Changes Affecting Residential Real Estate Contracts
On 21 May 2014 the Property Occupations Act 2014 (Act) was enacted to replace the Property Agents and Motor Dealers Act 2000 (PAMDA). The new Act will take effect on a date to be proclaimed.
Contracts for the sale of residential property entered into before the proclamation date will remain under the old Property Agents and Motor Dealers Act 2000. The new Act will apply to contracts entered into after the proclamation date which is likely to be sometime before the end of 2014.
The new laws will reinforce the need for buyers of residential property to obtain legal advice before entering into residential property contracts.
At the same time, the Act will make it easier for sellers and real estate agents.
Under the new Act, the matters to be disclosed to a buyer will remain essentially the same however the place and format of the disclosure will change. A seller must ensure that the following words are written conspicuously in the contract itself, once, immediately above, and on the same page as the place where the buyer signs the contract:
The contract may be subject to a 5 business day cooling-off period. A termination penalty of 0.25% of the purchase price applies if the buyer terminates the contract during the cooling-off period. It is recommended the buyer obtain an independent property valuation and independent legal advice about the contract and his or her cooling-off rights, before signing.
Currently the disclosure is contained in a prescribed PAMD Form 30C Warning Statement which will no longer be required.
In circumstances where there is a “house and land package”, the disclosure requirements will also apply to the building contract.
Previously, a failure on the part of the seller to make the required disclosure has allowed the buyer to terminate the contract at any time up to settlement. Under the new laws, there will be no termination right, however a failure to disclose will be an offence which carries a maximum penalty of $2,200.
Currently, only a buyer’s solicitor (acting on his or her client’s instructions) could waive or shorten the cooling off period. Under the new laws, a buyer can waive or shorten the cooling off period by giving notice to the seller.
Currently, the selling agent is required to disclose the commission and other benefits. This disclosure is contained in a prescribed form, the PAMD Form 27C. Once the Act is proclaimed, the selling agent will no longer be required to disclose the commission however the requirement to disclose other benefits received will continue to apply. The disclosure of other benefits must be given in the prescribed form before the contract is entered into, and the form must be signed by the buyer.
The cap on selling agents’ commissions will no longer apply under the new laws.
Sales by auction were previously exempt from the disclosure requirements in PAMDA, and no cooling off period applied. Under the new laws, where a property is passed in at auction, the disclosure and cooling off period exemptions will continue to apply for a period of 2 business days after the auction.
The seller or the selling agent will no longer be required to direct the buyer’s attention to the warning statement before the buyer signs.
All things considered, the new laws make contract exchange less complex and more certain. This is good news for sellers and agents. The buyer protection under PAMDA has been diminished – the old adage Buyer Beware is as relevant as ever. Parties to real estate contracts should always consult with their solicitors before entering into contracts.
You should obtain formal advice from Argon Law before acting on any of the matters raised above. This is not intended to be legal advice and this does not take account of your particular circumstances.