Real Estate conveyancing practice has evolved in NSW, with PEXA used for electronic settlements, 5% deposits and delayed settlements common for auctions, personal guarantees required for corporate purchasers, continuing issues with building defects, restrictions on tree removals, absence of finance clauses and ATO tax clearances.
This is an overview of the current trends:
Property settlements have moved to an electronic conveyancing platform.
A company called PEXA, which is owned by Macquarie Group, the big four banks, the NSW, Victorian, WA and Queensland governments and others, is the leading e conveyancing settlements platform used in Australia.
A settlement is when the title to the property is transferred in exchange for payment of the price.
Gone are the days when settlement clerks would head for settlement clutching bank cheques, Certificates of Title, Transfers, Mortgages and Discharges of Mortgage to meet up in a settlement room where often 20 other settlements were taking place simultaneously. And after settlement took place, those with bank cheques from property sales would head to the bank to deposit those cheques, which could be for hundreds of thousands or even millions of dollars, while others would head to the Land Titles Office to register the transfers of title, mortgages and discharges of mortgage.
These days, settlements take place electronically on the PEXA platform, accessible from your desk. What happens is that a PEXA workspace is opened, invitations are sent to each party in the transaction, a settlement time is nominated and accepted by all parties. Once loan documentation has been certified by the incoming bank they input the source funds available one settlement, the purchaser’s solicitor/conveyancer will input their client’s source funds available (if required), the vendor’s solicitor / conveyancer will input the destinations for payment and the discharging bank will input the amount required to pay out the loan and provide a CoRD consent for the release of the title to the property. The ready buttons light up.
When the settlement time arrives, the settlement takes place in real time on the screen. The settling button lights up on the screen (see image). PEXA locks in the funds and locks the title to the property for the 15 or so minutes that it takes for the settlement to take place. When the disbursing button lights up on the screen, the funds are automatically deposited into the nominated bank accounts. Finally, the settled button lights up which means that the funds have been disbursed and the title has been transferred into the name of the purchaser. In NSW, a few days later, a new Certificate of Title issues.
It is common for purchasers to ask pre-auction that a 5% deposit be payable and for the settlement period to be extended from the standard 42 days to 60 or even 90 days.
If the deposit of 5% of the price is agreed, the Contract will contain a clause that the other 5% deposit will be payable on settlement or on default under the Contract.
There have been a number of law suits for recovery of the unpaid 5% in circumstances where the Contract has been terminated because of the purchaser’s default. The Court usually orders the defaulting purchaser to pay the unpaid 5% deposit.
Until recently, only off-the-plan sales Contracts contained personal guarantees: if the purchaser was a company. Personal guarantees are given by the directors of the company, to guarantee that the balance price payable will be paid when the Contract settled.
Nowadays, it is common for standard Contracts to contain a personal guarantee where a company is the purchaser. This means that for standard Contracts, it is essential to have unconditional loan approval in place when signing the Contract because the personal guarantee is to pay the price.
New Residential Buildings up to 3 storeys high are covered by Home Building Compensation Insurance for a limited time. This insurance is taken out by the builder before they start building. The cover provided is 6 years for major defective works (structural) and 2 years for other defective work, from the date of completion of the work. The cover extends to purchasers.
As a practical matter, purchasers of homes less than 6 years old need a building inspection report to check for building defects. Purchasers of home units need a strata inspection report to check for records of building quotes and expenditures for repairs.
If the home unit is in a high rise block with cladding (metal panels which sandwich a polyethylene core) exercise caution because the cost of replacing the panels will be high and will be paid by the owners. Similarly, if there are cracks in the basement because it usually indicates that the building is subsiding.
Do not assume that a tree (a tree is 5 metres or more high) can be easily removed. If it is on your land, a Council Permit is needed. A permit will be given if the tree is dead or dying, if it is a noxious tree (such as a willow, a coral tree, cocos palm) or if it is less than 3 metres away from and is damaging the house or other structure. If the tree is on a neighbour’s land, the same applies. Even if the neighbour agrees to the tree removal, a Council Permit is needed.
In NSW Contracts are not subject to finance, unlike in Queensland and Victoria where Contracts often contain a subject to finance clause. This means that unconditional finance approval is necessary when signing a purchase Contract in NSW.
The only exception is if the Contract is signed at a real estate agent’s office with a cooling off period. This means there are 5 business days in which to terminate the Contract (and forfeit the cooling off deposit paid of 0.25% of the price). This right to terminate (rescind) is not available if the property is sold at auction.
If a property is sold for $750,000 or more, the vendor will need to obtain a Foreign Resident Capital Gains Withholding Certificate from the Australian Taxation Office. The Certificate is issued provided that the vendor has lodged a tax return within the past 2 years. The Certificate can be obtained before or during the sale process and must be provided to the Purchaser prior to completion. The Certificate is valid for 12 months from the date of issue.