Glossary of key terms used in conveyancing

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Adjustments

Adjustments refers to the apportionment of rates and charges that run with the property. The Vendor is responsible for Council Rates, Water Rates and Strata Levies until the settlement date, and the Purchaser is responsible for these charges thereafter. Accordingly, any rates and charges paid by the Vendor in advance are to be adjusted back to the Vendor by the Purchaser at settlement. This is normally done by settlement adjustment figures being prepared on settlement to ensure that neither party is paying rates and charges for a period when they did not own the property, to ensure that the Vendor is compensated for rates and charges that have been paid in advance and to ensure that any arrears are paid from the proceeds of sale.

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Cooling off period

What is a cooling off period and how long should it be? The cooling off period is a period (a minimum of 5 business days but sometimes negotiated to 10 business days) after Contracts have been exchanged, where the property comes off the market and the Vendor is locked in, but the Purchaser isn’t and has the opportunity to conduct their due diligence. This may include obtaining inspection reports, advice on the Contract terms and finance approval. The Purchaser has until the end of the cooling off period in which to decide whether to lock into the Contract or rescind. If the Purchaser rescinds, they forfeit the holding deposit, usually 0.25% of the price to the Vendor.

Broker

Who is a broker and what is their main role? A broker (also referred to as a ‘Mortgage broker’) is an organisation or an individual who a Purchaser can engage to assist them in making an application to a financial institution to secure a loan. Usually, a broker has access to several financial institutions and can advise the Purchaser about how much they can borrow and which financial institution has the best options for them based on their individual circumstances.

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Contract for Sale/ Purchase of Land

What is in a Contract for Sale of Land? A Contract for Sale is the legally binding agreement by which a Vendor agrees to sell, and a Purchaser agrees to buy a specific property. The Contract sets out terms and conditions as well as rights and responsibilities of the parties to it. The Contract for Sale must contain ‘prescribed documents’ which disclose information about the property. The Contract for Sale is prepared by the Vendors representative.

Deposit

What is a deposit? A deposit is required to be paid prior to a Contract being exchanged. The amount can vary. If Contracts are exchanged pursuant to a cooling off period, the initial deposit payable is 0.25% of the price and then balance of 10% is payable prior to the expiration of the cooling off period. If Contracts are exchanged unconditionally, the deposit payable on exchange is 10% of the price. In some instances, the deposit can be negotiated to 5% of the price. The deposit is paid into the Real Estate Agent’s trust account or the trust account of the Vendors legal representative.

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Exchange

Exchange of Contracts occurs once the Vendor has accepted the Purchasers offer, the deposit has been paid and the Contract has been signed. It makes the agreement for the Purchaser to buy and the Vendor to sell the property legally binding. What happens at Exchange of Contracts? The process of ‘exchange’ involves the Contract signed by the Vendor being compared to the Contract signed by the Purchaser. Once they are compared and confirmed to be identical, they are dated. Contracts are then ‘exchanged’.

Deposit-bond

A Deposit Bond acts as a substitute for a cash deposit.  It is an insurance policy that ‘guarantees’ to the Vendor that the Purchaser will pay the deposit at settlement. The Vendor has a discretion as to whether it will accept a deposit bond in lieu of a cash deposit. This should be negotiated by the parties prior to entering the contract or during a cooling off period.

How does a Deposit Bond work? The deposit bond is provided prior to an unconditional exchange of Contracts and then at settlement the Purchaser pays the full purchase price, including the deposit. This is commonly used where the Purchaser is borrowing all the funds from the bank to purchase the property and doesn’t have access to any savings/funds of their own.

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Final Inspection

A final inspection is an inspection carried out by the Purchaser of the property being purchased prior to settlement. The Contract states that the Vendor must allow the Purchaser to make 1 inspection of the property in the period prior to settlement. This is arranged via the Real Estate Agent. The purpose of it is to ensure that the property is still in the same condition as when Contracts exchanged (i.e. that no damage has been caused), that the items which are to be included in the purchase are left on the property and to ensure that the Vendor has removed all other items.
It is essential that you take note of the condition of the property at the time of your initial inspection and prior to entering the contract. This will then serve as a comparison to identify any changes in the properties condition at the final inspection prior to settlement.

E-Conveyancing

Electronic conveyancing is the legal process involved in buying or selling property which occurs electronically. E-Conveyancing becoming mandatory in NSW 1 July 2019. As such, you can no longer lodge mainstream property dealings in paper in NSW. Since then, e-Conveyancing has developed significantly and now all documents that would have been lodged over the counter in paper at Land Registry Services can be lodged electronically.
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Foreign Resident Capital Gains Withholding Tax Clearance Certificate

A Foreign Resident Capital Gains Withholding Tax Clearance Certificate is required to be obtained by the Vendor and provided to the Purchaser.

The purpose of foreign resident capital gains withholding tax certificate is where the Vendor is an Australian resident, the Certificate states that the Vendor is not foreign and confirms to the Purchaser that no withholding of the price is required. Where the Vendor is foreign, it imposes an obligation on the Purchaser to withhold 12.5% of the purchase price and pay it to the ATO.

GST stands for Goods and Services Tax and can apply to the sale of certain property types if the Vendor is registered or required to be registered for GST purposes. If GST applies to the sale of a property and the price is noted as excluding GST, the Purchaser is required to pay the GST component in addition to the agreed purchase price at settlement.

How much is a holding deposit on property purchases? The holding deposit is typically 0.25% of the purchase price and is paid prior to or simultaneously with entering into the Contract to purchase the property. It signifies that the Purchaser is serious about purchasing the property and is non-refundable in instances where Contracts are exchanged. In some cases, the holding deposit can be any amount nominated by the Vendor which is refundable in part or full if Contracts are not exchanged within a certain timeframe.

What are property inclusions? Inclusions are items which form part of the sale price that will remain in the property at settlement for the Purchaser. They are marked on the front page of the Contract. The contract usual provides a clause to state the inclusions are being purchased in their present condition state and repair. It is important to check the condition of the inclusions prior to entering into the contract. 

What does joint tenants mean? Joint tenants is a type of tenancy, a way in which you can own a property. Where you purchase a property in more than one name, you need to make a decision about how it will be owned. Joint tenants is where you own the property together 100% with the other Purchaser/s. It means that when one of you pass away, the property automatically passes to the other, irrespective of whether a will is in place. If you elect to own the property as Joint Tenants, you can’t leave your share to someone else regardless of the terms of your will. Your share will be left automatically to the other Purchaser.

What is Land Tax? Land Tax is an annual tax charged on the land value of all the property you own that is over and above the land tax threshold. Although, in saying that, your principal place of residence is usually exempt and not taken into account when determining your land tax liability.

A Licensed Conveyancer is a legal professional who facilitates the legal process of buying or selling for you. They’re a qualified and regulated professional who can act for you in relation to your property transaction.  A Licensed Conveyancer is not the same as a Solicitor. The significant difference between a Licensed Conveyancer and Solicitor is that a Solicitor can act in other areas of law, whereas a Licensed Conveyancer is only licensed to act in property-related transactions. In saying this, when buying or selling, a Licensed Conveyancer provides the essentially the same service that a Solicitor would.

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Off the Plan

When you purchase a property ‘off the plan’, you enter into the Contract and lock into the purchase prior to or during construction of that property, but settlement doesn’t take place until the construction has been completed. Usually, settlement is required within 21 days of an Occupation Certificate being issued.

PEXA

PEXA is a platform that Licensed Conveyancers and Solicitors use to lodge documents and complete your property settlement electronically.

Mortgagee

Mortgagee is another word for your bank or lender. It’s the institution that is lending you money to purchase a property and who you are taking out a mortgage with.

Notice to Complete

A Notice to Complete is a document that is issued by one party on the other if they do not complete the Contract by the settlement date. The document states that the party issuing the Notice is ready to settle but that the other has failed to do so on time and is in default. It gives the defaulting party a further 14 days to complete. If they don’t complete the Contract within that additional 14-day period, the Contract can be terminated by the party who issued the Notice to Complete and further penalties may apply to the defaulting party.
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Prescribed documents are documents that are required by law to be attached to the Contract for Sale. A title search of the land and a  Zoning Certificate (or 10.7 (2) and 10.7 (5) Certificate as they are also called) is an example of a prescribed document.

 The Purchaser is the Buyer, the person or people who are buying property.

A rescission of the Contract means a cancellation of the contract from inception, as if the contract did not exist. 

Settlement’ is the conclusion of the transaction between the Vendor and Purchaser. The settlement date (also sometimes referred to as the ‘completion date’) is the day on which the Purchaser becomes the owner of the property and the day the balance of the purchase price is paid to the Vendor.

Settlement normally occurs 6 weeks or (42 days) after exchange, however, the settlement period can be altered to suit the needs of the parties.

What is meant by a sunset date? A Sunset Date most commonly appears in a Contract for the purchase of an off-the-plan property or the purchase of unregistered vacant land. This is the date that the Contract may be rescinded without penalty, by either party, if conditions are not met and settlement has not taken place. The condition is usually issue of an Occupation Certificate or registration of the land. The Sunset Date is essentially the date by which the Vendor must have the property ready for settlement. The intention of a sunset date is to protect the Purchaser from being tied to the purchase of an incomplete property and to protect the Vendor by ensuring that Purchasers cannot pull out of the Contract if the property is not ready for settlement prior to a certain date, the Sunset Date.

This is a form of property ownership where two or more parties hold distinct and often unequal shares in a property, this type of property ownership is unlike joint tenants in that the right of survivorship upon the death of one of the parties is not automatic. Accordingly, upon the death of a party, that parties share must be bequeathed via a will     

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Unconditional

What is an unconditional contract? When a Contract becomes unconditional, it means all parties are locked into it and bound by its terms, there is no option for either to rescind.

Unregistered Land

What does it mean if land is unregistered? Unregistered land is a parcel of land that is sold prior to it being in actual existence. At the time you enter into the Contract, the parcel of land being purchased still forms part of a much larger parcel of land. So, subject to certain terms and conditions, the Contract promises to deliver the parcel of land at some point in the future. The parcel of land typically requires construction works to be completed, approval of Council and to be lodged to Land Registry Services before settlement can take place.

Termination

A termination ends the contract from a specific point moving forward. It discharges future obligations; however, it retains accrued rights and is commonly used in breach of contract scenarios.

Transfer Duty

Is stamp duty and transfer duty the same thing? Transfer Duty was formerly called Stamp Duty. Yep, they’re one in the same thing – Stamp Duty essentially got a name change. So, when you see either of these terms, they mean the same thing. What is transfer duty? Transfer Duty is a tax that is charged when you buy a property. It’s payable to transfer the ownership of a property to someone else. The party liable to pay the transfer duty is the Purchaser. To find out how much transfer duty is payable, you can use the calculator available on the Revenue NSW website.
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Vendor

The Vendor is the Seller, the person or people who own the property and are selling it.

Zoning Certificate or Planning certificate

A zoning certificate (which is also referred to as a ‘10.7 (2) and 10.7(5) Certificate’ or ‘Planning Certificate’) is a document issued by the Local Council that provides information about controls, requirements and restrictions that may impact how the property can be used. It is a prescribed document meaning it must be attached to the Contract for Sale. The information provided for in the certificate includes but is not limited to information about whether the property is heritage listed, bushfire prone and/or flood affected.

Who is a broker and what is their main role? A broker (also referred to as a ‘Mortgage broker’) is an organisation or an individual who a Purchaser can engage to assist them in making an application to a financial institution to secure a loan. Usually, a broker has access to several financial institutions and can advise the Purchaser about how much they can borrow and which financial institution has the best options for them based on their individual circumstances.
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