story one of my TAFE lecturers told during my conveyancing course was the man who bought a terrace house in an inner suburb of Sydney. His property had an easement for a party wall, of which his property had the burden. He paid no heed to that easement, demolished the terrace house then had to install beams against the party wall to stop the adjoining property from collapsing. (He may or may not have done his own conveyancing, giving some credence to the saying “he who pleads his own case has a fool for a client”).
You also need to consider council rates, water rates and strata levies, because you’ll need to pay those on top of your mortgage repayments. In Victoria, a Due Diligence Checklist is required to be provided to potential buyers of residential property, and in all property transactions in Victoria, vendors and purchasers must undergo Verification of Identity. You need to satisfy yourself as to being able to pay your rates on time and your mortgage repayments.
It is standard conveyancing practice to conduct searches on the property by obtaining property certificates from various government authorities, the core searches being for council rates, water rates, land tax and, if applicable, Owners Corporation certificates. Depending on what state you live in, the other required property certificates can vary, depending on the extent of the vendor’s statutory duty of disclosure in your state. The last thing you want is to buy a property, only to have it acquired a year later by a government department for a road widening project, for example. When I was still living in New South Wales, it was standard to serve “Requisitions on Title” to the vendor’s representative. These were essentially questions about the property, e.g. whether any notices had been served on the vendor from a government authority, and were usually answered with “Not so far as the Vendor is aware. Purchaser should rely on own inquiries.”
You should obtain advice from your accountant in relation to land tax and/or capital gains tax liability.
#3. Explaining the rates adjustments
After you’ve done your due diligence and signed your mortgage paperwork and the bank is ready, you should be ready to go. A week or so before settlement, all rates will be adjusted on a pro rata basis. It is standard procedure to treat the rates as though they’re paid, then draw a cheque for payment of any outstanding balance. If I had a dollar for every time a client read the Statement of Adjustments then decried, “But why am I paying for the vendor’s rates?!”, I’d be able to retire at 40 and live in a mansion in Toorak, unencumbered.
Especially if you’re moving into the place, the last thing you want to worry about is getting the rates paid, because moving house is damn stressful. If you’re still worried that you’re paying the Vendor’s rates, okay, hear me out.
The period for land rates follows the financial year (1 July 2016-30 June 2017) but allow for payment by quarterly instalments, Land tax follows the calendar year and water rates and strata levies are quarterly. Now, we’ll use land rates for our example.
Say the land rates on your property is $920 for the rating period (i.e. the financial year). Let’s say that your settlement is on… (let’s pull a random date from a hat…) 13 April. The rates will be adjusted so that you cover the period from 13 April to 30 June. That’s 78 days out of 365 (or 366 if it’s a leap year).
To calculate the pro rata figure, ($920÷365) x 78 = $196.60. So that $196.60 gets added to the balance of the purchase price. Now, let’s complicate things. Say the Vendor was falling behind on the rates, and the council had started adding on interest. The conveyancing secretary will be calling the council, water and body corporate authorities for an update on the rates. This is to find out if the vendor had paid any rates since the certificates were obtained, or if additional interest is payable since the certificate was issued. Let’s say the total amount payable to the council, after allowing for interest and council’s fees on the default, is $1,010.00. You’re still putting in your $196.60 – the rest is coming off the amount that would otherwise have gone into the Vendor’s pocket, had he or she paid the rates on time. The same principle applies to calculating the adjustments on the other rates.
More often than not, there will be a mortgage registered on the title. The Vendor will make an allowance for the registration fee to discharge the mortgage on the title, by deducting it from the balance of the purchase price.
Oh yes, I did say that working in other fields of law has its merits, didn’t I?
#4. The art of storytelling is an essential skill in the legal profession
I type Affidavits and prepare other court documents in between calculating settlement figures and preparing retail leases and contracts of sale of land. In an Affidavit, the deponent is essentially telling their story, the truth, the whole truth and nothing but the truth so help me God/Goddess/Allah/Flying Spaghetti Monster. For instance, in an initiating application in a family law matter, the Applicant tells his/her story in his/her supporting affidavit. Then the Respondent files their response, and a supporting affidavit telling their side of the story. Every file tells a story.