Although these are extraordinary times, the rights and obligations of your clients in conveyancing transactions probably aren’t directly affected, as at 2 April 2020. It would appear that, in most cases, the current restrictions still allow for settlements to take place, and for people to move in and out of properties as needed, although there may be a need for some flexibility between the parties as to timing. In the event that further restrictions are imposed, the Law Society will continue to work with the NSW Government to ensure that the practical implications for solicitors and their clients are considered where public health orders and regulatory changes are made for the purpose of public safety. When relevant information is received, we will continue to distribute it through the Law Society’s Daily Updates.
With most conveyancing transactions being completed electronically, and the current continuation of services provided by Electronic Lodgment Networks, NSW Land Registry Services, Revenue NSW and the financial institutions, the settlement transaction itself should be able to proceed. Early in the transaction you should consider what might be the practical obstacles to completion, if any, and discuss with the other practitioner possible solutions. For example, difficulties with an owner or tenant vacating the property by the settlement date.
If the date for completion is not essential and you are considering issuing a notice to complete, you will need to make sure (to the extent that you can) that your client will be ready, willing and able to proceed to completion within the time appointed under the notice. You should also consider whether the time allowed for compliance with the notice is reasonable in all the current circumstances.
If you have a time of the essence contract due for completion, or a contract subject to a valid notice to complete, then you need to make sure (to the extent that you can) that your client complies with their obligations or there is an enforceable agreement entered into by the parties to vary those obligations. Depending on the nature of the variation, a degree of formality evidencing the variation might be required (for example, sometimes a variation document signed by the parties to the contract is preferable to an exchange of solicitors’ letters).
Whether a liquidated damages special condition will be operative will depend to a large extent on the wording of the relevant provision.
The continuation of contractual obligations is reinforced by the fact that there is very little in the way of routine conveyancing transactions that cannot be done electronically, and practitioners should be mindful of the risks of clients seeking to exploit the current circumstances for their own ends. If a practitioner fails to exercise due care and skill in relation to advising their client of their obligations, they may have difficulties defending a claim for professional negligence based on the existence of the pandemic.
Practitioners should also be mindful of the law regarding relief against forfeiture and the non-excludable operation of s 55(2A) of the Conveyancing Act 1919 in relation to repayment of deposit.
Guidance as at 2 April 2020
The Law Society is aware that a number of practitioners are including such conditions. Such special conditions will, like the provisions of sale themselves, be subject to any legislation (including orders and regulations) that cannot be excluded. Like any special condition, it all depends upon the circumstances of the transaction and the concessions the parties are willing to make. For example, some conditions are restricting the party’s ability to issue notices to complete in certain circumstances. Other special conditions provide a right of rescission. Still others identify circumstances which will extend the date for completion nominated in the contact. While it is difficult to draft such conditions as things are changing so quickly, relevant considerations might be:
- Is it a commercial or residential property?
- Is it sold subject to tenancy or with vacant possession? If sold with vacant possession, is it currently tenanted? How will any legislation restricting a vendor’s ability to provide vacant possession affect the contract?
- Is it a simultaneous settlement?
- Is the transaction proceeding electronically or is it subject to a waiver and proceeding in paper?
- Should the parties have a contractual duty to disclose COVID-19 related matters – either existing at the time of exchange or arising between exchange and settlement? Might that duty exist independently of the contract under, for example, the Australian Consumer Law?
- The interplay between a COVID-19 special condition and other provisions in the contract, for example, a special condition dealing with liquidated damages.
- If the special condition relates to the premises, should it address issues such as cleaning of the premises, and to what standard?
- If the special condition relates to the health status of the parties what will trigger the clause (for example, is being in self-isolation sufficient or need there be a positive COVID-19 diagnosis)? Will the clause be limited to the parties themselves or extend to those residing in the property?
- Given the current uncertainty in the employment of many people, should purchasers consider seeking to include a “subject to finance” clause (possibly addressing not only the initial approval of a loan but also the possibility that a lender might withdraw its loan offer prior to completion)?
When drafting or negotiating a clause:
- Consider what circumstance will enliven the condition e.g. vendor/tenant in quarantine, an order made under legislation affecting the transaction
- Ensure you have an objectively ascertainable mechanism/defined point for the agreed deferred settlement date.
- Ensure that the clause explicitly states the consequences if the specific desired outcome is not achieved.
- If the intention is to make completion conditional on a specific outcome, consider the structure of, and issues raised by, clause 29 of the standard contract.
Guidance as of 2 April 2020
The Courts have long recognised that a binding contract for sale of land can be formed without the necessity of a face to face exchange of identical counterparts.
Exchange of contracts by post, the Document Exchange and telephone have been judicially recognised in Australia as valid methods of contract formation even before the commencement of the Electronic Transactions Act 2000 and the 2018 amendments to the Conveyancing Act 1919.
This list is not exhaustive. Practitioners have also exchanged contracts by fax, email and using technology solutions which enable electronic signing on tablets and similar devices.
Some of the factors which practitioners will need to consider include:
- Is there a consensus about the mode of contract formation? Any decision about the mode of formation should involve the practitioners themselves (as distinct from clerks, secretaries or other support staff).
- Where the method adopted is not instantaneous (notably post or DX) there needs to be certainty as to the moment in the process at which the parties are contractually bound. Certainty is best achieved by the solicitors for the parties both agreeing before initiating the process and sending confirmatory emails after exchange of contracts.
- Care should be taken to ensure the deposit is paid on time. Note that the 2019 edition of the contract contemplates payment by EFT.
- How practical is the proposed mode? For example, while exchange by fax is possible, given the size of contracts and not all practitioners may have access to fax machines, an alternative method may be preferable.
- Consider using a combination of modes – for example, an exchange by telephone might usefully be confirmed by an email or a fax.
- Where the contract is not formed by a face to face exchange of counterparts, practitioners must take even greater care to ensure that the counterparts are identical.
Guidance at 2 April 2020