Sometimes parties to a contract want to agree to reduce the price after the contract is signed. Maybe unexpected major problems have been revealed by due diligence or building and pest inspections. Maybe a buyer can’t get finance approval and there are no other buyers around. Maybe COVID-19 is financially affecting one or both of the parties, as is happening so much at the moment.
Sounds easy to do? Just an exchange of emails, you may think.
It is important not to treat an agreed price reduction casually.
It is true that an agreement in writing, including by correspondence, can effectively vary the contract. However, there is a sting in the tail. A buyer will still have to pay stamp duty (called transfer duty) on the full price, unless the price reduction is documented in a Deed of Variation.
A Deed of Variation is a simple document which can save a buyer a lot of money. Legal fees for such a Deed are not major. The buyer should compare the anticipated legals against the duty saved. If the duty saving exceeds the legals, it is probably worth it; if it doesn’t, then maybe a Deed of Variation would be overkill. However, for accounting and tax purposes, it is always best to have clear written evidence of the price paid for an asset.
What about a price increase? For example, the parties may agree to add an asset to the contract which causes the price to increase as well.
The difference here is that duty is payable on the higher amount even if there is no Deed of Variation. The buyer will have to voluntarily advise the Office of State Revenue of the higher price, and pay the higher amount of duty.
A Deed of Variation is a good idea for a buyer where there is a price increase, regardless of the amount of the additional duty. The Deed provides easy evidence of the actual price paid, for accounting and financial purposes.
Do you want to get your transfer duty reduced?
FC Lawyers can help you with advice on any proposed contract, as well as varying any contracts already entered into. We recommend that legal advice be obtained before signing a contract.
Contact our team today to discuss any property contract or transfer duty issues.
The information provided in this article is for general information and educative purposes in summary form on legal topics which is current at the time it is published. The content does not constitute legal advice or recommendations and should not be relied upon as such. Whilst every care has been taken in the preparation of this article, FC Lawyers cannot accept responsibility for any errors, including those caused by negligence, in the material. We make no representations, statements or warranties about the accuracy or completeness of the information and you should not rely on it. You are advised to make your own independent inquiries regarding the accuracy of any information provided on this website. FC Lawyers does not guarantee, and accepts no legal responsibility whatsoever arising from or in connection to the accuracy, reliability, currency, correctness or completeness of any material contained in this article. Links to third party websites or articles does not constitute any endorsement or approval of those sites or the owners of those sites. Nothing in this article should be construed as granting any licence or right for you to use that content. You should consult the third party’s terms and conditions of use in relation to any third-party content. FC Lawyers disclaims all responsibility and all liability (including liability for negligence) for all expenses, losses, damages and costs you might incur as a result of the information being inaccurate or incomplete in any way. Appropriate legal advice should always be obtained in actual situations.
Prefer to get in touch?
With offices in Brisbane, Sunshine Coast, North Queensland and Sydney, our team is well equipped to provide both advice and support across a broad range of legal areas.
