Contracts – Real Estate Booby Traps!

OPINION
by Peter Mericka B.A., LL.B
Real Estate Consumer Advocate
Real Estate Lawyer
Qualified Practising Conveyancer Victoria
Director Lawyers Real Estate Pty Ltd

Most real estate consumers are aware that real estate contracts are biased heavily in favour of the vendor, and contain a minefield of terms and conditions. But very few realise that some contracts contain “booby traps” that can do serious damage to BOTH parties!

First, we refer readers to our last posting about auction bullying. The auction is an easy means by which unfair and unconscionable special conditions can be concealed from the purchaser.

Of course, auction contracts are not the only ones to contain booby traps – they are found in real estate contracts of all kinds.

The unsuspecting purchaser, having signed the contract (with the assistance of the smiling estate agent), eventually delivers a copy to give to his or her lawyer. It is at this point that the full impact of the terms and conditions contained in the contract hits the purchaser like an exploding booby trap.

So, what kind of booby traps can a purchaser expect to find in a real estate contract? Lets analyse an example and see just how dangerous they can be.

Deposit Loss Booby Trap

A client came to us for pre-purchase legal advice, and we found this condition buried at the back of the contract in Special Conditions 17.3 and 17.4. These special conditions allow the vendor’s solicitors to invest the deposit, so that the vendor will get the benefit of interest earned on the deposit.

But what happens if the investment turns out to be a bad one? What if the sale fails, and the purchaser is entitled to a refund of the deposit, but the vendor can’t get the deposit back?

The special condition covers that eventuality at 17.4.3:

“The party entitled to the deposit monies on their release, or on the completion, rescission or termination of the Contract, bears the risk of loss of the deposit moneys and the interest. If the vendors solicitors have complied with special condition 17.4 they are not responsible in any way that any loss occasioned by that investment of the deposit moneys.”

It should be noted that this special condition affects the vendor as well as the purchaser. We suspect that very few vendors would have any idea that such a condition has been added to the contract by their solicitor or conveyancer.

We have noticed this nasty special condition creeping into a number of real estate contracts in recent times, and we strongly advise all consumers to pay very careful attention to contracts prepared for them if they are selling, or presented to them if they are buying.

We will publish more examples of nasty special conditions in future postings.

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