Whether you are selling your first home or your 5th investment property, selling residential property is a big decision and the drafting of the contract requires proper consideration. It is usually the Seller’s agent or solicitor who will prepare the contract of sale, therefore the Seller will usually have first preference in determining the form of the contract including which standard conditions will apply. In Queensland, there are two commonly used standard residential sale contracts – REIQ contracts and ADL contracts. Arguably, the REIQ contracts are more commonly used in residential sales however both contracts are considered standard.
So which contract is right for you? The standard terms of each contract vary considerably so it is worthwhile considering each contract’s terms and how they may impact your transaction. Below is a summary of a few of the major differences.
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REIQ |
ADL |
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Deposit A deposit is usually required under all residential sale contracts. |
Under the REIQ contract, the Buyer must pay the Deposit to the Deposit Holder in cash |
The ADL contract allows for the deposit to be paid to the Deposit Holder by Deposit Bond or Bank Guarantee (in a form and on terms acceptable to the Seller). |
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Finance condition It is common for most residential sale contracts to be subject to the Buyer obtaining finance approval on terms satisfactory to the Buyer. |
The REIQ contract is more buyer-friendly in that the Buyer is only required to take “all reasonable steps” to obtain finance approval, and allows the Buyer to terminate the contract if finance cannot be obtained without providing any evidence that Buyer’s application has been rejected, or in fact, even applied for.
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The ADL contract contains an express condition that the Buyer must make an application for finance promptly after the Contract Date and if required by the Seller, the Buyer must provide details of compliance with the obligation to make an application and take reasonable steps to obtain approval or written proof of rejection of the Buyer’s application. |
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Building and Pest condition Under both contracts, if the Buyer chooses to terminate the contract under the Building and Pest condition, the Buyer must provide the Seller with a copy of the unsatisfactory building and pest report/s.
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Termination of the contract take effect upon the Buyer giving notice to Seller. The Buyer must provide a copy of the unsatisfactory building and pest report/s if requested by the Seller. |
The ADL contract is drafted so that the Buyer’s termination of the contract will not take effect until the unsatisfactory building and pest report/s are provided to the Seller. This additional obligation on the Buyer may cause the Buyer to delay in terminating the contract until a formal report has been prepared by the inspector and provided to the Seller. The ADL contract also specifically states that white ant risk shall not be a valid reason for termination under the building and pest condition, whereas the REIQ contract is silent on this point.
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Insurance Both contracts state that the property shall be at the Buyer’s risk from 5pm on the next business day after the Contract Date. |
The REIQ contract does not require the Seller to maintain insurance during the contract period (although we usually recommend that Seller’s maintain their insurance during the contract period as well). |
The ADL contract contains a specific requirement that while the Seller is in possession of the property, the Seller must maintain a current insurance policy. |
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Outgoings Adjustments
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Under the REIQ contract, the date for adjustment of outgoings (including expenses like rates, water usage and rent) is the Settlement Date (unless otherwise agreed), |
The ADL contract states that the date for adjustment of outgoings is the earlier of the Settlement Date or the date the Buyer takes possession of the property. |
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Suspension of time
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Under the REIQ contract, suspension of time only operates where a party is unable to perform its settlement obligations because of natural disaster. |
Under the ADL contract, suspension of time will apply to any essential obligations of either party if that party is affected by a natural disaster. |
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GST Withholding
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The REIQ contract authorises the Buyer to draw a Bank cheque for the GST withholding amount in favour of Commissioner of Taxation and to deliver that cheque to the Seller at settlement. It is then the Seller who must pay the GST withholding amount to the ATO promptly after settlement. |
The ADL contract on the other hand authorises the Buyer to withhold the GST withholding amount from the balance purchase price and remit it to the ATO after settlement, i.e. the Buyer is not obliged to provide a bank cheque for the GST withholding amount to the Seller at settlement. |
Conclusion
On the balance, the ADL contract terms make it harder for a buyer to terminate the contract under standard conditions like finance or building and pest however they also impose a number of additional obligations on the seller that the REIQ contract does not. Before you enter into any contract for the sale of your residential property we strongly suggest you speak with one of our property lawyers to ensure the best contract is used for your unique circumstances.
If you would like to discuss your specific circumstances with one of our team please do not hesitate to contact a member of our Commercial + Property team.
This article was written by Amanda Tolson, Director. For further information please contact Amanda Tolson, Director.
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