The Issue:

A terms contract can exist by operation of the Sale of Land Act regardless of the apparent intention of the parties and purchasers may take advantage of this to avoid a Contract.

What Happened?

A Vendor sold vacant land in Balwyn on the basis of a cash Contract with 10% deposit and the balance payable in 10 months. The Purchaser was a builder and wanted early access to the property to start work. The Vendor agreed and Vendor's agent wrote in a clause specifying that the Purchaser was entitled to 'immediate possession' of the Property from the Contract Date. Later on, the Purchaser sought to have the title transferred from the Vendor before settlement in exchange for a mortgage to the Vendor. He requested this on the basis that the Contract was a Terms Contract and he was entitled to such a transfer under the Sale of Land Act. The Vendor refused arguing that the Contract was a cash Contract. The Purchaser sought to avoid the Contract on the grounds that the right to immediate possession before settlement made the Contract a Terms Contract and the Vendor had not complied with the usual Terms Contract obligation to deliver title to a Purchaser in exchange for a mortgage.

The Court found that the Purchaser could avoid the Contract. The Contract was found to be a Terms Contract by operation of the Sale of Land Act, given the Purchaser's right to have 'immediate possession' before settlement. Although the Vendor can argue that an accidental Terms Contract is nonetheless enforceable if the Purchaser is in no worse a position, the Court found that the Purchaser was in a worse position given the financial impact of the Vendor's refusal to transfer title in exchange for a mortgage.

An unscrupulous Purchaser may use these technicalities to avoid Contracts.

Practical Tip:

Beware of accidentally creating Terms Contracts when dealing with rights which vary the usual timing for possession and settlement. For the protection of you and your clients, ensure that you obtain appropriate advice before adding conditions or changing the usual wording of a Contract which might impact upon these rights.

If you require assistance, please give us a call on 1300 205 506 or send an email to sp@sharrockpitman.com.au.

The information contained in this article is intended to be of a general nature only and should not be relied upon as legal advice. Any legal matters should be discussed specifically with one of our lawyers.

Liability limited by a scheme approved under Professional Standards Legislation.