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the coveyancing process

EXPLAINED
an eBook from Mortgage Choice

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About this document

This guide has been prepared to provide a general guide to the conveyancing process (i.e. the process for selling and buying real estate). The process differs significantly from State to State. The information included is not definitive and should be treated as a guide only. You should always seek expert advice from a qualified practitioner regarding any conveyancing matter. This guide relates primarily to residential sales.

Disclaimer
The information included in this document is not definitive and should be treated as a guide only. It does not constitute legal advice. It should not be relied upon as a complete and factual statement of the relevant legal processes and requirements in place throughout the various Australian jurisdictions. Mortgage Choice Limited (ACN 009 161 979) assumes no responsibility for the accuracy or otherwise of the information contained in this document. Potential purchasers of real estate are advised to always seek expert advice from a qualified practitioner regarding any conveyancing matter and certainly prior to entering into any agreement that imposes legal obligations. This guide relates primarily to the sale of residential real estate.

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Contents
Part 1 General information....................................................................................................................3 Overview...................................................................................................................................................... 3 Understanding solicitor talk......................................................................................................................3 The need for writing .................................................................................................................................... 3 The general process....................................................................................................................................4 The way contracts come into existence......................................................................................................4 Types of title.................................................................................................................................................6 Part 2 Steps in the conveyancing process.........................................................................................7 Step 1 Preparation of the Contract of Sale..............................................................................................7 Step 2 Make an offer................................................................................................................................ 7 Step 3 Paying a holding deposit.............................................................................................................7 Step 4 Buying at auction..........................................................................................................................8 Step 5 Exchange of contracts & paying a deposit.................................................................................. 8 Step 6 Risk............................................................................................................................................... 8 Step 7 Cooling-off period.........................................................................................................................9 Step 8 Transfer of property title..............................................................................................................10 Step 9 Time for completion..................................................................................................................... 10 Step 10 Requisitions................................................................................................................................ 11 Step 11 Outgoing mortgagee...................................................................................................................11 Step 12 Adjustments...............................................................................................................................12 Step 13 Settlement.................................................................................................................................. 12 Step 14 After settlement.......................................................................................................................... 12 Note if settlement does not occur........................................................................................................... 12 Key differences between the States and Territories.........................................................................13 Queensland................................................................................................................................................13 New South Wales......................................................................................................................................13 Victoria........................................................................................................................................................ 14 Tasmania..................................................................................................................................................... 15 South Australia...........................................................................................................................................15 Western Australia........................................................................................................................................ 16 Australian Capital Territory.......................................................................................................................... 16 Northern Territory.......................................................................................................................................16

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Part 1 General information

Overview
Conveyancing refers to the sale of real estate from a vendor (seller) to a purchaser (buyer). Conveyancing can also refer to the process under which a mortgagor gives a mortgage to a mortgagee.

Understanding solicitor talk

Exchange when a binding legal contract to buy and sell land comes into existence. A deposit of 5% or 10% of the purchase price is usually paid at the time of exchange and usually held by a stakeholder (the vendors real estate agent, solicitor, or conveyancer) until completion of the contract. Completion or Settlement when the balance of the purchase money is paid over, the title is transferred to the purchaser and (usually) the purchaser takes possession of the land. Property can refer to any kind of asset at all including land (also called real estate), goods (also called chattels), fixtures (goods which are attached to land), choses inaction (rights to sue people) and non physical rights such as intellectual property and confidential information. Accordingly, when referring to real estate it is better to use the term real estate or land rather than the general term property. Person to a solicitor means any legal entity. This includes individuals (i.e. human beings), companies, strata bodies corporate and statutory corporations (e.g. local councils).

The need for writing

Generally a binding contract to buy, sell, or mortgage real estate can only be created by written agreement. Contrast this with many other transactions that do not require writing (e.g. buying goods at a shop, agreeing to get married). A contract to buy or sell real estate is probably the largest and most important transaction into which most individuals will ever enter, other than marriage vows. It is also a contract about which there is often much dispute (you didnt tell me that the views would be blocked). Accordingly, it is important to be very precise about when the obligation to buy and sell arises. If there is any correspondence about a proposed sale that is not intended to create a binding contract, it is important to say subject to formal contract.

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The general process

In all States and Territories, conveyancing follows the same general process.
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Contracts come into existence

This is when the sale agreement becomes binding. A 10% deposit is usually paid.

Settlement/Completion
The balance of purchase money is paid and title transfers to the purchaser.

Title documents registered

The land registration details are changed to show the purchaser as the owner.

The way contracts come into existence

There are subtle but important differences between the manner in which contracts come into existence in each State and Territory. In most jurisdictions, the real estate agent usually conducts the exchange and the negotiations leading to the exchange. However, in N.S.W. and the A.C.T. solicitors/conveyancers are often significantly involved. Accordingly, in N.S.W. and the A.C.T. there can be much more haggling about the deal after the real estate agent declares a property sold and before a binding legal agreement is created.

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Who handles conveyancing? How do contracts come into existence?

State/Territory
Queensland

Who prepares the contract

Vendors real estate agent

How does exchange take place?

As soon as both parties sign the contract of sale and the purchaser receives their copy, both the purchaser and the vendor are bound to the terms of the contract. The real estate agent usually arranges this and delivers copies to the vendors and purchasers solicitor/conveyancer. The vendor and purchaser each sign one copy of the contract. These copies are exchanged (swapped), usually by the parties solicitor/conveyancer except for auction sales when the agent exchanges the contracts. Exchange can occur by mail or face to face. The vendor and purchaser each sign one copy of the contract. These copies are exchanged (swapped), usually by the parties solicitor/conveyancer face to face.

N.S.W.

Vendors solicitor/conveyancer

A.C.T.

Vendors solicitor

Victoria

Vendors solicitor or real estate agent

The vendor and purchaser each sign one copy of the contract. These copies are exchanged (swapped), usually by the real estate agent.

Tasmania

Vendors solicitor/conveyancer

The vendor and purchaser each sign one copy of the contract. These copies are exchanged (swapped), usually by the real estate agent.

South Australia

Vendors solicitor/conveyancer

As soon as both parties sign the contract of sale and the purchaser receives their copy, both the purchaser and the vendor are bound to the terms of the contract. The real estate agent usually arranges this and delivers copies to the vendors and purchasers solicitor/conveyancer. The vendor and purchaser each sign one copy of the contract. These copies are exchanged (swapped), usually by the real estate agent.

Western Australia

Vendors solicitor/conveyancer

Northern Territory

Vendors real estate agent/ solicitor/conveyancer

The vendor and purchaser each sign one copy of the contract. These copies are exchanged (swapped), usually by the real estate agent.

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Types of title
Torrens Title a system of registering land introduced in South Australia in 1858, formulated by then colonial Premier of South Australia, Sir Robert Torrens. Since then, it has become common around the Commonwealth of Nations and the whole world. Under the system, the Titles Office maintains a registry that is nearly final proof of who owns a parcel of land. Freehold a right to own the land forever. Also referred to as fee simple. Compare leasehold, which refers to a right for the term of the lease. Freehold Torrens Title the most common ownership system except in the A.C.T. Usually, this is just called Torrens Title because it is assumed the ownership is freehold unless specified to be leasehold. Strata Torrens Title relates primarily to home units, although some other properties can be strata (e.g. villas, townhouses etc). Community Title individuals own lots or strata lots within a community scheme. Under a community scheme, a number of owners share some community property (e.g. a tennis court, a community centre, roads and access ways). Leasehold title under this title, ownership ends at the end of the lease. Most leasehold titles are for 99 years. This is very common in A.C.T. but comparatively rare elsewhere. Company Title applies where property has not been converted to strata title. The owner owns shares in a company and in turn the company owns the land. Each class of share entitles the owner to occupy a particular unit. Old Title (also known as Common Law Title) this consists of a series of title documents called a chain of title. Following a sale, Old Title will usually be converted to a qualified Torrens Title. Action may later be taken to convert the title to a full Torrens Title.

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Part 2 Steps in the conveyancing process

Step 1 Preparation of the Contract of Sale
The contract for sale is a very important legal document. Many disputes arise between vendors and purchasers. Consequently, trained experts should prepare the document. Under various laws, the contract must contain specified documents, certificates and disclosures.

Step 2 Make an offer

When a potential purchaser decides they are interested in a property, they may make an offer to purchase it. The vendor may accept this offer, or alternatively, the purchaser and vendor may enter into negotiations over the price and conditions of the sale.

Step 3 Paying a holding deposit

Purchasers may decide to pay an initial deposit as a sign of good faith of their interest in the property. The amount of such deposit can vary and will generally be stipulated by the vendor or agent. This will not mean that a binding contract exists or that the property is removed from the market. The payment is simply to show the vendor that the purchaser is serious about their offer. Note that holding deposits will generally be non-refundable. If the vendor later accepts an offer, the vendor and purchaser agree to exchange contracts. At that point, the purchaser pays an agreed deposit amount. The deposit is usually 10% of the purchase price and is held by the real estate agent or the solicitor/conveyancer. The purchaser should not exchange a contract for sale until they have reviewed the contract with their solicitor/conveyancer. Note: gazumping is a common practice that can take two forms: a) the intending purchaser believes the property has been secured by payment of an initial deposit but when they are ready to exchange contracts, discover that another purchaser has already exchanged contracts on the property; or b) the vendors solicitor/conveyancer accepts two or more initial deposits and then tells the intending purchasers that the price has increased. The intending purchasers are then left to outbid each other as if it were an auction.

The purchaser should not exchange a contract for sale until they have reviewed the contract with their solicitor/conveyancer.
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Step 4 Buying at auction

When a property is sold by auction, right move a purchaser is bound to purchase the property after having made the highest bid at the end of the auction.
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It is important for the vendor to have a solicitor/conveyancer examine the sale contract before the auction to make sure that everything is in order. It is also important that a potential purchaser has finance arranged and that all necessary property inspections have been done. Before auctioning a property, the vendor will nominate a reserve price that is not usually disclosed to potential purchasers. The reserve price is the lowest price the vendor is willing to accept. If the highest bid is below this price, the property will be passed in. The vendor will then either try and negotiate a price with interested purchasers or put the property back on the market. If bidding continues beyond the reserve price, the property is sold at the fall of the hammer. The successful purchaser must then sign the contract for sale and pay the deposit (usually 10%) immediately.

Step 5 Exchange of contracts & paying a deposit

See Who handles conveyancing? (page 5) for the different ways contracts are exchanged.

Step 6 Risk
Responsibility for damage to the property remains with the vendor up until settlement or completion of the sale, but it is prudent for the purchaser to insure the property from exchange of contracts. From settlement, when the property title is transferred to the purchaser, the purchaser is responsible for damage. Purchasers may choose to insure the property before settlement if they are unsure whether the vendor has a current insurance policy. Note that many lenders require evidence of comprehensive building insurance being in place, with the lender noted on the policy as an interested party, as a condition of settlement of the loan for the property purchase.

If purchasing a unit under strata title, the purchaser should obtain a Certificate of Currency from the owners corporations insurer to make sure the property is adequately insured.
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Step 7 Cooling-off period

After exchange, the purchaser may have a time to cool off. If a cooling off period applies, the purchaser can rescind the contract before the end of the cooling off period. Cooling off does not apply to sales at auction.

State/Territory
Queensland

Cooling off provision when can the purchaser rescind?

Five business days from exchange, unless waived by the purchaser who has received PAMDA Form 32a from a lawyer. The cooling off period will only commence if the vendor complies with PAMDA. On rescission, the purchaser forfeits 0.25% of the purchase price. Five business days from exchange, unless waived by the purchaser who has received a Section 66W Certificate from a solicitor or conveyancer. On rescission, the purchaser forfeits 0.25% of the purchase price. The cooling off period does not apply automatically and requires the consent of both vendor and purchaser for it to be applicable. Some vendors may refuse to exchange contracts if a Section 66W Certificate is not available. Five business days from exchange, unless waived by the purchaser who has received a Section 17 Certificate from a solicitor or conveyancer. Does not apply if the purchaser is a company or if the property is bought at auction. On rescission, the purchaser forfeits 0.25% of the purchase price. The cooling off period does not apply automatically and requires the consent of both vendor and purchaser for it to be applicable. Some vendors may refuse to exchange contracts if a Section 17 Certificate is npt available. Three business days from exchange. Does not apply to exchanges three business days before or after a public auction, sale of industrial or commercial property, farms greater than 20 hectares, where the vendor and purchaser have previously entered into a contract for the sale of the same land with substantially the same terms, if the buyer is a real estate agent or a company, or if the purchaser has sought and received independent legal advice before signing the contract. On rescission, the purchaser forfeits the greater of $100 or 0.2% of the purchase price. Any provision in the contract that attempts to waive the cooling off period is void and has no effect. No cooling off period applies. Two business days, unless waived by the purchaser who has received a certificate of independent advice from a solicitor or conveyancer. Only applies to residential land. Does not apply if the purchaser is a company or if the property is bought at auction. The cooling off period does not commence until the later of the serving of the Form 1 Vendors Statement or exchange. On rescission, the purchaser gets all the deposit back minus money paid by the purchaser in consideration of an option to purchase the land if the deposit is less than $100. No cooling off period applies. Four business days from exchange. Applies only if the purchaser does not have a solicitor/ conveyancer involved in the negotiation of the contract.

N.S.W.

A.C.T.

Victoria

Tasmania South Australia

Western Australia Northern Territory

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Step 8 Transfer of property title

The purchasers solicitor/conveyancer must prepare a transfer document, have the purchaser sign it, and pay any stamp duty for the documents registration. The purchasers solicitor/conveyancer must then send the transfer to the vendors solicitor/conveyancer for the vendor to sign. Note stamp duty on transfer The purchasers solicitor/conveyancer must arrange for the transfer document to be stamped prior to settlement so the purchaser can lodge it for registration immediately after settlement. This means that the purchaser must arrange to pay their solicitor/conveyancer the stamp duty amount prior to settlement, or arrange to pay the solicitor/ conveyancer at settlement (e.g. from loan proceeds). It is not possible to defer the payment of stamp duty on the transfer.

Step 9 Time for completion

The time for completion can be set by agreement between the parties. The time span for completion of off the plan purchases can be quite lengthy. This is because the contract can be completed only after the development/building construction has completed and new titles are issued. The standard times for completion are set out in the table below, but these periods can be changed by agreement between the vendor and the purchaser.

What is time of the essence?

A contract is said to be time of the essence if failure to complete on a nominated date is a breach of a fundamental term. If there is a breach of a fundamental term, the other party can terminate the contract, forfeit and keep the deposit, and sue for damages. Example: A real estate contract provides for completion within 42 days of exchange, time of the essence. If the purchaser does not complete on or before that date, the vendor can terminate the contract, forfeit the deposit, and sue for damages. Only in Queensland are contracts normally time of the essence, although a contract can be specified to be time of the essence in any State or Territory. Contracts that are not time of the essence frequently contain a provision entitling the vendor to give the purchaser a notice (usually 14 days) making time of the essence for completion at the end of the 14 day period. Example: A real estate contract provides for completion within 42 days of exchange, not time of the essence. If the purchaser does not complete on or before that date, the vendor can issue a notice to complete to the purchaser making time of the essence for the end of the notice period.

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Standard times for completion

State/Territory Queensland N.S.W. A.C.T. Victoria Tasmania South Australia Western Australia Northern Territory

Usual period for settlement all subject to contract 30 days time of the essence 6 weeks 30 days 60 days 30 days 30 days 4 to 6 weeks 28 days

Step 10 Requisitions
After exchange, the purchasers solicitor/conveyancer will usually send a list of formal questions about the property known as requisitions on title. Requisitions obtain from the vendor information that may not have been previously disclosed or discovered during inspection of the property (for example, disputes with neighbours relating to fences). The purchasers solicitor/conveyancer will reply to these requisitions. The purchasers solicitor/conveyancer will often make some additional searches and enquiries not made before exchange. These searches are to determine a variety of factors, including whether there are general defects in the title, the land is contaminated, or there has been construction on the property. If any of these result unsatisfactorily in a way not disclosed in the sale contract, the purchaser may be able to rescind the contract, sue for damages, or seek a reduction of the sale price.

Step 11 Outgoing mortgagee

If the vendor has a mortgage over the property, the mortgagee must be contacted to provide a pay out figure and attend at settlement to hand over a discharge of mortgage and, often, the certificate of title/title deed.

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Step 12 Adjustments
At settlement, adjustments will be made. Example: the council rates have been paid for the whole year. The purchaser must pay an additional amount to the vendor for the proportion of the year the purchaser will own the property. Usual adjustments are council rates, water rates, strata body corporate contributions, land tax and rent if the property is tenanted.

Step 13 Settlement
The sale is said to settle or complete on the day the purchaser pays the balance of purchase money, plus or minus adjustments, to the vendor. On the date of settlement, it is important that a final search of the title is obtained to ensure that the property is clear from any interest or restrictions that may have been recorded between the date of exchange and settlement. Usually the solicitors/conveyancers/mortgagees meet and hand over the title documents in exchange for payment.

Step 14 After Settlement

The purchaser or the purchasers mortgagee will register the transfer documents with the Land Titles Office. Usually there will be a:

discharge of any existing mortgage/s; withdrawal of any existing caveat/s; transfer of title from the vendor to the purchaser; mortgage from the purchaser to the new mortgagee.

The Land Titles Offices advise the relevant authorities (such as the local council, water authority and Valuer Generals office) that the property has a new owner.

Note if settlement does not occur

If settlement does not occur on the scheduled date, depending on the contract terms, interest at a rate specified in the contract (often higher than mortgage rates) will accrue from the date specified for settlement to the ultimate settlement date, if the purchaser fails to settle on the due date. In addition to paying interest, the purchaser may be given a notice to complete, making time of the essence. Once the time of the essence date is reached, interest continues to accrue but the vendor can rescind the contract and retain the deposit previously paid.

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Key differences between the States and Territories

Northern Territory Western Australia South Australia

Queensland

New South Wales

Victoria Tasmania

Queensland
a) The Real Estate Institute of Queensland Contract for Houses and Residential Land standard contracts used in Queensland are:

Real Estate Institute of Queensland Contract for Houses and Residential Land; and Real Estate Institute of Queensland Contract for Residential Lots in a Community Title Scheme.

Both contracts must have a Warning Statement attached in accordance with the provisions of the Property Agents and Motor Dealers Act 2000 (PAMDA). b) If the vendor fails to comply with PAMDA, the purchaser may not be bound by the contract and may terminate the contract at any time.

New South Wales

a) b) The Contract for Sale of Land 2005 Edition is the standard contract used in New South Wales. In N.S.W., the contract must be prepared and available for inspection by a purchaser before the property can be marketed for sale. The contracts are quite long and complex and a lot of specified information must be annexed to the contract, including a title search, sewerage diagram and zoning certificate, to name a few. A prospective purchaser cannot bid at an auction of residential property in N.S.W. unless they have given the selling agent their name, address and proof of identity. These details are recorded in the Bidders Record and each registered bidder will be given a bidders number.
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c)

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Victoria
a) In Victoria, two standard forms of contract may be used:

b)

Form 1 Contract Note, that contains details of the property, names of the purchaserand vendor, price, deposit, balance and special conditions; move or on Form 2 Contract for Sale of Real Estate, a more detailed and complex legal document.

In the pre-negotiation stage, the vendor must give a signed and dated vendors statement (commonly termed a Section 32 Notice) to the agent to show to potential purchasers. The vendors statement is usually prepared by the vendor or their solicitor/ conveyancer and contains some extensive information as required by law, including:

rates, taxes and other charges; services available; building approvals from the past seven years; any order or notice that affects the land; body corporate notices, liabilities and maintenance fund payments; insurance details; statutory charges on the land; covenants, easements and other restrictions on the land; title and plan of subdivision information; a copy of the Certificate of Title (or for land not under the Transfer of Land Act, the last conveyance in the chain of title to the land or any other document which gives evidence of the vendors title to the land).

c) d)

The purchaser can rescind if this information is not disclosed or is incorrect. The purchaser has a right to inspect the property during the seven days before settlement to ensure the vendor has moved out or is in the process of doing so, that all fixtures and chattels included in the contract of sale have not been damaged or removed and that there is no substantial rubbish on the property. At settlement, the vendors solicitor/conveyancer also hands over a Statement for Goods Transferred with Residential Land or Land Use Entitlement, which is later lodged for stamping. Stamp duty on the transfer of land is usually deducted at settlement and paid after settlement to enable registration of the transfer and mortgage documents.

e)

f)

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Tasmania
a) b) The Contract for Sale of Real Estate is the standard contract used in Tasmania. After contracts have been exchanged, the purchaser lodges a Priority Notice, which reserves the purchasers priority to have the property transferred to them after settlement, for a maximum of 60 days. This prevents other parties lodging a caveat before the purchaser becomes the registered proprietor. The purchasers solicitor/conveyancer must perform all searches, including those related to title, easements and covenants, municipal rates, local government, land tax and bankruptcy. After performing its investigations, the purchasers solicitor/conveyancer should give written notice of the satisfaction of any of the conditional clauses. After the vendors solicitor/ conveyancer receives this notice, the contract becomes unconditional. The purchaser should then obtain a cover note from an insurance company immediately. The purchasers solicitor/conveyancer usually gives the vendor a trust cheque for stamp duty on the transfer of land at settlement. The party who is lodging the registration documents then attends to the transfer being stamped, and forwards the registration documents to the titles office for registration.

c)

d)

South Australia
a) Two standard forms of contract may be used. These have been developed by the:

Real Estate Institute of South Australia Law Society of South Australia.

b)

Many purchasers do not engage a solicitor or conveyancer until after the contract is negotiated. As a result, there are no requisitions in South Australia. Vendors must provide a Form 1 Vendors Statement (Vendors Statement) to the purchaser at least 10 days before settlement. Where the property is to be sold at auction, the Vendors Statement needs to be available two business days before the auction date. The vendors statement is designed to protect the purchaser and must include details of all mortgages, charges and prescribed encumbrances affecting the and subject to sale, along with any prescribed matters.

c)

d)

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Western Australia
a) The real estate agent prepares the:

Contract for Sale of Land by Offer and Acceptance; and Joint Form of General Conditions for the Sale of Land.

b)

After the offer has been presented, the vendor can accept, reject or make a counter offer. Many counter offers are often made and the contract is passed between the vendor and purchaser many times. Requisitions are not used in Western Australia if the land is Torrens Title and the standard contract is used. This is common for most sales of land. If settlement does not occur within three business days of the scheduled date, the purchaser is liable to pay interest to the vendor. The vendor or purchaser cannot terminate the contract until a Default Notice has been issued to the other party, who is given a minimum of 10 business days to remedy the default.

c) d) e)

f) Conveyancers, who are associated with real estate agents, do most conveyancing.

Australian Capital Territory

a) b) The Contract for Sale of Land 2005 Edition is the standard contract used in the Australian Capital Territory. The contract must be prepared and available for inspection by a purchaser before the property can be marketed for sale. The contracts are quite long and complex and a lot of specified information must be annexed to the contract, including a title search, sewerage diagram and zoning certificate, to name a few. As the A.C.T. operates under a Crown Lease system, a contract for the sale of land is actually a contract for the sale of a lease. As a result, the contract must also provide details of compliance with the crown lease (including purpose and any restrictions on transfer). Requisitions are used in very rare circumstances. The standard contract used in the A.C.T. provides for a period of seven days grace for settlement to occur after the scheduled date. If settlement does not occur in this period, the purchaser may be liable to pay penalty interest on the balance of the purchase money at a rate specified in the contract.

c)

d) e)

Northern Territory
The REINT Contract for Sale of Land (Real Estate Institute of the Northern Territory) is the standard contract used in the Northern Territory.

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