Issues to discuss with your conveyancer when selling property
17 Mar 2016
There are various matters that a Seller of a property needs to think about when intending to sell their property. These matters may influence a potential sale in different ways. As a seller it is therefore advisable to have a conversation with your conveyancer about the following conveyancing issues:
If there are any buildings/constructions/additions on your property that are not approved by the relevant authorities you need to disclose this to your conveyancer. You need to confirm with your conveyancer if you have lodged any applications to obtain the requisite approvals.
If you have lodged the relevant applications then you need to consider how long the approvals might take. Your conveyancer may have discussions with you about inserting a special condition in the contract for sale to reflect what is going on with regard to the approvals.
If you have not lodged any application for the approval of structures, then your conveyancer needs your confirmation that you are selling the property ‘as is’. That is, a potential buyer needs to take the property with full knowledge that you as the seller will not be providing approvals for the structure/buildings. The buyer may use this is a bargaining tool to reduce the price, or may insist on seeing the relevant plans and application before Completion. That is a risk that a seller without the necessary approvals bears.
A contract for the sale of land needs to indicate the GST status. That is, whether or not GST applies to the transaction. Under the GST Act (A New Tax System (Goods and Services Tax) Act 1999 (Cth)) the sale of residential property is ‘input taxed’ and does not include GST.
However if residential premises are considered to be “new” then, under the GST Act they are considered to be to be a taxable sale and GST applies. Some developers of new properties use the margin scheme to reduce the tax that is payable on a sale.
Generally, the sale of commercial properties attracts GST. However, if you are selling a commercial property that has a business enterprise that will continue in operation after the sale then the transaction may be considered to be the sale of a ‘going concern’ and no GST would apply.
If you are selling a property that has a farming enterprise carried out on it then, depending on whether the new buyer will be carrying on the enterprise following completion, the sale of the property may be GST-Free.
If you own other property in addition to your principal place of residence then you may be liable to pay land tax. You need to confirm this with the relevant Revenue Office, if you have not already done so. If land tax does apply, then you must register with the Revenue Office which will then issue you with a statement of your tax liability for the relevant tax year.
You need to update your conveyancer if there are any outstanding land tax liabilities.
In dealing with these tax issues, we will work closely with you and your accountant to ensure that any taxation issues pertaining to the sale are addressed properly.
Orders Affecting Property
If there have been orders affecting the property then you need to make your conveyancer aware of this and what steps you have taken to address them.
Orders that could be issued on a property include orders about noxious weeds that need to be eradicated from a property, demolition of a structure that is no longer safe for occupation, tree protection orders and other order requiring remedial work on the property.
Generally if orders have been made affecting a property, then it is the Seller’s responsibility to take the remedial steps required to tackle the outstanding matters. If a Seller does not do this then a potential buyer who has entered into the contract may reserve their right to rescind or terminate the contract for sale, or may choose to take the property ‘as is’ and deal with the orders themselves.
As a seller of a property you need to be aware that a potential buyer could request specific special conditions.
Subject to Finance
An example of such a condition is a ‘subject to finance’ clause. The effect of this clause is that a buyer can exchange contracts without having obtained finance approval. Once they obtain their finance then the contract runs its normal course.
However, if a buyer does not obtain finance approval during the ‘subject to finance’ period then they are released from the contract and may recoup their deposit.
As a seller this is a scenario that is disadvantageous to you because it means that you have to restart the sale process. This could mean incurring additional marketing expenses and other costs and expenses.
If you choose to accept such a pre-exchange condition then you must be willing to bear the risk that the buyer may not obtain finance approval, and you may therefore lose a potential buyer.
Normally a deposit paid to purchase a property is 10% of the purchase price. However, sometimes buyers are only able to pay a part deposit (commonly 5%). There is a risk in accepting 5% deposit, because in case of a buyer’s default and termination of a contract there may be issues in recovering the full required deposit of 10%.
The view of the courts was relevantly discussed in Iannello & Anor v Sharpe (2007) NSW CA 61 where the court held that whatever you accept at the time of exchange is taken to be the deposit. Therefore in case of the termination of a contract a Seller may only claim the lesser deposit and is unable to recover the full 10%.
Therefore a Seller needs to consider this carefully before agreeing to a lesser deposit. A potential buyer could be encouraged to obtain a 10% bank guarantee if they are unable to afford a cash deposit.
These are just some of the many issues to consider when selling a property and it is in the interests of a seller to obtain proper legal advice so as to facilitate a smooth transaction.
Our Conveyancing team can assist you with any further questions or conveyancing issues you may have.