TERMS CONTRACT
What is a Terms Contract and how is it different to a regular Contract?
Special rules apply to Terms Contracts under the Sale of Land Act 1962 which means these Contracts and vendor’s Statements have more requirements.
A contract can be a terms contract in one of two ways.,
The first is that the Purchaser has possession of the property prior to the settlement date. The second is that the purchase price is paid via instalments consisting of two or more payments other than the deposit and the balance due at settlement. Four payments or more from the contract date to the settlement date.
If either of these apply to your sale transaction, you really need to consider whether this is a terms contract. If it is a terms contact there are extra requirements for the section 32 or vendor’s statement. If you do not meet these requirements it is possible that the purchaser may end the contract, which is of course not what you want.
HERE ARE TWO SCENARIOS FOR A TERMS CONTRACT
Scenario 1
Glen has just put his property on the market for $4,000,000.00, Susan decides to buy Glen’s property, signs the Contract and pays the deposit of $400,000.00 in full, noting the date is 31 August 2021.
Susan will pay the remaining $3,600,000.00 in instalments of $500,000.00 over a 48-month period with each instalment due twelve months from the day of sale and the balance at settlement.
Instalment 1 $500,000.00 payable twelve (12) months from the date of sale
Instalment 2 $500,000.00 payable twenty-four (24) months from the date of sale
Instalment 3 $500,000.00 payable thirty-six (36) months from the date of sale
Instalment 4 $500,000.00 payable forty-eight (48) months from the date of sale
Balance $1,600,000.00 payable at settlement
This is a terms contract because there is more than two payments other than the deposit and the sum due at settlement.
Scenario 2
Susan has purchased Glen’s property. Part of the arrangement is that Susan will take possession of the property, including the payment of rates and other outgoings before the settlement date. Glen has agreed to this.
This is a terms contract because Susan will have possession of the property before the settlement date.
There are mechanisms in the Sale of Land Act for Susan to call for a transfer of the property to her with a mortgage back to Glen. It is important that the terms of any mortgage that may be entered into are included in the contact and vendors statement.
If you are thinking of entering into a Terms Contract or think you may have already unknowingly entered into one and would like to find out more, please contact our office on 9707 1155.