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Leverage Academy | CPD Sales: Bailey Compton “A Guide to Successful Contracts”

Welcome to Leverage Academy!

CONTINUING PROFESSIONAL DEVELOPMENT UNDER SECTION 15 OF THE PROPERTY, STOCK AND BUSINESS

AGENTS ACT 2002

Welcome to the Continuing Professional Development program “Bailey Compton and the Contracts

Factory: A Guide to Successful Contracts”. This program is devised to give real estate agents the skills to

make, break and negotiate contracts.

Leverage has been dealing with real estate agents for the past 20 years. It has never been as complex as

today to negotiate and close contracts. The laws are complex and are a maze that even an experienced

solicitor finds difficulty navigating.

Real estate agents are at the forefront of negotiations over the terms of the contract. Due to the agent’s

power to exchange contracts, agents provide the framework for creating the legal relationship between

vendors and purchasers.

Leverage felt it was time to create a program that gave real estate agents a chance to deal with solicitors

and licensed conveyancers on an equal basis. The course will cover:

What is a contract?

What voids a contract?

Oral and written contracts

The laws in relation to contracts

How to complete a contract?

Amending the contract

Strategies for safe contract negotiations

Successful participants will receive 12 points of continuing professional development.

We hope you enjoy this program and find yourself in a position of equality with the other professionals.

Bailey Compton Chief Executive Officer


Contracts and People

Contracts are often placed on too high a pedestal. It is a myth that contracts cause good behavior. The

best that can be said for a written contract is that it sets the rules which will be followed by ethical people.

In truth, a contract is purely a document that evidences a bargain between parties. It can be used as

evidence in a court to prove your case. Even then, courts have power to read such contracts down.

It is important that contracts are negotiated to avoid dispute not in case of dispute. If a dispute occurs,

there is no avenue other than court to enforce a contract. This is costly, uncertain and usually unsatisfying.

When approaching negotiation, a contract should be clear, certain, consistent and comprehensive.

No one can expect a person to comply with a contract if they do not understand it, if they cannot read

it or it does not cover everything.

People are what contracts are about. In relation to a contract of sale, you have vendors and purchasers.

Each person will have a different personality, different dynamics in the relationship and will have differing

objectives.

The first issue in negotiating a contract or even in explaining a contract is determined by a person’s

personality.

On the next page, there is a DISC questionnaire. There are many psychometric questionnaires. However,

this one page questionnaire is short and effective in determining personality characteristics.

For those in a workshop, complete the questionnaire for yourself. The questions should be answered

immediately. If you need to think, don’t tick the question. It only works with spontaneous responses.

Behind the questionnaire is an explanation of each of the personality types, which you may wish to review

after answering the questionnaire.


Behavioural Style Questionnaire Gives priority to detail and organisation

Sets exacting standards

Approaches tasks and people with

steadiness

Enjoys research and analysis

Prefers operating within guidelines

Completes tasks thoroughly

Focuses attention on immediate task

Likes accuracy

Makes decisions on thorough basis

Values standard procedures highly

Approaches work systematically

Likes to plan for change

Total:

…..

…..

….

…..

…..

…..

…..

…..

…..

…..

…..

…..

…..

___

Gives priority to achieving results

Seeks challenges

Approaches tasks and people with clear goals

Is willing to confront

Makes decisions easily

Is keen to progress

Feels a sense of urgency

Acts with authority

Likes to take the lead

Enjoys solving problems

Questions the status quo

Takes action to bring about change

Total:

…..

…..

…..

…..

…..

…..

…..

…..

…..

…..

…..

…..

___

Gives priority to supporting others

Enjoys assisting others

Approaches people and tasks with quiet and caution

Has difficulty saying no

Values co-operation over competition

Eager to get on with others

Willing to show loyalty

Calms excited people

Listens well/ attentively

Prefers others to take the lead

Gives priority to secure relationships and

arrangements

Prefers steady not sudden change

Total:

…..

…..

…..

…..

…..

…..

…..

…..

…..

…..

…..

…..

___

___

Gives priority to creating a friendly environment

Likes an informal style

Approaches people and tasks with energy

Emphasises enjoying oneself

Rates creativity highly

Prefers broad approach to details

Likes participating in groups

Creates a motivational environment

Acts on impulse

Willing to express feelings

Enjoys discussing possibilities

Keen to promote change

Total:

…..

.....

…..

…..

…..

…..

…..

…..

…..

…..

…..

…..

___

___


DISC Model

People have a variety of preferred and habitual ways of behaving and responding, depending on the context. When

communication is difficult, it can be helpful to tailor your approach to suit the preferences and habits of others.

Within any behavioural style, people can be both skilled at getting the job done and getting along with others.

Once aware of areas needing improvement, people can often develop new skills, to increase the flexibility of their

behavioural repertoire.

The DISC Model was initiated by William Moulton Marston PhD (1893-1947) and expanded upon by Dr John Geier for Performax, now Inscape Publishing, Inc. as part of their Personal Profile System. For more information on questionnaires and courses contact Inscape or the Australian Distributor Integro Learning Company P/L, PO

Box 6120, French’s Forest DC NSW 2086 Australia.

Introverted Extroverted

Task

ori

enta

ted

CONSCIENTIOUS

DIRECT

Task Orien

tated

Behaviours

Reserved

Approaches work

systematically

Pays attention to details

Focuses attention

on immediate task

Prefers to stack to

established guidelines &

practices

Likes to plan for change

Needs

High standards

Appreciation

Quality work

Fears

Criticism of work

Imperfection

Not having things

adequately explained

Behaviours

Outgoing

Challenges status quo

Keen to get things done

Resists authority

Likes to take the lead

Takes action to bring

about change

Needs

Results

Recognition

Challenges

Fears

Challenges to their

authority

Lack of results from

others

Peo

ple

Ori

enta

ted

STABILISING

INFLUENCING

Peo

ple O

rientated

Behaviours

Reserved

Works well in a team

Accommodates others

Maintains status quo

Recovers slowly from

hurt

Prefers steady not

sudden change

Needs

Security

Acceptance

Teamwork

Fears

Isolation

Standing out as better

or worse

Unplanned challenges

Behaviours

Outgoing

Leads by enthusing

others

Prefers a global

approach

Steers away from details

Acts on impulse

Keen to promote change

Needs

Change

Acknowledgement

New trends and ideas

Fears

Disapproval

Stagnation

Detailed work

Introverted Extroverted


What About Them?

The exercise of completing the behavioural questionnaire is about you. Although understanding how you behave is important, it is not the paramount consideration when you are the conduit to an agreement. As an agent, you will be responsible for:

- Completing the contract; - Negotiating terms of that contract; and - Providing sufficient information from the contract to assist purchasers to make an informed

decision. The extent of your involvement should be determined by the parties to the agreement. In short, you need to gauge how involved you become in the negotiation and how much information you need to provide to assist a decision. This will depend on their personality. The preparation for a contract negotiation occurs well before it starts. The information you acquire, the rapport you build and your knowledge leading up to the negotiations will often determine your effectiveness. You should set five goals when meeting and working with vendors and purchasers:

1 Find the fox – More than any other negotiation that you may experience, you are dealing with a dynamic that involves two people in a relationship. Successful identification of the fox, the decision maker, is paramount. You need to give the information needed and deal with the fox, not the mouth piece. Remember, sometimes the fox is not in the meeting. Success is determined by finding them and getting them on the inside.

2 Procure information – Through conversations you have with the key parties, find out as much detail as you can. Careers, interests, hobbies, faith, schooling, family and local environment often help to assist. Careers and education influence our thinking. Often, certain character types enter certain industries.

3 Objective – People do things for reasons. Identify the fox’s objective in selling or purchasing

a house. More importantly, identify why they have this objective.

4 Rapport – Build rapport. No-one buys through a person they have no rapport with.

5 Advertise – Make certain you give people a reason, after they meet you, to advertise your greatest features. Those outside your influence must never hear or develop doubts about you.

Activity One

Using the DISC model complete the table below:


Highest Attribute: Compliance

Career Suggestion: Engineer

Characteristics:

• Are usually peaceful and adaptable.

• Tend not to be aggressive.

• Tend to be cautious rather than impulsive.

• Avoid risk-taking.

• Act in a tactful, diplomatic way and strive for a stable,

ordered life.

• Are comfortable following procedures in both their

personal and business life.

Highest Attribute: Steadiness

Career Suggestion: Nurse

Characteristics:

• Are usually patient, calm and controlled.

• Have a high willingness to help others particularly

those they consider as friends.

• Generally they have the ability to deal with the task

in hand and to do routine work with patience and care.

Highest Attribute: Influence

Career Suggestion: Salesman

Characteristics:

• Are strongly interested in meeting and being with

people.

• Aare generally optimistic, outgoing, and socially

skilled.

• Are quick at establishing relationships.

Highest Attribute: Dominance

Career Suggestion: Project Manager

Characteristics:

• Enjoy competition and challenge.

• Are goal orientated and want to be recognised for

their efforts.

• Aim high, want authority and are generally

resourceful and adaptable.

• Are usually self-sufficient and individualistic.

• May lose interest in projects once the challenge has

gone and they tend to be impatient and dissatisfied

with minor detail.


Legal Framework

There are still two distinct professionals which play in the legal process of preparing, executing and

exchanging contracts:

The legal representative; and

The agent.

Following is a very legalistic explanation of the conveyancing process. This may seem complex, however

it is vital that the material below is comprehensive so that one can acquire a complete understanding of

the laws that relate to contracts.


Contract

A contract may be oral or in writing. Provided the four corners of the contract are in existence, a contract

is formulated. It should be noted however, where there is a dispute between a written contract and oral

conditions, the written contract will prevail. S.23C of the Conveyancing Act 1919 (CA) states that the

transfer of land must be by way of writing and executed by the parties selling or purchasing that property.

Hence, a land contract can only be entered into in writing and cannot be oral.

Four Corners of a Contract

There are four corners to a contract:

Offer;

Acceptance;

Consideration; and

Intention to become legally bound.

Offer and acceptance, the first two corners of the contract, are intimately connected. As anyone can see,

for a contract to exist, somebody must be making an offer and the other person must be accepting it. In

the simplest form: to have offer and acceptance under a contract there must be a meeting of the minds.

In Latin this is called ad idem.

Ad idem, in law, means that the parties to a contract have exactly the same understanding of the content

of that contract. In other words, both parties are on the same page. A contract is void if each party’s view

of the deal differs in a substantive way. For example, a contract will be void where a purchaser has thought

that a garden shed was included in the house contract and the vendor thought that the garden shed had

been deleted.

A similar situation occurred at Leverage some time ago, where the agent showed the property without a

range hood. He never advertised it as having a range hood and all the photographs provided to the

purchaser showed no range hood. For some unknown reason, the agent determined to tick range hood

as an inclusion. At settlement, the purchasers threatened to rescind the contract because there was no

contract in existence in the beginning. That is because in the beginning, one party thought they were

getting a range hood and the other thought they weren’t getting one. The solicitor for the purchaser

argued that the range hood was fundamental to the contract and the contract was voided because there

was never a meeting of the minds. Obviously, a range hood was installed and the contract was settled.

Consideration is often referred to as valuable consideration. A contract is only valid where parties part

with something. For example: in a contract for the sale of land, the rights, titles and interests of a property


transfer from the vendor to the purchaser while money is transferred from the purchaser to the vendor.

By this means, both parties have engaged in the payment of valuable consideration.

To make any contract valid some consideration must pass hands. It is vital that agents ensure that they

take some money when exchanging a contract to ensure that the consideration has passed hands.

It is important to note what happens in relation to consideration at auction. These days we find a lot of

purchasers are paying their deposit by way of electronic funds transfer. No one knows yet, because it has

not been challenged in court, whether consideration passes upon receiving a transmission report or

whether consideration is paid when it reaches the agents account.

We prefer to take the most conservative viewpoint when determining when consideration occurs. Due to

it being absolutely vital that a contract for sale is valid on auction day, we believe the best approach is to

consider that the deposit does not reach the account until the following business day. We suggest in these

circumstances that agents take a fee, whether it is $10 or $100, to show that consideration has passed.

The intention to become legally bound is simply dealt with in relation to contracts for the sale of land.

Upon the execution of a contract, the party has demonstrated by their conduct, that they intend to

become legally bound. Thus the fourth corner has been established.

Without these four corners, a contract cannot be valid. Therefore, it is important that:

Agents insure both parties know of the deal;

The purchaser pays a consideration; and

Proper execution is effected.

Voiding the Contract

There are many ways a contract can be voided based on the conduct of parties. Nevertheless, there are

four standard means of a contract being voided from conception. This is legally referred to as void

absolutio.

1. Age The Minors (Property and Contracts) Act 1970 voids a contract where it has been executed by a

person under the age of eighteen.

2. Mental Capacity A contract is void where the person executing the contract does not know what they are signing

and the person who is facilitating the signing, knows that the signing person does not know or

ought to have known the signing person did not know.

3. Misleading and Deceptive Conduct


Section 18 of the Australian Consumer Law states that a person in trade of commerce may not

mislead or deceive or do anything that is likely to mislead or deceive. Often people misrepresent

this as fraud. It is not! A fraud is where a person has an intention to deceive another for the

purposes of a benefit. Section 18 does not require any intention to obtain a benefit or any

deception. It is simply whether something has been done to mislead or deceive a person.

In the case of York vs. Lucas (1985), the court held that even if a person is telling the truth, if they

are wrong, they have misled and deceived. This case is poignant. It simply states, if an agent makes

a statement that is wrong, they have misled and deceived.

The leading case in relation to real estate and misleading and deceptive conduct, is Butcher vs.

Lachlan Elders Pty Ltd (2005). There are two remedies for a person who has been misled:

The contract is void; and/or

The person who has been misled may seek damages.

In Butcher vs. Lachlan Elders, the High court states that to obtain the benefit of these remedies,

the court must be satisfied that:

The agents statements were wrong;

The purchaser relied on these wrong statements in purchasing the property; and

It must be reasonable for the purchaser to rely on these statements.

In Lachlan Elder’s case it was determined that the first two criteria were met, however, the third

wasn’t and the real estate agent won.

In Zhang vs. VP302 and Sydney Advanced Realty (2006), the Supreme Court adopted the Butcher

vs. Lachlan Elders test. Although it was accepted that the statements were wrong and the

purchaser relied on them, the main examination was whether it was “reasonable for the

purchaser to rely on the real estate agent’s statement”. The Supreme Court NSW stated clearly

that it is “reasonable” for a “purchaser” to rely on the statements of a “real estate agent”.

The Zhang case is important because it indicates that statements made by real estate agents

would be taken as reliable for the purposes of misleading and deceptive conduct. It places a low

burden on purchasers against agents. If an agent is wrong, the purchaser will always be accepted

as relying on that statement. Now, after Zhang’s case, the courts must accept that the statements

of a real estate agent are reasonable.

In Butcher’s challenge, Lachlan Elders Pty trading as LJ Hooker Mona Vale was saved by

statements on all of their written documents:


“This information is gathered from trusted sources. We do not guarantee this information and you

should undertake your own investigation before proceeding.”

The High Court stated that, if this sort of caption follows any statement, it is not reasonable for

any purchaser to rely on it. In Zhang’s case, the statements they made did not provide any

guarantee or any warning to investigate. The fact that the agency did not warrant the information

and suggested further investigation, was enough to free them from liability.

4. Unconscionability

Under Section 21 of the Australian Consumer Law, a contract may be terminated where a person

in trade or commerce has engaged in unconscionable conduct. Unconscionable conduct was

defined in a case of the Australian Competition and Consumer Commission vs. Lux (2014), High

Court. In this case they provided that “unconscionability” under the Australian Consumer Law is

the antonym to fair and just conduct. In other words, if a person has acted unfairly or unjustly,

they have acted unconscionably.


Activity Two

Agro, the agent from Agapantha City, was engaged to sell a piece of land. Agro, when advertising the

Agapantha land, advertised that the land was perfect for eight townhouses.

The auction was duly held and Dreamy Investment Pty Ltd purchased the property. After the auction,

someone advised the director of Dreamy that the property could not be developed for eight townhouses

as there was no access from the main road. After looking at the zoning certificate, it was ascertained by

the director of Dreamy that the property was subject to road widening. Further investigation showed that

the RMS had the rights to widen the road and no access could be given from the main road onto the

property.

The director of Dreamy refused to sign the contract even though they were the victors at the auction. The

Director attempted to leave the auction and was confronted by Agro’s loyal assistant, Xena. Xena locked

the door so the director could not escape. The director and Agro were then found rolling around the floor

holding each other in a UFC-like headlock, similar to the scene of James Packer and David Gyngell.

The director surrendered by executing the contract and leaving. Although Agro’s behavior was poor, Agro

and Xena were advised that they would have been safe because the auctioneer could have signed the

contract on their behalf anyway.

What grounds does Dreamy have to void the contract? Will he be successful?


Statutory Requirements

Who can prepare a contract?

Throughout Australia, Australian legal practitioners can prepare a contract. An Australian legal

practitioner is a solicitor or a barrister. The legal profession has uniform legislation, which permits

solicitors from one state to do conveyancing in another state.

In various states around Australia, the monopoly given to lawyers is broken as other persons are exempt

and can conduct the work. This is primarily in the area of conveyancing. The following persons can do

conveyancing:

A licensed conveyancer in New South Wales;

A licensed conveyancer in Victoria;

A land broker in South Australia; and

A settlement agent in Western Australia.

Therefore, the only two entities that can prepare a contract of sale are:

A solicitor; or

A conveyancer.

What must be included in a contract?

As noted previously, all contracts of sale for land must be in writing (S.23C of CA). It is standard in New

South Wales that all contracts are prepared in a standard format. Even though there is no law provided

that solicitors and conveyancers must follow the standard format, convention compels solicitors and

conveyancers to follow this model.

There are three standard documents, which can be contained at the front of all contracts:

The particulars page;

General terms and conditions – these are commonly referred to as the green pages and are the

standard conditions which apply to all contracts; and

Special conditions.

The front cover of the contract is the one that gets completed at exchange. It contains a number of issues,

which we will discuss later in this booklet.

The solicitor drafts the special conditions. They are specific to that transaction and, in many cases, bear

no benefit to an estate agent.


S.52(2) states that all contracts must contain a number of documents. Failure to attach these documents

means that the contract is void ab intio. These documents are set out in Schedule 3 Sale of Land

Regulation 2003 and can be summarized as follows:

Section 149 certificate;

A diagram from the sewerage authority;

A deposit plan or strata plan (if off the plan, a proposed plan);

Copies of all instruments and dealings lodged with the title, easements, covenants etc.;

Bylaws or community association rules; and

Any strata management statement.

There are other documents that are required to be attached, those include:

Certificate of title;

Compliance/Non compliance certificate; and

Any leases.

Unless the property falls within the Property, Stock and Business Agent’s Act 2002 (PSBAA), a contract

only needs to be prepared prior to the execution by the purchaser. For example, development properties,

commercial properties, rural properties that exceed 2.5 acres, do not have to have the contract prepared

before marketing. The purchaser need only form the contracts prior to execution.

The requirement for contracts to be prepared prior to marketing

It all starts at the agency agreement stage. Section 55(1) of the PSBAA states that an agent is not entitled

to their commission unless:

a. The agency agreement is in writing;

b. It is signed by on and behalf of the licensee and the principal;

c. A copy is served on the principal, 48 hours after they sign it; and

d. The agency agreement complies with the regulations.

This is not a program on signing agency agreements. Nevertheless, there are some habits that need to be

manifested if a file is to be kept in a compliant and safe manner.

The major habit we wish to engender is the art of using checklists.

There are two primary rules to successful checklist management;

1. Have one; and

2. Select a person within your office who has OCD and will be disciplined enough to use the checklist.


There is no use having a checklist if you don’t use it.

Fraud Guidelines

In the middle of last year, the Office of Fair Trading introduced a real estate fraud guideline. This was not

advertised widely to the world, but Leverage has seen it utilised as a means of fining real estate agents.

The copy of the fraud guidelines is attached to the back of this booklet.

In short, the agent’s obligation is to ensure they have identified the principal. The requirements are as

follows:

1. Photographic identification such as a licence or passport;

2. If they are a director of a corporation executing on behalf of a corporation, photographic

identification, passport and/or a business card;

3. If they are executing an agency agreement as a power of attorney, photographic identification as

set out in 1 and 2 above and the original or certified copy of the power of attorney.


Agency Agreement Checklist

Property: _____________________________________________________________________________

Physical inspection of property

Verification of estimated selling price

Verification of Identification

Principals’ name AND Address

Price to be offered

Agents’ details

Accuracy of commission and fees

All areas executed

Cooling off execution

Property Served on Principal

Principals’ execution

Dated

Checklist can take a number of forms. Some people like to present them as questions and others like to have them as headings as

we have attached. There is no magical methodology, except to say that it should be restricted, leaving nothing to chance.

Just remember that the case law is so stringent against the agent, it is not worth taking a risk. One mistake could cost the agent a

commission whilst only a perfect agency will survive.


Receipt of contract

Section 62-64 sets out the obligations and rights of an agent in relation to contracts for the sale of land.

See below:

EXCERPT FROM PSBAA

PROPERTY, STOCK AND BUSINESS AGENTS ACT 2002 - SECT 62

No contracting out

62 No contracting out

A provision of an agency agreement or any other agreement or arrangement is void to the extent

that it would (but for this section) have the effect of excluding, modifying or restricting the

operation of this Division.


Proposed contract for sale of residential property

63 Proposed contract for sale of residential property

(1) In this section:

"purchaser" includes a grantee of an option.

(2) A real estate agent must not offer residential property for sale unless the required

documents are all available for inspection at the real estate agent’s registered office by a

prospective purchaser or agent for a prospective purchaser at all times at which an offer to

purchase the property may be made (or at such other place or at such other times as may be

prescribed by the regulations).

(3) A real estate agent is considered to offer residential property for sale when the agent,

expressly or by implication:

(a) indicates that residential property is for sale or is to be auctioned at any future time, or

(b) offers to sell residential property, or

(c) invites an offer to purchase residential property, or

http://www.austlii.edu.au/au/legis/nsw/consol_act/psabaa2002385/s72.html#agency_agreement

http://www.austlii.edu.au/au/legis/nsw/consol_act/psabaa2002385/s3.html#residential_property

http://www.austlii.edu.au/au/legis/nsw/consol_act/psabaa2002385/s3.html#real_estate_agent


http://www.austlii.edu.au/au/legis/nsw/consol_act/psabaa2002385/s63.html#required_documents

http://www.austlii.edu.au/au/legis/nsw/consol_act/psabaa2002385/s63.html#required_documents


http://www.austlii.edu.au/au/legis/nsw/consol_act/psabaa2002385/s63.html#purchaser

http://www.austlii.edu.au/au/legis/nsw/consol_act/psabaa2002385/s3.html#agent




http://www.austlii.edu.au/au/legis/nsw/consol_act/psabaa2002385/s3.html#agent


http://www.austlii.edu.au/au/legis/nsw/consol_act/psabaa2002385/s3.html#auction




(d) indicates that a person may be willing to grant an option to purchase residential property.

(4) The

"required documents" for the purposes of this section are:

(a) a copy of the proposed contract for the sale of the property (excluding particulars of

the purchaser and purchase price), and

(b) the documents required by section 52A of the Conveyancing Act 1919 to be attached to the

contract before signature by the purchaser, and

(c) in the case of an option to purchase residential property-a copy of the proposed option

document (excluding particulars of the purchaser and consideration for the option).

(5) Without limiting this section, a real estate agent is taken to indicate that residential

property is for sale if the real estate agent does any of the following or causes or permits any of

the following to be done:

(a) advertises or promotes the property in any way that, in the circumstances, may reasonably be

taken to indicate that the property is or may be for sale,

(b) places a sign on or near the property that, in the circumstances, may reasonably be taken to

indicate that the property is or may be for sale,

(c) advertises or in any way gives notice that the property is to be auctioned at any future time,

(d) places on display particulars or a description of, or a photograph, drawing or other

representation of, the property in or on any premises, vehicle or place where the real estate

agent conducts business as a real estate agent,

(e) shows the property to a prospective purchaser or gives the address of the property to a

prospective purchaser.

(6) This section does not apply to anything done by a real estate agent when acting on behalf of a

prospective purchaser of residential property.

(7) The regulations may create exceptions to this section.

Maximum penalty: 100 penalty units.


Contracts for sale of residential property



http://www.austlii.edu.au/au/legis/nsw/consol_act/ca1919141/








http://www.austlii.edu.au/au/legis/nsw/consol_act/psabaa2002385/s3.html#auction










64 Contracts for sale of residential property

(1) A real estate agent may do any of the following:

(a) fill up a proposed contract for the sale of residential property, by inserting details of the

purchaser’s name, address and description, the name and address of the practitioner acting for the

purchaser, the purchase price and the date,

(b) insert in or delete from a contract for the sale of residential property any description of any

furnishings or chattels to be included in the sale of the property,

(c) participate in the exchange or making of contracts for the sale of residential property.

(2) If a prospective party to a proposed contract for the sale of residential property for whom

a real estate agent acts in relation to the exchange or making of the contract notifies the real

estate agent, or it is apparent from the proposed contract, that an Australian legal practitioner is

or will be acting for the party, the real estate agent may not participate in the exchange or making

of the contract unless expressly authorised to do so by the party or the Australian legal

practitioner. A contract is not invalid merely because of the failure of a real estate agent to

comply with this subsection.

(3) A real estate agent who exercises any function pursuant to this section on behalf of any

person who is a party or a prospective party to any contract or proposed contract is liable to

compensate that person for any loss, damage or expense suffered or incurred by that person as a

result of any negligent act or omission, or any unauthorised action, of the real estate agent in the

exercise of that function.

(4) A real estate agent may not charge a fee for anything authorised to be done under this section.

(5) This section does not affect the existence or nature of any other functions or responsibilities

of licensees that exist or may exist apart from this section.

(6) In this section:

"Australian legal practitioner" includes a licensee under the Conveyancers Licensing

Act 2003 .

END OF EXCERPT

There are two simple requirements of these sections;










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An agent must have a copy of the contract in his or her office prior to showing or marketing a

property; and

Agents are permitted to exchange contracts.

Receiving a copy of the contract.

The PSBAA requires that a complete copy of the contract be in the agent’s office before it is executed. If

the agent is a conjunction agent, this law does not prevail. Nevertheless, the head agent is always required

to have a complete copy of the contract for sale of land.

Remember agents now form part of the legal practice of making a contract! Section 64 allows the agent

to enter into the legal realm and act as if they are a solicitor or licensed conveyancer!

An agent is not a solicitor and is not permitted to provide legal advice. Nevertheless, like the Office of Fair

Trading, an agent is free to provide information, which is relevant on the contract. Considering the

requirements of Section 52 of the PSBAA (material fact) there is an obligation for you to disclose material

issues to a purchaser if they are executing a contract. This is especially important when you are exchanging

contracts at an auction.

There are important issues to do when we receive a contract:

1. Number the pages:

In the present day, most people receive copies of contracts via email. These are printed out and

used for execution whether by private treaty or at auction. Put a page number on every page from

the front cover to the back cover, being careful to ensure that you do not miss the double-sided

pages. This is to ensure that when you print out copies, you always have an easy check to ensure

that you have printed a full copy. Most importantly, if the solicitor has missed a dealing on the

contract, you will be protected from liability.

2. Check the contract:

You should always check the front cover to ensure the names of the purchaser replicate what you

have on your agency agreement. You are acting for the owners, and you need to ensure that the

owners are correctly identified. Don’t expect your vendor’s to know who owns the property in

this day and age. Check the solicitor’s detail and note it in your CRM. They become your legal

partner in the sales process. Check that your details are correct. Check the inclusions and

exclusions. If they are not completed, ring the solicitor and reach an agreement on what is to be

included in those boxes. These are often up to the negotiations but usually are the catalyst to

problems at settlement.

3. Subject to tenancy:


Always check the particulars pages to ensure whether the box is ticked “vacant possession” or

“subject to leasing”. This is important for a number of reasons:

a. If it is subject to leasing, you need a copy of the lease attached to the contract of sale. Always

ensure that the lease is attached because you do not have a full contract unless the lease is

attached. Remember that a lease also includes a residential tenancies agreement!

b. If it is vacant possession and you also have the management, you will need to ensure that the

tenant is properly terminated to ensure that the contract is facilitated.

4. Special Conditions:

Special conditions are the job of the solicitor in the cooling off period until exchange. An agent

should only be interested in if there are any disclosures. If there is a disclosure as to an instruction

not being approved, it should be noted for the purposes of representation to the purchasers.

Further, if there is no disclosure and an agent is aware that something has not been built with

approval, such a disclosure may be relevant.

5. Title search:

Check the title search to ensure that the party mentioned on the title search is the same as on the

front cover.

6. 149 Certificate:

A 149 certificate has a lot of facts, which are totally irrelevant to a purchaser. Nevertheless, it is

worth knowing the zoning of the property and understanding what that zoning allows a person to

build. Misunderstanding of the zoning may cause unwitting agents to advertise incorrectly.

7. Plan:

Check the plan for one thing – finding the lot. Find the lot so you know how large the property is.

Market so that you can show the purchaser what property they are buying.

8. Attachments:

Ensure that all attachments are affixed to the contract.


Contract Checklist

Property:_____________________________________________________________________________

Contract printed and numbered

Vendor’s details correct

Solicitor’s details correct

Agent’s details correct

Inclusions

Exclusions

Leave space for the disclosure to be put in

Certificate of title correct

Square meterage correct

Zoning of property

Sewerage diagram attached

(In case of swimming pool) Compliance cert/non-compliance cert attached

(If Strata) By-laws attached


Inclusions and Exclusions

Inclusions and exclusions relate to:

Fixtures; and

Fittings.

An inclusion is a fitting.

An exclusion is a fixture.

Why is this important?

Fixtures are an attachment to the land, which form part of any land contract. If something is a fixture it

cannot be removed from the land without altering the structure of the building. These do not need to be

included in the contract of sale. Alternatively, if a vendor wants to take a particular fixture, it needs to be

placed in the exclusions column on the contract.

Most often we deal with the “inclusions”. These are fittings, which can be removed without structural

alteration. The general ones are set out on the front cover of the contract and can be readily seen as

inclusions.

On the next page, a front cover of a contract is provided for reference. As you will see, the inclusions are

some things that can be taken away by anyone with a decent spanner.

It is important to get the inclusions right when completing a contract so that nothing is taken away by the

vendor that the purchaser wants.


Exchanging Contracts

Section 64 states that an agent is entitled to exchange a contract. Exchange is something that is not

legislated. Rules have been set out by convention and have been described by various cases. Practices

followed at law have been developed for 200 years. Therefore, we need to operate our exchange

processes in accordance with the common law.

Authority to exchange

The powers under section 64 cannot be exercised unless both the vendor and the purchaser authorize the

exchange. Section 64(2) of the PSBAA is absolutely clear that exchange can only occur if the authority is

in written form. It does not set out a written form. We have provided a template for you below:

Vendor’s Authority to exchange

I (vendor name #1) and (vendor name #2), the owners of (insert address), authorise the agent to date and

exchange the sale and purchase of land contract for this property.

I acknowledge executing this contract and understand that I am now bound to the terms of the contract

for the sale of the property.

I acknowledge receiving a copy of this contract executed by the purchaser and authorise my agent to

deliver a copy of this to my solicitor.

Signed by __________________________________________________

Purchaser’s Authority to exchange

I (purchaser name #1) and (purchaser name #2), the purchasers of (insert property), authorise the agent

to date and exchange the sale and purchase of land contract for this property.

I acknowledge executing this contract and understand that I am now bound to the terms of the contract

for the purchase of the property and that I may lose 10% of the purchase price if I do not complete the

contract.

I acknowledge receiving a copy of this contract executed by the vendor and authorise my agent to deliver

a copy of this to my solicitor.

I verify that I have paid the deposit under the contract on the day that this contract was executed.

Signed by __________________________________________________


Agent’s Role

Section 64(3) is absolutely clear in relation to what an agent can do. An agent can only complete the

following details of the contract:

Purchaser’s names;

Solicitor’s details;

Price; and

Inclusions.

The agent is not permitted to alter the contract in any other way. That is the responsibility of the solicitor

or licensed conveyancer.

This absolute statement above creates problems for the agents at auctions. It has become common

practice that agents can alter special conditions if both vendor and purchaser agree. The following

suggestions are made to protect the contract and the agent:

On your authority to exchange, have both vendor and purchaser agree to the alterations;

If you alter an existing condition, have the parties initial the alteration; and

Where you draft another clause for the purposes of the exchange, both parties should initial that

clause separately.

Solicitors and licensed conveyancers have been accustomed to these changes in the metropolitan centres.

Nevertheless, it has never been challenged at law and vigilance needs to be taken to protect the contract

that an agent has diligently exchanged.


Exchanging the contract

Private Treaty

The risks associated with exchanging contracts under private treaty are not as burdensome as if they were

exchanged under an auction process. In fact, the right of an agent to exchange was not made for the

purpose of an auction but was undertaken for the purpose of a private treaty.

From 1988-1990, the growth in property prices created the practice of gazumping. At the time, solicitors

would exchange all contracts. Agents issued sales advices to solicitors, solicitors would negotiate the

contract and it would be exchanged between solicitors. This could take anything up to six weeks.

What then happened was that agents would issue sales advice to solicitors and whilst the solicitors were

negotiating, new purchasers would come and offer a greater price. The purchaser’s solicitor would issue

a new contract to the higher purchaser who would rush to buy the property and thereby cut the first

buyer out of the process. By the middle of 1990 it reached a fever pitch where this could happen a number

of times on one property before somebody executed the contract.

The government decided to step in and stop the process of gazumping. They wanted to give the first buyer

an opportunity to take the property off the market if the vendor agreed on a price. To do this, agents

would be allowed to exchange, purchasers would be given a cooling off period to obtain legal advice,

finance and undertake due diligence, and the purchaser would be allowed to rescind if they did not wish

to proceed. To compensate the vendor, the vendor would be paid 0.25 percent of the purchase price.

As a practice to defend a vendor, agents have now adopted a practice at private treaty to take this 0.25

percent of the purchase price. There is no legal requirement to take 0.25 percent. Any amount of money

could be legally taken at the exchange stage. All parties have taken a sensible approach to the property

process by taking the 0.25 percent that is released to the vendor if the purchaser rescinds.

Tips about exchange at private treaty stage:

1. Identification:

The four guidelines require that an agent check the purchaser identification. What is more

important is that the identification is checked at the exchange stage for the purposes of finance.

The purchaser’s names are always what are on their drivers licence. If there is a middle name on

the drivers licence, it must be inserted on the contract. It does not matter that a person has been

married and their last name has changed. The only way they will get finance is if the licence is

altered. In short, use the licence as identification and as a guide to how you write the names on

the front cover of a contract.

2. Disclosures:


If there are disclosures made in a contract, ensure that these are initialed by the purchaser.

3. Lot:

Find the lot on the plan and have them initial the plot. This ensures that the purchaser can never

say that they did not know what they were signing.

4. Complete contract:

Always ensure you have a complete contract. This is where the numbering of all pages will be a

benefit.

5. Date:

The contract is signed and sealed once the date is affixed to the contract. To successfully exchange

a contract, you must date it.


Auctions

This is the risk area. A contract needs to be exchanged on the auction day correctly to ensure that the

cooling off period of five days will be waived. Failure to exchange contracts correctly will relinquish the

benefits of the auction and permit a person to exchange in what would be the cooling off period.

Tips for exchanging contracts at Auctions

1. Identification of purchasers as individuals:

This is the same as above. In relation to individual purchasers, you must always ensure you check

the licence.

2. Corporation Identification:

At an auction you do not have time to check a corporation’s authority. We would suggest however

that you perform a short ASIC search on your mobile by going to asic.gov.au and seeing that the

corporation exists before you execute the contract.

3. Change of name from bidders authority:

There is no connection between the authority to bid and the authority to exchange a contract.

The authority to bid does not give a person the right to execute a contract on behalf of that

person. That can only be done by power of attorney. If a person wishes to change the entity to a

corporation, this is permissible. You can allow a person to execute on behalf of a corporation if

that corporation exists. If the person wishes to change the name from the bidders name to

another individual name, we think there are some major problems. They signed in to bid on a

particular person’s behalf and now wish to put the contract in another’s name? This seems to us

to be unlawful and could almost be considered an act of fraud, and therefore, should be rejected.

4. (Or nominee):

If a person wishes to sign a name or nominee, this will not affect the exchange. It carries a risk of

stamp duty, but this is not the agent’s problem.

5. Check the price:

Check the price is the same as the last bid at the auction. This can be done by checking the bidders

record.

6. Authority to exchange:

Ensure the authority to exchange has been executed.

Exchanging protocol

The exchanging protocol is absolutely vital. In the case of Harris v Fuseoak Pty Ltd (1995), the agent

exchanged the contract by dating it and merely handing it over in front of the purchaser and vendor, and

then congratulating them. The courts ruled that this was an ineffective exchange.


The requirement by law is that the contract is signed, sealed, exchanged and delivered. They dated it,

sealed it and exchanged it but did not deliver it. It is only delivered when the executed copy is given to

the other party by hand. In other words, the vendor must receive the purchasers signed copy and vice-

versa. If it is not received the day of the auction, and it is sent to the solicitors the day after, the delivery

does not occur until after the auction day. In Fuseoaks’ case, it was then considered an exchange as a

private treaty and not an auction. A five-day cooling off period was accepted and the purchaser was

allowed to rescind in that period of time with only losing 0.25 percent.

Auctioneer to sign

The case called Bells vs. Balls (1897), allows that an auctioneer can execute contracts on behalf of vendors and

purchasers. This is based on two implied contracts:

1. An implied contract with the vendor that if the purchase price at least equals the reserve price, the vendor

will sell.

2. An implied contract with the purchaser that if the purchaser is the highest bidder above the reserve price,

when the hammer is lowered, that purchaser must sign the contract.

Where possible, all vendors and all purchasers should execute an authority for the auctioneer to sign in these

circumstances.

Electronic Funds Transfer

The world doesn’t know the answer to this one! There is no answer whether consideration is paid under the contract

when the money is transferred from an account or whether it is received when it enters the bank account of the

recipient.

Consideration must be present for a contract to be valid. If a person pays a deposit by EFT on the day of the auction,

it will not be received into the account until at least the next day. Hence, when is consideration present? No one

knows!

It is best practiced, therefore that, if a person pays by EFT, you should take some consideration on the day of the

auction. It does not matter how much but some money needs to exchange hands. Yes, even if it is $20, you should

put it in your trust account.

By the way, a cheque is valid consideration on the day of an auction. Under the Cheque’s Act 1986, it is a negotiable

instrument just as cash. If the cheque bounces, the deposit is still considered as paid. The right of the vendor is to

sue for the amount of the cheque as a falsely uttered negotiable instrument.


Activity Three

You are purchasing the property set out in the contract attached for $1 955 000. You can choose your

entity, whether you are buying it with a partner, pick your solicitor and set out your inclusions.

We understand that the premises has a clothesline, three sheds, and aerial, dishwasher and stove.

Execute it and date it todays date.


Powers of Rescission

The Conveyancing Act 1919 provides for a number of areas in powers of rescission. I talk here about

rescission without penalty. The Conveyancing Act 1919 also sets out a number of rights for purchasers

after a contract has exchanged. We will cover a few here for your consideration.

Right to rescind in cooling off period:

Section 66S of the CA, lets the purchaser rescind the contract for no reason within five business days of

the execution of the contract. The five days start from the next business day. Business days do not include

weekends, public holidays or bank holidays.

If the purchaser rescinds within the five day cooling off period, the purchaser will forfeit 0.25 percent of

the purchase price to the vendor. Section 66S does allow for the extension of the cooling off period with

agreement from the vendor, purchaser and conveyancer. If extensions are not granted by 4:45pm on the

last day of the cooling off period, there is a practice of solicitors and conveyancers to rescind the contract

hoping that the deal can be put back together at a later date. Please note that, the rescission must be

made prior to 5pm. 5pm is too late.

The statute does not limit the amount of time to extend.

Vendors have no right of rescission.

It is worth noting that, if there is a defect with the contract, for example, a document not being attached,

the contract can be rescinded without penalty. This means that the 0.25 percent does not have to be paid

to the vendor by the purchaser.

Subject to:

There has been an emerging trend to make contracts subject to finance, pest and building, etc. If a

contract is subject to anything, it can be rescinded without penalty. This means that, the subject to voids

the cooling off period. Queensland is a clear example where they have a cooling off period but is subject

to a three-week period to obtain finance. This means that, all the purchaser has to do within the three-

week period is to say they can’t get finance. There is no requirement for them to provide evidence of a

refusal of finance. Even if there were, some broker would provide evidence that they could not obtain

finance. This is confusing and should be avoided at most costs, unless there is an agreement to waive the

cooling off period with a 66W from day one.


Failure to have building certificates:

The Conveyancing (Sale of Land) Regulations 2010 provides in clause 8 that there are a number of implied

terms in contracts. An implied term is one that exists even if it is not written in the contract. One of these

implied terms is the failure to have certificates that should be issued by the council. Therefore, it is an

implied condition that all structures must be properly approved. This is not approved as being built, but

certified as being build compliantly.

Clause 16 states that a purchaser can rescind the contract without penalty if no certificate of compliance

has been issued. There are three exemptions to this power of rescission:

1. If the purchaser knew of it;

2. If the non-compliance was disclosed within the contract; and

3. A later certificate was obtained prior to completion.

The first exemption is very difficult to prove unless it is in writing. It is always best practice to ensure that

non-approved structures are disclosed within the contract of sale. By disclosing them, this power does not

exist.

If it is found out after exchange, any purchaser can obtain a Section 149D certificate, a posthumous

approval, which voids this problem. It is costly and time-consuming and should be avoided. Nevertheless,

if your vendor has failed to disclose, they will need to get the 149D certificate to get the property settled.

Damage to Property

Section 66L of the Conveyancing Act permits a purchaser to rescind a contract a contract when it has been

substantially damaged after exchange. The concept of substantially damaged is difficult to prove. Two

cases are relevant of mention:

1. Urban House v Purnell Bros [2007] NSWSC 1248 (9 November 2007)

1 On 25 August 2004, contracts were exchanged for the purchase by the plaintiffs, Urban House Pty Ltd

and SCN Holdings Pty Ltd, of a block of land in Bankstown, New South Wales, from the defendant,

Purnell Bros Pty Ltd.

2 The land had been used as a used car sale yard and, previously, as a service station. There was an

extensive concrete hardstand area on the land together with a brick and metal building containing several

offices and amenities.

3 Settlement of the contract had been extended and was finally due to take place on 26 September 2005.

But on 22 September 2005, the building was damaged by fire and the solicitors for Urban House and SCN


gave notice of rescission of the contract relying upon the Conveyancing Act 1919, s 66L. On 31

October 2005, the solicitors for Purnell gave notice of termination for failure to complete the contract.

The Conveyancing Act 1919, s 66L enables a purchaser to rescind a contract for sale of land if the

land is substantially damaged between contract and settlement. It is in the following terms:

“(1) Where land is substantially damaged after the making of a contract for the sale of the land and before

the risk in respect of the damage passes to the purchaser, the purchaser may rescind the contract by notice

in writing served on the vendor before the completion of the sale and -

(a) within 28 days after the purchaser first became aware of the damage; or

(b) within such longer period as may be agreed to by the vendor and purchaser.

(2) A notice under subsection (1) which is served -

(a) by a solicitor or an agent acting for the purchaser; or

(b) on a solicitor or an agent acting for the vendor,

shall be deemed to have been served by the purchaser or on the vendor, as the case may be.

(3) A notice under subsection (1) may be served -

(a) in any manner prescribed by section 170; or

(b) in any manner prescribed by the contract to which it relates for the service of notices under that

contract.

(4) Where the purchaser rescinds a contract for the sale of land pursuant to the right conferred by

subsection (1) -

(a) all money paid by the purchaser under the contract shall be repaid to the purchaser; and

(b) the vendor and purchaser shall be relieved from all liability under the contract, except a liability

arising out of a breach of any term or condition contained or implied in the contract occurring before the

date of rescission.

(5) Subsection (4) does not affect any provision in a contract relating to an adjustment between the vendor

and purchaser where the purchaser has received the benefit of possession of the land.

(6) A purchaser is not entitled to exercise the right conferred by subsection (1) if the damage was caused

by a willful or negligent act or omission on the part of the purchaser.”

8 The Conveyancing Act 1919, s 66L is to be contrasted with s 66M. It provides that where land is

damaged after contract and before the risk has passed to the purchaser, the purchase price shall be reduced

on completion by such amount as is just and equitable in the circumstances. The provision applies

whether or not the land is substantially damaged. There is, like s 66L(6) , a provision excluding

abatement for damage caused by the willful or negligent act or omission of the purchaser.

9 Thus, the abatement provision may be enlivened whether or not the damage is substantial, but the

rescission provision in the Conveyancing Act 1919, s 66L may only be enlivened if the damage is

substantial.

76 It is not to the point to say that Urban and SCN could have acted under the Conveyancing Act 1919, s

66M and had the costs of rectification deducted from the balance of purchase price. If the damage was



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substantial, they were entitled to take the alternative course under s 66L.

Submissions

77 On Purnell’s behalf, it was submitted that the damage was insubstantial for a number of reasons.

78 First, it was submitted that the chief value of the land lay as a development site. That does not, in my

view, exclude consideration of alternative uses of the site.

79 It was submitted that it was clear that Urban and SCN intended a large development and demolition of

all the improvements on the land. That does not exclude the prospect of a lease of the building prior to its

demolition.

80 It was submitted that the chief qualities of the land governing its material nature, were its objective and

legal qualities permitting it to be developed into a multi-storey residential and commercial site. That does

not exclude the granting of a lease prior to exploitation of those qualities.

81 It was submitted that nothing on the site had architectural, historical or heritage value. One does not

need a heritage-listed building to conduct a car sales yard.

82 It was submitted that even assuming the office building on the site had economic value as a temporary

leasing structure, the money and time required to return it to tenantable condition was small in proportion

to the other factors in the development, and would have been borne by the vendors in any event. I have

already dealt with this argument.

83 It was submitted that at the time of contract and up until termination, the property was disused. There

was always the potential for vandalism, but neither party appeared greatly concerned about possible

damage to the structure until the fire. That does not exclude the prospect of leasing the building in its then

condition.

84 It was submitted that the contract itself, apart from abundant additional evidence, indicated the

development potential of the site and allowed for Urban and SCN to attend the property before settlement

for the purpose of demolition (special condition 50). Again, the contract does not exclude the prospect of

Urban and SCN entering into a lease of the land.

85 It was submitted that labelling the development consent “deferred” did not suggest that use of the

consent was to be postponed for any substantial period. It meant only that the consent could not be acted

upon until the two conditions precedent had been satisfied. The only condition precedent outstanding at

the time of the fire was the removal of nine trees on one part of the boundary of the property. This matter

does not bear upon the question whether, because the fire rendered the building incapable of being leased





before rectification, there was a material difference in the land contracted to be acquired and the land in

its damaged state.

86 It was submitted that Mr Hanna’s evidence was that the intention to lease was only decided upon in

January 2005. At the time of contract there was no suggestion that the primary purpose was other than

development of the site. I have dealt with this argument. In my view, issues that arise after contract and

before damage should be taken into account. They may be material to the resolution of the issue.

87 It was submitted that one can assume Urban and SCN were buying a development site. That was the

objective material quality of the land. Any development involved demolition of the improvements that

were burnt. Again, that does not exclude the prospect of a lease of the land prior to the commencement of

the development.

88 It was submitted that a party buying the property as a development site would have been indifferent to

the fire damage to the improvements, or would, at most, have sought a reduction in the purchase price.

Urban and SCN were entitled to such reduction in any event by way of the abatement provision in the

Act. I have already dealt with this issue. Further, a party buying the property as a development site, faced

with the sudden downturn in the property market might well take the course proposed by Urban and SCN

and lease out the property to weigh up the options during the period of the lease.

89 It was submitted that the fire damage was repairable (i.e. it was not a case that the whole building

required demolition). Moreover, fire damage was sustained to only part of one building, and that building

occupied only a small portion of the site. I have described the demolition work Mr Brincat said was

required. It was, on any view, considerable. Further, a site office in a car sales yard does not need to take

up a great deal of space. It is preferable that it does not, in order that more vehicles may be put on site.

90 It was submitted that on Mr Brincat’s evidence the damage could be repaired for $105,000 and the

work performed within six weeks. The plaintiffs were not obliged to bear the $105,000. They were

entitled to have that sum deducted from the purchase price under the Conveyancing Act 1919, s

66M(1) and s 66M(2). I have already dealt with this argument.

91 Finally, it was submitted that Mr Youssef’s evidence was flawed and completely unreliable. It failed

the requirements that an expert witness’s evidence be given by way of report expressing reasons for each

opinion expressed. It assumed demolition was required, but professed no expertise as to whether or not it

was required. Information used to prepare the report was not available, having been destroyed and Mr

Youssef was not able to recall all elements. Mr Youssef did not want the job and by his own admission

was prepared to over-quote for it. Mr Youssef relied on the quote from Rainbow that was for an entirely

different purpose. I have dealt with these criticisms. Further, I have indicated the significance to be placed

upon the expert reports.







Conclusion

92 I am not dissuaded from my view by the submissions on behalf of Purnell that the fire rendered the

land materially different from that which Urban and SCN contracted to buy. The fire rendered the

building on the land untenantable, thereby excluding a valuable user of the land.

93 My conclusion is fortified by my finding that in January 2005, as a result of the downturn in the

residential property market in the Bankstown area, Mr Hanna and Mr Kazzi decided to defer construction

of the development on the site and to lease out the land for four years giving them time to weigh up the

options open to them.

94 In my judgment, Urban and SCN are entitled to a declaration that they validly rescinded the contract

for sale and for an order that Purnell pay them $600,000.

2. BAKHOS v FENNER and ANOR [2007] NSWSC 641 (20 June 2007)

12 HIS HONOUR: In these proceedings the plaintiff as purchaser agreed to buy the house property at 341

Burns Bay Road, Lane Cove (“the property”), by a Contract for Sale of Land, in writing, dated 11 July

2003 (“the contract”). The vendors were the first defendant, Ms Regula Fenner, and Mr Peter Voglsinger,

who owned the property as joint tenants. Erected on the property was a brick and tile two bedroom house

said to have been constructed in or about 1946. The property has water frontage to the Lane Cove River

and at the time of the contract there appears to have been significant underdevelopment.

13 The purchase price was $1,400,000 and there was provision for payment of the deposit of $140,000 by

instalments. The instalment provisions were not exactly complied with but this gave rise to no difficulty.

24 A fire occurred in the house on 27 April 2005 at a time when the defendants were not present and it

appears the house was unoccupied. Damage caused by the fire brings Division 7 of Part 4 of the Act into

consideration, particularly s 66L(1) which gives the purchaser the right to rescind a contract where land

the subject of the contract is substantially damaged before completion. Section 66L(1) of the Act

provides:

(1) Where land is substantially damaged after the making of a contract for the sale of the land and before

the risk in respect of the damage passes to the purchaser, the purchaser may rescind the contract by notice

in writing served on the vendor before the completion of the sale.

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25 Section 66J(2) of the Act provides:

(2) For the purposes of this Division, land damaged after the making of a contract for the sale of the land

is substantially damaged if the damage renders the land materially different from that which the purchaser

contracted to buy.

26 I also notice the provisions of s 66K(1) of the Act relating to the passing of risk to the purchaser,

which provides that the risk in respect of damage to land shall not pass to the purchaser until completion

and which, by implication, clearly provides that the risk in respect of damage to the land remains with the

vendor until completion. So it was in this case at the time of the fire.

27 The plaintiff took the position that he was empowered by s 66L(1) of the Act to rescind the

contract and his solicitor gave a written notice of rescission relying (although the reference to s

66L was not correctly stated) on s 66L ; notwithstanding the misstatement, reliance on s

66L was unmistakable.

30 Whether or not the land was substantially damaged, the letter of 13 May 2005 makes it quite clear that

the plaintiff was unwilling to complete the contract. Indicating this unwillingness was an anticipatory

breach of the obligation to complete on 11 July 2005 unless the justification under s 66L of the

Act in fact existed.

31 Unfortunately the co-vendor, Mr Voglsinger, died in September 2005. The second defendant, Mr

Fenner, is the executor of his estate and obtained probate of his will, granted by this Court on 15 June

2006.

32 There are several descriptions of the damage to the house in evidence. Mr Fenner in his affidavit of 3

October 2006 says that shortly after the fire - I infer within a few days - he walked through the property,

looked at the damage and removed some personal items of property including personal papers. He says:

8. I could see that the damage to the house was mainly smoke damage. The paint was still on the walls,

but was charred. Two ceilings had sagged as a result of water from the fire department putting the fire

out. These were in the lunge room and sunroom. The ceilings were otherwise in fairly good condition.

They were still white and were not charred. Almost all the windows had shattered, as had the glass in the

front door. All carpets were burnt.

33 The first defendant, Regula Fenner, in her affidavit of 3 October 2006, also describes the state of the

property, which she first inspected on 30 April 2005. She speaks in her evidence of being shocked at the

sight, as the walls were black. She observed damage on the outside of the house to the front gutter below

the roof and smoke marks under the eaves above the windows on the front of the house. According to Ms

Fenner, Mr Voglsinger inspected the property and concluded that there was no damage to the actual

structure of the floor or walls, there was however damage to ceilings in one bedroom and the sunroom.

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34 The defendants had insurance with NRMA Insurance. NRMA Insurance accepted liability for their

claim for fire damage, and approved repair work, which was carried out by Mr Voglsinger with the help

of contractors as well as Ms Fenner, Mr Fenner and other friends.

35 Mr Voglsinger was for many years a builder by trade. At the time of the fire he had retired. He

suffered an illness but he was in every position to carry out and supervise building work with skill.

36 Mr Fenner's affidavit shows that he helped Mr Voglsinger repair the property on weekends and some

weeknights. Mr Fenner says that repairing the property took about four weeks and he gives a description

of work organised and carried out by Mr Voglsinger.

37 Ms Fenner, in her affidavit, also describes work that was done to repair the property. According to Ms

Fenner, there was considerable work in cleaning the property. Ms Fenner says cleaning the property took

approximately four days and involved Mr Voglsinger, Mr Fenner and herself scrubbing down the walls

with solution and sponges. A pressure cleaner was used and some professional cleaners were also

engaged. Ms Fenner says Mr Voglsinger supervised contractors who assisted in repairing the kitchen,

painting the interior and laying carpet.

38 There is a description of the property in the evidence and report of Mr Batshon, who inspected the

property in the company of Mr Voglsinger on 2 June 2005, more than four weeks after the fire. Mr

Batshon has over 20 years experience in consulting engineering practice, predominantly in the Sydney

metropolitan region, specialising in residential and small scale commercial buildings.

39 In my opinion, Mr Batshon was in a very good expert position to observe and appraise the condition of

the property as at 2 June 2005. His evidence shows that at inspection he observed that the internal and

external brick walls revealed no loss of mortar, no cracks or structural defects. The walls appeared to be

upright and showed no sign of distress. The timber floor appeared to be in good condition. The floor

timber did not suffer any damage from the fire. The roof timber did not suffer any damage from the fire

and the roof appeared to be in good condition. There were no visible signs of roof sagging or caving-in,

no cracks in the roof tiles or loss of mortar in the ridges and there were no signs of water leaking on the

ceiling.

40 Mr Batshon observed that the paint on internal walls and timber frames was affected by the fire. The

lounge room front window had also been removed. However no other internal defects were identified in

his report. Mr Batshon saw no external damage to the house structure on the property caused by the fire.

His evidence is illustrated with photographs.

41 The repair work was completed in early July 2005 and paid for by NRMA Insurance about one week

before the completion or settlement date of 11 July 2005.

42 While there was obviously considerable damage to furniture and carpets, my concern is not with any

movable property but with the structure of the property itself and any fixtures which might fall within the


meaning of “the land” in s 66J(2). In my judgment the fire damage to the house was not such that, in the

words of s 66L(1) , the land was “substantially damaged". In reaching this conclusion I have

regard to the nature of the property and the amount of the price. In considering whether or not the damage

rendered the land materially different from that which the plaintiff contracted to buy, I am of the view that

the house itself, a two bedroom brick and tile house, well over 50 years old and showing signs of its age,

was obsolescent and the structure could only have a small place, if it had any place at all, in appraising

what was of economic significance in a purchase for $1,400,000.

43 The plaintiff had some redevelopment proposal. Evidence does not show what it was, but it is in no

way surprising that he should have plans to develop the property in some way and it is extremely

improbable that the house and the condition of the house were material in the valuation of the property or

in his decision to buy the property.

44 In the context, the damage caused by the fire was, in my judgment, of slight significance and did not

render the land materially different from that which the plaintiff contracted to buy. Its slight significance

is illustrated by the scale of the work which it was necessary to do in order to repair the damage; the

damage was repaired and overcome very readily. In any event the fire damage was not a problem for the

plaintiff because the risk in terms of damage to the property was still with the vendors; they had

insurance, the damage was put right within a few weeks and it was put right before the date on which the

plaintiff had a right to call for completion.

45 I conclude therefore that the land was not substantially damaged and that there was no entitlement

under s 66L(1) of the Act to rescind the contract by notice in writing.

END OF INSERT

Section 66M provides the alternative. Where a contract is not substantially damaged and therefore should

not be rescinded, there is a power within Section 66M to allow for damages to be paid. Therefore, at

settlement, if there is damage done to the property by the vendor in moving, the purchaser can ask for

money to be given to them for the purposes of repairing the property.

Vacant Possession

Although it doesn’t give rise to rescission, it can cause termination. If a person has not given vacant

possession at settlement, the purchaser can reissue a notice to complete and later a termination notice

to rescind the contract.

Vacant possession is always a moot question. It is now trite law that anything left on the property, without

approval of the purchaser, is considered as not giving vacant possession. Hence, rubbish, loose bricks,

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tiles, garden refuge, etc. are all things that are left behind without consent. Even garden refuge left in the

corner of the yard can be considered as not giving vacant possession.

Vendors often kick up a fuss about not cleaning up their property before they leave. Purchasers likewise

do not want to move into a property which has rubbish left on it to be removed at their cost. Vendors

should be reminded that they run the risk of having a contract terminated if they do not give vacant

possession.

This area causes more problems to conveyancers and real estate agents than any of the others mentioned

above.

Cleanliness

Interestingly enough, the pig can leave the pigsty and leave it like a piggery and the law does not

intervene!

Unlike tenancy matters, there is no requirement of cleanliness placed on a vendor. There have been many

attempts over the years to insert such provisions and special conditions without success. The Law Society

and Real Estate Institute when reviewing the last set of general conditions should have inserted this as a

clause in the general conditions. It probably wasn’t because cleanliness is such a subjective issue.

Moreover, when there is a number of settlements occurring simultaneously, the ability to clean a house

while a truck is moving out to run to another property, whilst another is moving in, is often too high a

burden to take care cleaning.

Cleanliness is not a legal issue. Nevertheless, that does not give rights to any vendor to leave scratches on

the wall, damage to the carpet or any smashed windows. Purchasers are entitled under Section 66M to

the payment of damages and can hold up contracts.


Activity Four

If you are in a workshop, this activity is for you.

You will be provided with a full contract for the sale of land. You will be working individually or in a group.

We want you to answer the following questions:

1. Name of vendor?

2. Does the vendor own the property?

3. Who are the mortgagees?

4. Can the property be used for a bed and breakfast?

5. Is the property subject to flooding?

6. Does the property have contaminated soil?

7. Where does the sewer pipe run?

8. Are there any disclosures?

9. What is missing?


Contents

1. Introduction ..………………………………………………………………………………………………….………………………………... 2

2. Background .………………………………………………………………………………………………………………………………..……. 2

3. The Law .……………………………………………………………………………………….………………………………………………..…. 2

4. Commissioner’s Guidance .……………………………………………………….…………………………………………………..…... 3

5. Prescribed Documents .……………………………………………………….…………………………………………………………….. 4

6. Confirming Identities of Vendors or Representatives .…………………………………………………….……….………… 4

7. Possible Fraud Warning Signs ..…………………………………………………………………….……………………………….….. 6

8. What Should be Done if Fraudulent Activity is Suspected? ……………………………………………………….………. 6

9. Privacy Requirements for Personal Information …..……………………………………………………………..……………. 6

© State of New South Wales through NSW Fair Trading, 2013 A division of the Department of Finance & Services Apr 2013


1. Introduction

These Guidelines have been issued by the Commissioner for Fair Trading and are intended to help real

estate agents verify the identification of vendors when dealing with clients in order to prevent real

estate fraud.

2. Background

Identity fraud and scams are increasingly prevalent throughout the community and the property

industry is not immune to falling victim to such events. Two highly publicised incidents in September

2010 and March/April 2011 resulted in properties being sold in Western Australia without the

knowledge and consent of the lawful property owners. These two sales were undertaken by real estate

agents after being contacted by criminals impersonating the true owners. The initial contact with the

agent was made by telephone. The person impersonating the owner notified the agent of new contact

details which then formed the basis of future contacts, a practice which should have placed the agent on

alert. These two events highlight how easily a fraud can commence and emphasise that agents need to

be on high alert at all times to ensure that fraudulent real estate transactions do not occur.

3. The Law

Section 37 of the Property, Stock and Business Agents Act 2002 provides that the regulations may

prescribe rules of conduct to be observed in the course of the carrying on of business or the exercise of

functions under a licence or certificate of registration. Penalties apply for breaches of rules of conduct.

The maximum penalty is 100 penalty units – presently $11,000. In addition, disciplinary action can be

taken under the Act which can lead to licence cancellation and disqualification.

• Rule of Conduct two in the Property, Stock and Business Agents Regulation 2003 requires agents to

comply with the fiduciary obligations arising as an agent.

• Rule of Conduct three requires that an agent must act honestly, fairly and professionally with all

parties in a transaction.

• Rule of Conduct four requires that an agent must exercise reasonable skill, care and diligence.

• Rule of Conduct six requires that the agent must act in the client’s best interest at all times unless it

would be contrary to the Act or regulations under the Act or otherwise unlawful to do so.

Section 191 of the Act provides that disciplinary action can be taken against the holder of a licence for

inter-alia, carrying on business or exercising functions under the licence or certificate of registration

having acted unlawfully, improperly, unfairly or incompetently. Disciplinary action can lead to penalties

ranging from a caution or reprimand, a monetary penalty, to cancellation of a licence and

disqualification.


Section 55 of the Property, Stock and Business Agents Act 2002 provides that an agent is not entitled to

any commission or expenses from a person for or in connection with services performed by the licensee

in the capacity of licensee for or on behalf of any person unless the services were performed pursuant to

an agency agreement signed by or on behalf of the person and the licensee.

Section 63 of the Property, Stock and Business Agents Act 2002 prohibits a real estate agent from

offering residential property for sale unless the required documents are all available for inspection at

the real estate agent’s registered office by a prospective purchaser or agent for a prospective purchaser

at all times at which an offer to purchase the property may be made.

Section 63 prescribes the situations when an agent is considered to offer residential property for sale,

and sets out the required documents which must be available. These documents include a copy of the

proposed contract for the sale of the property and the documents required by section 52A of the

Conveyancing Act 1919.

4. Commissioner’s Guidance

The licensee in charge should have adequate written guidelines in place to ensure that all employees

follow proper procedures and are aware of their responsibilities under the Act. In their procedures and

in performing their duties an agent should conduct an identification check. Agents could use the

attached Proof of Identity Checklist for Vendors or appointed representatives – (see attachment 1) or a

similar document to show that the client has satisfactorily proven that they own the property or legally

represent the true owner.

DOCUMENTS SHOULD BE RETAINED IN THE SALES FILE FOR INSPECTION IF REQUIRED

5. Prescribed Documents

The prescribed documents which must be included with the contract for the sale of the property are

listed in Schedule 1 of the Conveyancing (Sale of Land) Regulation 2010. These documents include a

property certificate.

A property certificate is a title search from Land and Property Information relating to the property which

is to be sold. The certificate describes the land using the lot and deposited plan. The first schedule on

the property search sets out the full name of the current owner of the property. The second schedule

sets out any notifications, including details of any mortgagee, or any caveats on the property

6. Confirming Identities of Vendors or Representatives

Agents should use the following guidelines when selling a property to confirm the identity of vendors (or


appointed representative) in order to prevent real estate fraud.


1. When selling a property, confirm that dealings are with the true owner(s) of the property [i.e. the

registered proprietors or their properly appointed representative].

• While the Property, Stock and Business Agents Regulation 2003 requires that the agency agreement

must contain a statement to the effect that the principal warrants that they have authority to enter into

the agreement, this may not be sufficient to protect an agent and they should ensure that this authority

is verified in some manner before acting for the principal.

• In some cases, the person with the legal right to sell the property may not be the registered owner.

These would include but would not be limited to:

o the holder of a Power of Attorney or Enduring Power of Attorney;

o an executor, a mortgagee in possession, or a person with an appropriate Court order. In these

cases, the original or a copy that has been certified as a true copy of the document conferring the power

of sale should be sighted and where possible confirmed with the current registered owner, or their legal

representative, that the person is authorised to act on their behalf.

• Confirm the identity of the owner or the person or persons with the legal right to sell the property via

an identification check using the recommended Proof of Identity Checklist for Vendors (or appointed

representatives) or similar document- see attachment 1.

• When confirming the identity of the owner, the agent should:

o Check that the name on the agency agreement is the same as that on the property certificate if

the owner is selling the property themselves.

o Conduct the check face to face and sight original documents to verify identity.

o Verify the vendor’s identity from an original primary photographic identification document and an

original or certified copy of a secondary non-photographic identification document, as indicated in Proof

of Identity Checklist for Vendors (or appointed representatives) - see attachment 1.

o Verify the legal ownership of the property from an original or certified copy of a primary property

ownership document such as a property certificate, current rate notice or other document conferring

the power of sale.

• In verifying the information from the relevant documents, the agent should be reasonably satisfied

that:

o The documents are legible and do not appear to have been altered in any way; and

o There is no apparent discrepancy between the information collected from the agent and the

information contained in the documents (other than a discrepancy that can be reasonably explained and

supported, such as a change of name or the owner of the property has recently been married); and

o In the case of a primary photographic identification document—that the photograph contained in

the document is a true likeness of the owner of the property.


• Proof of identification or legal ownership of property documents referred to in these guidelines should

not include documents that have expired (other than in the case of Australian passport that has been

expired for less than 2 years or otherwise noted in the Proof of Identity Checklist for Vendors (or

appointed representatives).

• A copy of a document should only be certified as a true copy of the original by a person authorised to

take and receive statutory declarations under section 21 of the Oaths Act 1900.

• If the person or persons are not directly available, the original documents should be sighted and

verified as a true copy of the original by a suitable independent witness.

2. Ensure that you continue to deal with the registered owner or their properly appointed

representative.

• Agents should be particularly cautious in situations where no financial institution mortgagee is listed

on the second schedule. This is because criminals know that mortgagees such as banks and building

societies have stringent security measures in place to stop fraud. Criminals generally target properties

which are wholly owned by the owner.

• Agents should be especially vigilant if the client is overseas or remote, or if dealings with that person

are not face-to-face and unreasonable excuses are given for their unavailability to meet.

• Pre-establish security questions with confirmed owners that only the owner will be able to answer and

which are asked for whenever contact is made.

• Write only to addresses [postal or electronic] held on the sales file, which are already known to be

genuine.

• If an owner changes their contact details, confirm new contact details and addresses by corresponding

with all of the owner’s original and new contact points.

• Seek original rather than facsimile or scanned PDF signatures.

• Carefully check signatures of property owners against original signatures held on file.

• When replying to an email, type the known genuine email address from your agency files rather than

simply clicking the ‘reply’ button. An email may have a hidden address in it.



7. Possible Fraud Warning Signs

Agents should be placed on particular alert when the following ‘warning signs’ present themselves:

• A recent change in address or other contact details which have not been provided until instructions to

sell a property are received.

• The transaction involves people located or documents issued overseas, especially from countries

known for scams.

• There is a request for funds to be sent to a different bank account to that normally used by the client –

including but not limited to offshore accounts.

• Advice is received that the sale is urgent, for example because of an overseas investment or

employment opportunity. • New email addresses are generic such as hotmail, yahoo or Gmail.

• Comments by the ‘seller’ that if this sale is successful or quick, future lucrative work or other

incentives will be provided to the agent.

8. What should be done if fraudulent activity is suspected?

Agents who suspect real estate fraud should:

• Contact the NSW Police Force or NSW Fair Trading, and

• Not act further on the sale of the property.

Licensees in Charge should have documented processes and procedures to ensure that the process of

identifying principals is properly documented and that all employees are aware of, and use these

processes and procedures.

Agents should retain copies of all documents obtained in the process of verifying identities and in

verifying the authority of a person to act in the sale of the property and retain them in the appropriate

sales file for later inspection if required.

9. Privacy Requirements for Personal Information

Some of the information collected about clients to confirm identities may be personal information. The

National Privacy Principles enacted under the Commonwealth Privacy Act 1988 will be applicable to

some agents and for others, the principles provide some guidance on the issues which agents should

consider in collecting, storing and managing client information.

Licensees in Charge should ensure that appropriate security is given to the storage of copies of

identification documents that are held, and that any personal information obtained is not used for

marketing purposes unless authorised by the client who provided the information.


Congratulations!

CONTINUING PROFESSIONAL DEVELOPMENT UNDER SECTION 15 OF THE PROPERTY, STOCK AND BUSINESS

AGENTS ACT 2002

You have now completed the Continuing Professional Development program “Bailey Compton and the

Contracts Factory: A Guide to Successful Contracts”.

Successful participants will receive their 12 points of continuing professional development.

We hope you enjoyed this program and will return to Leverage Group for your future professional

development needs.

Bailey Compton Chief Executive Officer