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TERMS CONTRACTS OF SALE
- obliged to make 2 or more payments (not including any payment on or
before the Contract is signed and the final payment) to the vendor
after the Contract has been signed and before he is entitled to a
transfer of the land, or
- entitled to possession of the land before he becomes entitled to a transfer It is quite possible for a Contract to fall within the definition of a terms Contract without intending that to be the case. & Care should be taken to ensure that this does not occur. A brief history of terms Contracts Terms Contracts are also called vendor’s finance Contracts. Instead of the purchaser borrowing the balance of purchase money, the vendor provides the finance by allowing the balance of purchase money to be paid over a period. Terms Contracts were used principally because alternative finance was not available. Now there are very eager lenders and they will lend a high proportion of the value of property. Quite simply, the need for vendor’s finance has substantially evaporated. However, there is still a place for terms Contracts. Some commercial transactions, some transactions between friends or family members, some transactions where alternative finance is not available are still appropriate for terms Contracts. What is the situation with stamp duty? Stamp duty is payable on the transfer. The purchaser is not entitled to a transfer until the final payment has been made. So, stamp duty is deferred until the whole of the purchase money has been paid unless a transfer of the title is taken earlier (see the next heading). What if the purchaser needs the title in his name before the whole of the money has been paid? The SLA gives the purchaser the right to require the title to be transferred to him at any time (in which case the stamp duty is payable then) but the purchaser must give the vendor a mortgage over the land to secure the balance of purchase money. The vendor has the right to require the purchaser to take a transfer (and give a mortgage back) at any time but may be required to advance the stamp duty to the purchaser in this case. If the title remains in the vendor’s name how is the purchaser protected? A purchaser may protect his interest by lodging a Caveat at the Land Titles Office. The Caveat will show that the purchaser claims an interest in the title. What about insurance and alterations and renovations? Virtually all Contracts incorporate the provisions of Table A in the 7th Schedule in the Transfer of Land Act. Condition 11 of Table A provides: - the purchaser must effect and keep current insurance in the names of the vendor and the purchaser; - the purchaser must keep all buildings in repair and not alter their construction or in any way pull down or remove them; - the vendor may enter onto the property twice a year to inspect. Mortgages and terms Contracts The SLA prohibits the vendor from mortgaging the land which is subject to a terms Contract. A purchaser cannot mortgage land which he is purchasing under a terms Contract because the title is not in his name. If land is subject to a mortgage and is to be sold under a terms Contract the mortgage must normally be discharged before the purchaser becomes entitled to possession. All monies paid must be held on trust to ensure the mortgage is discharged. It is possible to sell land under a terms Contract without discharging a mortgage over the land. The Contract must provide for the purchaser to take over the vendor’s liability under the mortgage and for the purchase price to be satisfied to the extent of the mortgage by the purchaser taking over the mortgage liability. This sort of contract is complicated because: - the purchaser will owe money to the vendor and to the mortgagee. Payments under the Contract will need to be split between the vendor and the mortgagee; - there are likely to be differing interest rates under the Contract and under the mortgage - the mortgagee may not be happy to consent to the purchaser taking over the vendor’s liability - both the vendor & the purchaser will be very concerned that nothing should occur to make the mortgage money payable early If I am buying under a terms Contract can I sell under a terms Contract? The answer is no. A vendor must be the owner on the title. What are the penalties for breaching the SLA? If a vendor sells mortgaged land under a terms Contract and if the Contract does not provide for the purchaser to take over the mortgage, the purchaser can avoid the Contract any time before completion. If a vendor under a terms Contract mortgages the property, the purchaser can avoid the Contract at any time before completion. If a vendor under a terms Contract mortgages the property and the mortgagee has actual or constructive notice of the terms Contract of sale the mortgagee cannot exercise any rights under the mortgage, must discharge the mortgage and may recover from the vendor any money paid by the mortgagee to the vendor. What happens with the rates and Land Tax? The purchaser becomes the owner for rating and Land Tax purposes as from the date of possession. (Note that Section 16 of the Land Tax Act enables the Commissioner of Land Tax to treat the vendor as remaining the owner unless 15% of the price has been paid). Capital Gains Tax The date of the Contract will be the date of the Capital Gains Tax event so if there is a big capital gain and a low deposit all of the deposit may be consumed by the tax. Vendor’s Section 32 Statements In addition to all the matters otherwise required to be disclosed a vendor under a terms Contract of Sale must give the purchaser a statement, in the prescribed form, detailing the cost of the vendor finance. Finally unless a vendor and purchaser are related to one another please don’t ask your solicitor to act for both parties. The SLA prohibits a solicitor from acting for both parties unless the parties are related. If a solicitor acts for both parties and the parties are not related the purchaser may have the right to avoid the Contract of Sale. Who has the right to see a Will? Section 50 of the Wills Act says that a person who has possession and control of a Will or a revoked Will or a purported Will of a deceased person must allow the following persons to inspect and make copies of the Will (at their own expense). - any person named or referred to in the Will, whether as beneficiary or not: - any person named or referred to in any earlier Will as a beneficiary; - any spouse of the testator at the date of his or her’s death; - any domestic partner of the testator; - any parent, guardian or child of the deceased person; - any person who would be entitled to share in the estate if the deceased person had died intestate; - any parent or guardian of a minor referred to within the Will or who would be entitled to share in the estate of the testator if he or she had died intestate; - any creditor or other person who has a claim against the estate of the deceased person and produces evidence of that claim.
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