Property Services / Conveyancing
Residential Conveyancing for Beginners
Appointment of Real Estate Agent
The vendor appoints a real estate agent (agent) to market, promote and sell the property. The terms of that appointment are set out in an agency agreement. A cooling-off period applies to agency agreements for the sale of residential property - Section 59 of the Property, Stock and Business Agents Act 2002 (PSBAA).
Instruction of Solicitor
Where the vendor instructs a solicitor to act, the solicitor obtains particulars of title to the property and makes all necessary applications to obtain all of the prescribed documents (other than those which the agent has agreed to obtain).
The Contract
The vendor's solicitor prepares the contract as soon as practicable after the solicitor has obtained the prescribed documents and has sufficient information and instructions to do so. If the solicitor has been instructed by the vendor that the sale is by auction or that the agent is authorised to participate in the exchange of contracts, the solicitor shall forward to the agent the contract in 2 counterparts. Otherwise, the solicitor sends to the agent a complete photocopy of the contract for exhibition and marketing purposes.
Sales advice
If the agent introduces a buyer, negotiates a sale and is not authorised to participate in the exchange of contracts, the agent forwards a detailed sales advice to the vendor's solicitor.
The sales advice usually sets out:
- name of vendor
- address of property sold
- full name, address and telephone number of the purchaser(s)
- ABN/ACN of the purchaser where applicable
- name address and contact details for the purchaser's solicitor/conveyancer
- price
- deposit paid and the identity of the stakeholder
- any changes to the settlement date and time
- any inclusions in, and exclusions from, the sale
- whether the sale is with vacant possession, or subject to an existing tenancy
- whether the deposit is to be invested and if so by whom
- information of any negotiations that requires the vendor's solicitor to draft additional conditions
The vendor's solicitor obtains any necessary further instructions from the vendor and completes the preparation of the contract. The vendor’s solicitor then forwards a counterpart contract to the purchaser's solicitor and makes arrangements for the vendor to sign a counterpart contract.
Tenanted Properties
If the property is tenanted and the agent is the managing agent then the agent provides to the vendor's solicitor a copy of the:
- Residential Tenancy Agreement;
- details of the current rent; and
- details of any rental bond or guarantee that the tenant has paid.
If the property is tenanted (and the agent is also the managing agent) but is to be sold with vacant possession, the agent and solicitor co-operate to ensure that the appropriate termination notice is given to the tenant in sufficient time to comply with the requirements of the Residential Tenancies Act 1987 and the provisions of the contract in relation to the settlement date of the contract.
Exchange of contracts
The contracts for sale of the property do not operate until the signed counterpart contracts have been exchanged.
Exchange by Agent
The agent may, under section 64 (1) of the PSBAA:
- write the purchaser's name, address and description, solicitor's details, purchase price and date on the contract;
- insert or delete the description of furnishings or chattels to be included in the sale;
- participate in the exchange (subject to section 64(2) of the PSBAA).
The agent must ensure that the execution pages of both counterparts of the contract, any special conditions and all annexures to the contract are executed properly.
On exchange the agent dates both counterparts of the contract and receive the agreed deposit payable under the contract and, if so instructed, a section 66W certificate, by which the purchaser waives the statutory cooling off period of 5 days. If either the vendor or purchaser is present at the time of exchange the agent hands to the purchaser the counterpart contract executed by the vendor and hands to the vendor the counterpart contract executed by the purchaser and if applicable, the section 66W Certificate.
Alternatively, immediately after exchange the agent:
- causes the counterpart contract executed by the vendor to be delivered to the purchaser or where the purchaser has notified the agent or it is apparent from the contract that a solicitor acts for the purchaser, to the purchaser's solicitor
- causes the counterpart contract executed by the purchaser and section 66W certificate where applicable to be delivered to the vendor or where the vendor has notified the agent or it is apparent from the contract that a solicitor acts for the vendor, to the vendor's solicitor; and
- confirms the total deposit paid and held.
Exchange by Solicitor
If an exchange of contract is effected by the vendor's solicitor without the participation of the agent, the solicitor, within two business days of exchange, notifies the agent in writing of the date of exchange. If the stakeholder of the deposit is the agent, the solicitor remits the deposit to the agent at the same time.
If the stakeholder of the deposit is someone other than the vendor's agent or if a bond has been used to pay the deposit or if the deposit has been released or paid direct to the vendor on exchange, the notification to the agent includes confirmation in writing of the solicitor's understanding of the arrangements made by the vendor for the payment of the agent's commission on settlement.
Deposit held by an agent as stakeholder
If any part of the deposit is dishonoured or not met on presentation, the agent notifies the vendor's solicitor. Otherwise, the agent confirms in writing the amount of deposit held by the agent as stakeholder as soon as possible after exchange.
Prior to Settlement
The agent and the vendor's solicitor shall consider the following matters and mutually co-operate to make appropriate arrangements to ensure:
- A pre-settlement inspection by the purchaser is carried out, if required;
- that vacant possession will be available at the time of settlement (if applicable);
- that sufficient information is available to make necessary adjustments and arrangements on settlement for rent and rental bonds (where applicable);
- the parties are aware of the location of all necessary keys and security devices at settlement;
- that the deposit or part of it is available, if required, at the necessary time to be released by the agent upon reasonable notice to be used as part of the purchase price at settlement.
On settlement
The vendor's solicitor notifies the agent by telephone as soon as possible after settlement occurs to authorise the release of the keys and the agent on receipt of this verbal authorisation, releases the keys. The vendor's solicitor confirms such authorisation by facsimile or email as soon as practicable after settlement.
Following settlement the vendor's solicitor forwards to the agent an order on the agent authorizing and directing the agent to account to the vendor for the balance of the deposit held by the agent.
[Extracted from the Protocol entered into by The Law Society of New South Wales and the Real Estate Institute of New South Wales on behalf of their respective members]
Business Law
Going into business?
What business structure should I use?
There are several forms of business structure, each having its own legal, accounting and tax requirements. The form of organisation of a business determines many things, including how tax is paid and how profits are disbursed, and it should be geared to help you achieve maximum benefits.
The types of structure you may wish to discuss with us include:
- Sole trader: With this structure you intend to conduct your business on your own or with employees but no joint owner. As a sole trader you are responsible for all debts and may have to mortgage or sell your personal assets to pay the debts of your business.
- Partnership: Up to 20 people may form a business partnership. A larger number is possible for some professions, such as accountants. If no formal partnership agreement exists, partners are deemed by law to be equal owners. Liability for all debts may fall on any of the partners jointly and severally – if one absconds or dies the others may be left with the liabilities.
- Limited liability company: If you form a company, the shareholders have limited liability; you may also become an employee and a director with certain duties, liabilities and strict responsibilities set out in the Corporations Act. Companies are subject to their own tax, record-keeping and reporting obligations.
- Trusts: Trusts are not legal entities themselves but a layer of legal and equitable obligations which overlay the legal entity which is chosen. The different forms of trust and the impacts of choosing a trust structure to hold investment assets, or to own or operate a business involve a detailed assessment of your financial position and your short-term and longer-term goals.
- Incorporated Association, Co-operative: We can advise you of the appropriateness of these less common structures to meet your goals.
How important is my lease?
The location of your business is often vital to its success and you must ensure that your lease is properly drawn up so that you do not have to move or change some important aspect of your operations. Before moving into leased premises obtain a copy of any proposed or existing lease and discuss with us the key clauses in it and their implications.
Remember that your occupancy may be subject to the NSW Retail Leases Act 1994 and the conditions under which you occupy the premises must be contained in the lease you sign. It ought to allow you to make any alterations necessary to your business and, if the business is in a shopping centre, there are additional considerations. An important matter to be considered and built into any business plan is the existence of restrictions or requirements relating to hours of access or methods of carrying on business.
Most leases make the lessee responsible for keeping the premises and fittings in good repair and many require you to pay all or a proportion of costs such as rates, maintenance and so on. Such provisions need to be clearly stated so that you can budget for the expense. You need to understand whether the rent may vary annually or otherwise according to a fixed percentage increase or some formula such as the consumer price index or the turnover.
The lease will normally describe the only business permitted on the property and is usually interpreted strictly; this could restrict you from diversifying and make it difficult for you to sell the business. It must be clearly worded with the future development of your business in mind.
How is a franchise set up?
Franchising is a type of business ownership which allows an individual, partnership or company to operate an independent business under the banner of an already established brand and using market-tested systems. Before entering into a franchise you should check the reputation, track record, and financial stability of the franchisor very carefully. Matters such as the franchisor’s advertising budget and availability of back-up services may have an impact on the success or otherwise of the franchise.
The fees payable to the franchisor must be checked, along with the terms of sale for goods supplied by the franchisor – you will need to know if you can purchase stock from outside the franchise network.
A franchise agreement is a written document outlining the rights and obligations of both the franchisor and the franchisee. It is a binding contract and careful attention should be given to its contents – ultimately it contains the rules and regulations upon which your future income and security will depend.
The franchisor must give you a ‘Disclosure Document’ and a copy of the Franchising Code of Conduct and allow you at least 14 days to consider them before signing.
What do I get when I pay for goodwill?
Goodwill is a way of describing and valuing the tendency of customers to return to a business. Repeat business as an element of turnover is a valuable asset of a business for which a vendor will expect to receive payment. It arises for a variety of reasons, for example, the location of the premises, the quality of the products sold, the performance of the staff, the absence of competition, etc. It is generally reflected in earning capacity but can be destroyed quickly by changes over which the owner has no control, for example, zoning, widening of roads or cancellation of a supply agreement.
Are there any Government fees to pay?
Often there are certain permits, multi-purpose licences and certificates you are required to have in order to carry on business legally, for example, a council licence which takes account of Department of Health regulations, a factory registration certificate, tobacco retailer’s licence, trade waste agreement or liquor licence. In many cases these are not transferable by the seller and a new permit or licence must be obtained by you and a new fee paid. In most cases NSW Government transfer duty will be payable by the purchaser.
What sort of insurance will I need?
Usually, the only business insurance you are required by law to carry is workers compensation, though landlords and franchisors may also require you to have certain insurances. The rest is up to you, but you would be unwise to neglect to cover such obvious risks as fire, burglary, public liability, personal disability and loss of profits.
There are many other types of insurance which might be appropriate for your business and these should be discussed with us as part of our impartial assessment of the business.
How does my sale or purchase affect staff entitlements?
It is important that the purchaser of a business knows what accrued staff entitlements it will be responsible for after acquisition, for example, long service leave, sick pay or holidays. Provision for these obligations should be clearly agreed with the previous owner in negotiations before the sale.
The owner should be aware, too, of the effect of fringe benefits tax on any benefits given to valuable staff to induce them to stay on.
In many instances, staff are the most vital single asset when you buy a business, but it is difficult to prevent them from leaving. It can be important to many businesses to ensure that any staff who leave, or even the previous owner, do not set up in opposition using special knowledge or confidential information which has been gained from the business you bought.
Will the Government help me?
Some businesses are eligible for assistance from the Government of New South Wales. The Government also funds a comprehensive range of publications, audio-visual material and computer assistance available through Business Enterprise Centres in regional areas around the State.
[Adapted from material prepared for the Law Society of