DIY legal documents for conveyancing transactions — sale and purchase and loan agreements

This post is part of an on-going series. Please read the following earlier posts for context:

  1. DIY legal documents for conveyancing transactions — can we really do it without lawyers?
  2. DIY legal documents for conveyancing transactions — why some people think you don’t need lawyers in a sale and purchase of property.
  3. DIY legal documents for conveyancing transactions — understanding the basics of a sale and purchase property.

THE SALE AND PURCHASE AGREEMENT

Having considered all of the basic issues which would arise in a normal sale and purchase transaction, we come down to the most important document — the sale and purchase agreement.

Taking the attendees through basic conveyancing issues.
Taking the attendees through basic conveyancing issues.

The sale and purchase agreement is the glue which holds the entire transaction together. It must provide for every conceivable scenario relevant to your transaction.

If there is a charge, it must provide for redemption. If consent is required, it must provide for the consent application process.

A common problem that comes about when people use inferior sale and purchase agreements is that it doesn’t provide for every scenario.

I’ve had people come up to me and say —

I’ve signed this agreement six months ago, it seemed to be a very clean process, but suddenly it’s stuck because the bank doesn’t want to give a letter or the other side doesn’t want to provide some document which apparently is a must.

I went to my lawyer and my lawyer says — “They were supposed to provide the document, but they haven’t yet.. I’ve asked them already. I call them twice a day. I’ve called them this morning. I’ve chased them but they’re taking their own sweet time.”

My lawyer says there’s nothing else he can do but wait.

What do I do?

In those situations, we always go back to the sale and purchase agreement. But in some cases, the agreement doesn’t provide an answer. Perhaps it says that the document must be provided if requested, but doesn’t provide a timeline. Maybe it doesn’t tell you what happens if the other party moves slowly. Sometimes it doesn’t allow you to terminate because not providing the document (or not providing it in a timely manner) is a minor breach. An inferior sale and purchase agreement can severely hamper an entire transaction, because the document which is supposed to be the master agreement which drives the transaction towards completion is flawed.

In a sale and purchase agreement, timelines are very crucial.

If it is a good sale and purchase agreement, a lay person should be able to read through the agreement and understand how it works.

A reader should be able to draw a flowchart of the entire transaction based on the clauses — if this happens, that must happen, and then this must happen within 14 days.

A lay person should be able to understand a sale and purchase agreement — there’s no need for it to be in legalese or contain unnecessarily big words.

A sale and purchase agreement should also provide for things like when the documents are to be exchanged, when the money is to be paid, when they keys have to be handed over, and also of course very important thing like warranties regarding the condition of the property.

What if someone sells you a house, and you enter the house and there is all sorts of junk in it? Is there some sort of recourse for you to take action, to say that the seller has breached the contract, that the seller has reduced the value of the property. It’s not just giving me keys to the front door, the condition of the property is very important.

How do you calculate late payment interest? How do you apportion outgoings, like quit rent, assessments, utility bills — who pays for all this? What if I buy in the middle of the year and some bills are paid, some bills are not? How can I claim back for the unpaid bills? Sometimes you buy a property and you realise the seller hadn’t paid the electricity bill for three months. There must be a way for you to point to a simple clause in the agreement that says you must pay up to this date.

It is insufficient for a good sale and purchase agreement to just provide for the sale and purchase of a property in a basic manner (exchange of money for keys) — it has to provide for every last detail of the transaction; for every possibility.

Crucially, it must always provide a solution if things go wrong. Many poorly-drafted agreements lead the parties into a dead end, a deadlock. A sale and purchase agreement must always provide a way to terminate the agreement.

How do you terminate? Who has the right to terminate? What entitles you to terminate? When you terminate, when does the money have to be returned? If the money isn’t returned on time, is late payment interest incurred? Are there any other penalties for breaching the agreement and causing the termination?

There is no room for uncertainty or ambiguity in a sale and purchase agreement. The agreement must be watertight. There must be no gaps, no loopholes. So the next time you sign a sale and purchase agreement, please read it. If you don’t understand it, and your lawyer can’t help you to understand it, get a better lawyer.

LOAN AGREEMENTS

I will very briefly touch on loan agreements to give a complete picture of a sale and purchase transaction.

Most of us would have to take a loan to purchase property, and the loan process is another world altogether.

You meet a bank officer, who if anything is even more vague than a lawyer — but you’re desperate to get a loan, and will sign anything put in front of you by a bank which is willing to give you 90% financing.

The loan documents are “standard” but they are standard only in relation to that bank. Every bank has completely different loan documentation, and all of them are very thick documents which are very difficult to understand. These include the charge and other security documents which I’ve gone through in my previous post.

Most of the time, the bank officers and lawyers can’t explain some of the convoluted clauses in their own agreements. But these agreements are standard and non-negotiable anyway, so everyone just signs them.

Which then begs the question — what’s the point of paying a lawyer legal fees for preparing standard documents which aren’t negotiable?

A quirk of the loan documentation process is that the lawyer (who you mistakenly think is your lawyer) will make sure that you are clearly aware that he is acting for the bank. Despite this, you must pay his legal fees. So, there is a quirk in the banking system which really doesn’t make sense.

This concludes the very quick overview of a simple conveyancing transaction, and in the next post we will wrap up how the ideal we mentioned at the beginning is really quite far from the reality (as you should by now be aware).

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