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Property: Beware the fine print

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Cite as: April 2012 86 (04) LIJ, p.81

Amending a standard contract of sale can have negative consequences.

Regular readers of this column will note a recent contract-centric emphasis. This month continues that focus by considering how the standard form contract can, or should, be changed.

The standard contract of sale of real estate is not a compulsory document and may therefore be changed by agreement between the parties. The authors of the contract surrendered copyright in the contract so that it could be adopted by the Estate Agents (Contract) Regulations 2008 as a standard form available for use across the conveyancing industry. The contract includes 28 general conditions that form the basis of a contract that is capable of providing all the terms necessary to make a workable, binding contract between vendor and purchaser.

This means that special conditions ought not be necessary in a standard conveyancing transaction, although it remains permissible to supplement or change the general conditions by special condition. Unfortunately many lawyers find it difficult to move on from time-honoured precedents and many contracts still include pages of special conditions that, if considered carefully, generally add nothing to the general conditions and indeed often contradict those general conditions. Generally this is simply a consequence of laziness, with the practitioner not bothering to determine how those “old” special conditions interact with the new general conditions. The worst example of this is the special condition that refers to Table A, a provision that was repealed in 2009.

Some transactions do require special conditions. In such cases the special conditions are added to the contract (in the newest version of the contract, before the general conditions) and take precedence over the general conditions. It is possible for those special conditions to change the general conditions and some common examples of this are to remove general condition 24.4 or to amend the penalty interest rate.

One of the popular consequences of the new contract was to abandon the time wasting exercise of “requisitions” and replace it with contractual warranties, set out in general condition 2, so that a purchaser can have certain basic expectations about the transaction confirmed. While it is theoretically possible for the vendor to include a special condition amending these contractual warranties, to do so undermines the whole structure of the contract and is not recommended.

Altering general conditions

Unfortunately some practitioners have chosen to adopt a more surreptitious method of amending the contract. Rather than adding a special condition, these practitioners amend the wording of the general condition. The Legal Practitioners’ Liability Committee (LPLC) In Check Issue 53 of December 2011 alluded to this practice and warned the purchaser’s practitioner of the danger of missing such a surreptitious change. However, there may well be danger for the vendor’s practitioner who adopts this practice.

George T Collings v H F Stevenson (Aust) P/L is a 1990 unreported judgment of Nathan J in the Supreme Court of Victoria. The case relates to the interpretation of an estate agent’s sole agency authority, specifically the period of time during which the vendor was bound to pay the agent commission in respect of a sale. The authority allowed for the inclusion of a specific period but also provided that the authority extended indefinitely, unless terminated by the vendor. The agent negotiated a sale outside of the specified period and claimed commission on the basis that the vendor had not terminated the authority. Nathan J found that the authority was unenforceable as “unconscionable” on the basis that the indefinite extension of time was “submerged in the fine print of the contract”. He concluded that “(i)t is unconscionable to imbed in a pro forma contract, a term inconsistent with its stated purpose”.

By analogy, a vendor who adopts the standard form contract of sale of land but surreptitiously amends that contract such that the amendment is “submerged in the fine print” may well find that such an amendment is unenforceable as unconscionable. If that amendment were to be to the penalty interest rate, no interest would be payable. No better example of the saying “hoist by his own petard” can be imagined.

Notwithstanding the High Court confirmation of the significance of contractual terms in Toll (FGCT) P/L v. Alphapharm P/L [2004] HCA 52 it is submitted that, particularly in a residential sale environment, the powerful argument based on unconscionability will prevail to strike out any amendments to general conditions that are affected other than by way of a special condition. The negative consequences for a vendor in such circumstances might be the next matter of concern for the LPLC.




Russell Cocks is author of 1001 Conveyancing Answers. For more information go to www.russellcocks.com.au.

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