If you’re planning on buying a new property but need to sell another property first to ensure you have sufficient funds, it is important to consider including a “subject to sale” condition into your purchase contract.
What is a Subject to Sale Condition?
A subject to sale condition is where settlement of a Buyer’s purchase, can only occur upon the successful settlement of the sale of the Buyer’s existing property. This provides additional protection to ensure that if a Buyer is relying on proceeds from their prior sale contract, to fund their purchase, they have the ability to not proceed with the purchase should the sale not occur.
Without the subject to sale condition, a buyer would still be legally obligated to proceed with their purchase even if their prior property does not sell.
Why is the Subject to Sale Condition important?
- Reduces Financial Risk
As a Buyer, you must be able to complete Settlement by the due date.
In the event where a Buyer’s Prior Sale Contract does not settle, and the Buyer does not have the funds to settle the purchase, the Seller would be able to:
- terminate the Contract;
- keep the buyer’s your deposit in full; and
- claim compensation from the buyer (e.g. if they sell for a lesser amount, they can claim the difference between your sale price and the lesser sale price from you).
It is important to advise your lawyer, as a Buyer, that you are relying on a previous sale to occur to utilise the proceeds to fund your purchase. This way, your lawyer is able to ask the Agent to include the Subject to Sale Condition in the Contract before it is signed, as it is not likely the Seller will agree to amending the Contract once it is fully signed.
- Provides Greater Certainty
The Subject to Sale Condition allows the Buyer to specify the dates by which they must:
- Enter into a signed Prior Sale Contract;
- Have the Prior Sale Contract become unconditional; and
- Complete settlement of the Prior Sale Contract, whether on the same day as, or prior to, settlement of the purchase contract.
By agreeing on these dates, both parties gain a greater certainty regarding the timeline for Settlement.
This condition therefore can provide the Buyer with greater peace of mind when securing a new home, by allowing them sufficient time to market and sell their prior property, reducing the pressure to accept a lower offer, whilst providing a Buyer the ability and security to negotiate for a stronger position, knowing the purchase is protected by the Subject to Sale Condition. Be careful though, there are still deadlines by which a Buyer must obtain a Prior Contract by!
- Avoids the need for Bridging Finance
Bridging finance can assist Buyers who wish to purchase a property before completing the sale of their existing property. However, this often involves higher interest rates, additional fees, time delays and increased finance risk, what is for example they don’t sell their prior property and cannot manage paying two mortgages at once? It is crucial you speak with your broker or banker before going down this path for financial advice.
Conclusion
Buying and selling property at the same time can be challenging, however a subject to Sale Condition provides valuable protection and peace of mind, offering a practical way to secure your next property whilst reducing the financial risks associated with having two mortgages to pay at the same time.
It is important to remember that this condition is not automatically included in a contract and should be carefully drafted to reflect your individual circumstances. The wording of the condition, including relevant dates, obligations and requirements, can significantly affect your rights and obligations when entering into a purchase contract.
Contact the property team at FC Lawyers for assistance on whether this condition should be included in your purchase contract and how to draft it.
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