Contracts – Find The Devil In The Detail

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

Purchasers should take care before signing a contract to purchase real estate, particularly at auctions. Special conditions can be used to pass a vendor’s risk to an unsuspecting purchaser.

We have shown that estate agents often insert nasty special conditions into contracts, but they’re not the only ones. Lawyers and conveyancers do it too.

A purchaser, intending to purchase at auction, asked for pre-auction legal adviceon a contract prepared by Davis Lawyers of Melbourne. The contract contained the following special condition:

“12. The Purchaser warrants that he has not been introduced to the Vendor or to the property directly or indirectly by any Real Estate Agent other than the Agent herein described or other person who might be entitled to claim commission from the Vendor in respect of this sale and the Purchaser shall indemnify and keep indemnified the Vendor, at all times, notwithstanding settlement hereof from and against any claim or liability for commission or damages resulting from a breach of this warranty.”

We advised our client that this special condition could require her to pay the vendor’s estate agency bill, possibly costing her many thousands of dollars. To explore the issue further we asked Davis Lawyers a series of questions:

Question 1

The Exclusive Sale Authority used by estate agents typically defines “introduced” to the property as follows:

“Introduced to the Property means that the person was made aware that the Property was available to purchase irrespective from whatever source. Without limiting the foregoing a person shall be deemed to have been Introduced to the Property by the Agent if the person became aware that the Property was available for purchase as a result of viewing, hearing or reading any advertisements of whatever nature or medium or any boards, placards or other literature referring to the availability of the Property that were connected to the Agent in any way.”

Doesn’t this mean that a purchaser could be caught out by seeing the property while it was listed with the first agent, and then buying it at an auction conducted by the second agent?

Question 2

Isn’t the vendor in a better position than the purchaser to discover whether another agent is eligible to claim a commission?

Question 3

Would you agree that the average purchaser would not realise that this special condition could cost them many thousands of dollars?

Question 4

Do you regard the use of this special condition as fair and ethical?

Question 5

What advice would you offer to a purchaser who wants to sign a contract containing this condition, but does not want to risk having to pay thousands of dollars in addition to the purchase price?

Davis Lawyers did not provide answers to these questions.

Our advice to any purchaser who is confronted with a special condition such as this is to strike it out entirely. In this case our client met strong resistance from the estate agent when she attempted to delete the special condition, and she telephoned our on-call lawyer for advice.

We made the observation that the special condition had been inserted into the contract for a reason. It seemed that the vendor had lost track of the number of people “introduced” to the property by his previous estate agent, and was concerned that the previous estate agent could claim a full commission from him.

The vendor’s “need” for inclusion of the special condition was probably an indication of the level of risk the purchaser was exposing herself to.

We eventually devised a strategy that would allow the client to proceed safely with the purchase without having to assume responsibility for the vendor’s estate agency bill.

Conclusion

Purchasers rarely understand the full implications of special conditions inserted into real estate contracts. It is most important that purchasers have the contract checked carefully, and fully understand the special conditions contained in what is commonly known as “the fine print”.

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