What is a Contract of Sale?

Technically, anyone who buys anything is entering into a contract of sale with the seller. While the terms of the contract might be implicit If you're buying a chocolate bar, the seller still has obligations to you, the buyer, under Australian Consumer Law.

When it comes to property transactions - the most complicated type of transaction most people enter into in their lives - these terms need to be explicit. They also need to be laid out in what is known as a contract of sale.

What is a contract of sale?

A contract of sale outlines the specifics of a property transaction.

It is one of the most important legal documents involved in the conveyancing process and is mandatory for all property transactions in Australia.

Read more: Conveyancing checklist for Buyers and Sellers

Who prepares a contract of sale?

Generally, the contract of sale is prepared by a conveyancer, solicitor, or the real estate agent representing the seller.

If the property is being sold through a private sale treaty rather than auction, the seller needs to have the contract of sale ready before the property is advertised.

After a buyer and seller agree upon a sale, the contract will be amended to include details of the buyer and the sale price.

The buyer or their conveyancing agent will also go through the contract of sale before signing. In some cases, they might make amendments to the document before it's made official.

What's in a contract of sale?

In general, a completed contract of sale will contain the following:

• The name of the buyer and the seller, as well as the agents, conveyancers, and/or solicitors engaged

• The date of settlement and the cooling off period

• Details about the property (its address, for instance)

• Any of the property's fixtures (things like dishwashers or built in ovens that cannot be removed) and fittings (things that aren't fixed like curtains). Fixtures are generally assumed to be included in the sale while fittings are excluded. If there are exceptions (curtains are included in the sale, for example), this must be specified in the contract.

• Any special conditions, such as a 'subject to finance' clause

In some states, a contract of sale must be accompanied by a statement disclosing other details about the title of the property.

These details might include:

• Outstanding mortgages

• Covenants

• Easements

• Zoning

• Outgoings

• A declaration of whether the property is in a bushfire prone area

In the market for a low-rate home loan?

Check out some of the most competitive home loan deals available to property purchases right now.

How is the contract finalised?

Once the buyer and seller have exchanged contracts and finalised the details, the contract will be signed. This is considered a formal offer to purchase.

At this point, the contract becomes legally binding. Although, in most cases there will be a 'cooling off period' during which the buyer can renege on the deal.

In some states a cooling off period is mandatory, while in others it's an optional clause.

What property buyers need to know about the contract of sale

The terms of the sale are added into the contract of sale once a price is agreed upon.

The buyer or an agent acting on their behalf will review the contract, potentially making amendments, before signing.

Can a buyer cancel a contract of sale?

In general, a buyer cannot renege on a contract of sale once it is signed. Even if issues are uncovered later, the contract is likely still valid.

For that reason, buyers should use the cooling off period to their advantage, undertaking rigorous inspections to ensure the condition of the property.

Though, there are instances in which a buyer may have grounds to cancel a contract of sale:

• Property not as described: Typically, issues uncovered after the cooling off period expires won't be grounds to cancel a contract of sale. Though, there may be grounds for cancelation in cases in which the condition of the property differs materially from how it was described in the contract. For example, in Victoria, if a seller misrepresents certain details concerning the property in a Section 32 statement, it could be grounds to invalidate the contract.

• Finance unsuccessful (if subject to finance): Many contracts of sale have a 'subject to finance' clause. That clause can void the sale in the case the buyer is unsuccessful in getting a home loan. If you are buying property and are not pre-approved for finance, this clause is extremely important to include. Without it, if you are turned down for the loan you need, you could still be legally required to buy the property, and may be open to a lawsuit from the seller if you cannot afford it.

What sellers need to know about a contract of sale

The seller or representatives of the seller will generally prepare the contract of sale before the property is listed.

Each state has its own requirements on what details that the vendor needs to offer up within the contract. You'll need to make sure you are meeting all your obligations if you are selling.

In some states, you might need to provide extra documentation outlining further information about the property along with the contract of sale.

Can a seller cancel a contract of sale?

Once signed by both parties, a contract of sale is legally binding.

There are some circumstances where a buyer may be able to renege on the deal. But, in general, once the buyer signs they have an obligation to follow through.

As a seller, if a buyer doesn't fulfil the terms of the contract, you may be able to take legal action to recoup losses you incur as a result.

Contract of sale by state

Each state and territory has its own particular rules surrounding the process of buying and selling properties, as the table below shows:

State	Cooling off period (business days)	Extra requirements
NSW	5 days	Several documents must be attached to the contract, including a title search along with information on easements or restrictions on the use of land, and the planning certificate issued by the local council.
VIC	3 days	Sellers need to provide buyers with a disclosure document before the contract is signed, known as a Section 32.
QLD	5 days	The contract must include a warning statement detailing the mandatory cooling off period, as well as the penalty incurred by a buyer that terminates during this time (0.25% of the purchase price).
SA	2 days	Sellers need to provide a vendor's statement with information about title, mortgage rights, easements, and zoning.
WA	None unless specified	Standard contracts for the sale of real estate in WA are in two parts: an 'Offer and Acceptance' form and another form detailing the general conditions of the property. Conditions include details on any interest in the land by a third party (right of way, for example), as well as standard transaction information, and strata title disclosure.
TAS	3 days (not mandatory)	Vendor statements are 'highly recommended' but not mandatory in Tasmania.
NT	4 days	Contracts of sale need to be approved by either the Registrar of Land, Business, and Conveyancing Agents or Law Society Northern Territory.
ACT	5 days	Sellers must provide a number of legal documents along with the contract of sale, giving 'all the technical and legal details' relevant to the property. These includes, but are not limited to: Title information A statement on any encumbrances on the land Information on the building plans A pest inspection report

Picture by Romain Dancre on Unsplash