After this week, I am wondering why we should even have Contracts for the Sale and Purchase of land. Solicitors are working to rescind exchanged contracts. Their action is lawful, but it is eroding confidence in the conveyancing process.
We should be able to trust that if a purchaser signs a contract subject to a cooling off period, if they rescind, the 0.25% deposit will be forfeited to the vendor. Further, if a contract is unconditional, the market expects that the deal is complete. Events we have encountered this week show that you can have no faith in this process.
One of the circumstances we encountered this week was a purchaser threatening to rescind and take the 0.25% deposit on the basis that there was no contract. This was on the basis that the solicitor had failed to include a dealing relating to the property. Interestingly, the title search in the contract showed no such dealing. Unfortunately, with no notice to the vendor, the NSW Land Registry Services amended the title search to include this dealing. This change rendered the contract void.
The second situation was where a contract was unconditionally exchanged. You would think the deal is done. The Section 10.7 certificate stated there was no proposed road widening but guess what, the purchaser did some checks after exchange and found that in 1975 the Department of Roads gave a notice of road widening, which they admit hadn’t been advised to the Council. On the lapse by the Department of Roads, the purchaser got a free pass out of the contract and had their 10% deposit returned to them.
Section 52A of the Conveyancing Act 1919 states that every contract:
- Must contain all prescribed documents such as dealings affecting the title; and
- Is deemed to have included all prescribed terms, conditions and warranties such as being free from adverse affectations.
You might ask what is an adverse affectation? Well, it’s a bit like a facial blemish. Something that affects the property, but we don’t really want it there, that can restrict the vendor of the land. Part 3 in Schedule 3 of the Conveyancing Act 1919 outlines the types of adverse affectations that can apply. In this case, the affectation was a proposal for road widening by Transport for NSW, the drawing marked (in pink) the land that could be acquired for road purposes land in the future, it was approximately one quarter of the lot. Although the vendor would be compensated for any land acquired the proposal can still impact the property’s potential to be sold, developed or improved.
In both cases, the vendor’s solicitor relied on the standard prescribed searches. In both cases, Government activity operated to impact on the contractual rights of the parties.
Clause 17 of the Conveyancing (Sale of Land) Regulation 2017 permits purchaser to rescind without penalty if a dealing is not included or the land has a blemish.
So what is the lesson here? Well, if a property is on the market for an extended period of time, we proposed that a new Section 10.7 certificate and current title searches should be undertaken prior to exchange. This is a cost to the vendor, and we know how vendor’s love to pay for searches, but it might just save their arse!