Understanding instalment contracts
When delving into the world of residential property purchases, there are a multitude of intricacies that can significantly affect the legal rights and obligations of both buyers and sellers. One such nuance pertains to the deposit amount and its potential to transform a straightforward property transaction into what is known as an instalment contract. In this article, we will explore the implications of instalment contracts on property dealings and shed light on their impacts for parties involved.
The Shift: Deposits and Instalment Contracts
Under the framework of the Property Occupations Act, the significance of the deposit amount takes on a new dimension when it surpasses the 10% threshold in a residential contract. In cases where the deposit exceeds this percentage or when the buyer is obliged to make additional payments exceeding the total deposit sum before the final settlement, the arrangement transitions into an instalment contract.
To clarify, an instalment contract entails a scenario wherein the buyer commits to making multiple payments – referred to as instalments – towards the property. However, the buyer cannot officially claim ownership until the entire purchase price has been fulfilled. This legal construct aims to offer greater safeguards to buyers, altering the landscape of the contractual relationship between the parties involved.
Implications for Parties Involved
For both buyers and sellers, the shift towards an instalment contract carries noteworthy consequences that can have far-reaching impacts on the course of the property transaction.
Seller's Limitations: One of the most significant shifts is that a seller is constrained from mortgaging the property further without obtaining the buyer's explicit consent. Violating this restriction can result in a breach of contract, empowering the buyer to terminate the agreement. Notably, such a breach could lead to a penalty of over $1200.
Buyer's Right to Conveyance: The buyer is endowed with the right to demand a conveyance, provided certain conditions are met. As long as the buyer is not in default and has made payments equating to at least one-third of the purchase price, they can compel the seller to transfer the property title into their name. Additionally, the seller may choose to become the mortgagee for the outstanding balance.
Lodging of Caveats: Under an instalment contract, the buyer gains the authority to lodge a caveat against the property's title. This strategic move halts any further registrations or transfers until the instalment contract is successfully fulfilled. This serves as an extra layer of protection for the buyer.
Buyer Default Handling: Instalment contracts introduce a shift in handling buyer defaults. The traditional concept of "time to be of the essence" is eliminated. This implies that if a buyer breaches the contract terms or misses a deadline, the seller must provide a 30-day notice of intent to terminate the contract, instead of immediate termination.
Extended Settlement Period: The window for settlement can be extended by up to 30 days without necessitating the buyer's consent, offering flexibility in meeting contractual obligations.
Navigating the Complexities
The entry into an instalment contract can lead to intricacies that potentially hinder the smooth and timely settlement of a property. The legal intricacies and additional protections introduced by instalment contracts can complicate the transaction process, causing delays and potential complications for all parties involved.
A Way Forward
In cases where a property initially involves a 10% deposit but undergoes negotiations that lead to a reduced purchase price, a prudent approach is recommended. Upon executing a deed of variation to reflect the amended terms, it's advisable to stipulate that any amount exceeding 10% of the revised purchase price be refunded to the buyer. This strategic maneuver can help avoid the unintended consequences of an instalment contract, thus facilitating a more straightforward transaction process.
Thank you to Rebecca Petroff from Sunstate Conveyancing for sharing this important information with us.
