Instalment Contracts in Queensland (Real Estate Advice) from a QLD Law Firm
Tuesday, September 11, 2018
Instalment Contracts in Queensland
An instalment contract is a sale of land contract whereby the property is payed for in instalments across time. The title of the property does not transfer to the purchaser until the final instalment is paid. This type of contract differs from a typical sale of land contract which generally consists of a refundable deposit of up to 10% of the purchase price and the remainder of the purchase price being paid at settlement.
The purchaser’s risks in an instalment contract
In a typical sale of land, the parties – particularly the buyer – will not wish for their contract to be an instalment contract. The major risks for purchasers in an instalment contract stem from the fact that they do not have title to the land until they have completed the instalments. If the vendor becomes bankrupt before the instalments are completed, then the purchaser’s claim to the land will be subject to any pre-existing charges and mortgages over the land. In addition, instalments are non-refundable and therefore a subsequent breach of payment obligations could prevent the purchaser from obtaining not only the property but also the money they have already paid towards the property.
How a regular contract could become an instalment contract
A sale of land contract may inadvertently become an instalment contract where the payments made by the purchaser prior to settlement are no longer considered to be a ‘deposit’ under the Property Law Act. A payment prior to settlement will not be considered a deposit if it is greater than 10% of the purchase price or if it is either expressly or impliedly non-refundable.
To prevent a contract from unintentionally becoming an instalment contract, it is important to ensure that no more than 10% of the purchase price is paid prior to settlement. It is equally important to ensure that the deposit is refundable. The REIQ standard form contract states that the deposit is refundable and stipulates who is entitled to the deposit if the contract terminates for any reason. Parties should avoid inserting special conditions that contradict these standard terms or they risk the contract becoming an instalment contract.
Protections under the Property Law Act
Given the potential risks discussed above, there are a number of legislative protections afforded to purchasers in instalment contracts. Firstly, the seller is unable to mortgage the property without the purchaser’s permission. This prevents the seller from entering into a mortgage, thereby preventing awkwardness or loss to the purchaser if the vendor breaches a mortgage and the bank seizes the property, leaving the purchaser without a remedy.
The purchaser is also entitled (and often encouraged) to lodge a caveat over the property once they have entered into the contract. Having a caveat prevents others from registering an interest on the property and therefore adds a layer of protection from the property being sold while the contract is on foot.
Purchasers in instalment contracts also have the option of demanding conveyance (transfer of title) upon paying a third of the purchase price, in return for the seller obtaining a mortgage over the remaining two thirds of the property. This option can also be exercised by the seller.
Finally, purchasers are afforded a 30 day notice of termination from the seller in the event that the purchaser defaults on an instalment, with the exception of the initial instalment. If the purchaser rectifies their breach within 30 days, then the contract remains on foot as if no breach occurred.
Read our other article Instalment Contracts
Thursday, February 15, 2018
Can you avoid getting caught in an instalment contract?
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