Common Legal Mistakes People Make When Buying Real Estate in Western Australia

Many people greatly underestimate the legal risks associated with buying real estate and the highly prescriptive nature of the contracting process. Here are some common and preventable mistakes that I have seen made over the years.

1. Putting offers on more than one property without carefully drafted special conditions – this mistake can be quite damaging, especially where multiple offers have been made. If your offer is validly accepted by the seller, a binding contract is often formed. Should you not then complete the contract, you will be in breach and the seller will be entitled to claim damages from you. Typically, the damages will amount to the (shortfall) difference between what the seller was going to sell the property to you for and what they can later sell it on the open market for – plus costs.

   
   

   If you are looking to make multiple offers on properties, it is critical that you consult with a legal professional so that appropriately worded special conditions can be included.

2. Not undertaking any due diligence. Most people hold the view that due diligence investigations are only for people buying a business. The fact is that buyers should undertake thorough investigations in relation to any significant asset they may be looking to buy, including residential property. Simply walking through the property of your dreams a few times and getting a white any certificate is never enough, especially given the large amount of money involved.

3. Not understanding the effect and requirements of the standard REIWA ‘subject to finance’ clause. Issues regarding this clause come across my desk far too often. Without amendment via special conditions, the standard REIWA finance terms require buyer to use their best endeavours to apply for and obtain finance (where the contract is subject to finance). Speaking to your mortgage broker and being told there is no point even in applying for finance is not enough – there must, at the very least, be an application and a formal written rejection before the finance condition may be considered unsatisfied. In such circumstances, the following could also be possible:

1. Whether the seller may have the ability or right to ‘put’ vendor finance to you to complete the contract in such circumstances (at a rather uncompetitive rate).

   
   

2. Whether the seller can insist that using your best endeavours includes applying to a ‘lender of last resort’ for finance at double or triple standard home loan interest rates (or more). 

   
   

   The good news is that this situation can be prevented by including a fairly simple special condition a contract allowing the buyer to choose their own finance (i.e. rather than having to use best endeavours to obtain any finance possible).

4. Giving invalid notices – notice requirements under contracts of sale are quite prescriptive. Any failure to strictly comply with those requirements can be fatal: see for example Mitchell v Schofield [2007] WASC 303 at [250] – [260]; Miller v Barrellan (Holdings) Pty Ltd (1981) 2 BPR 97143; and Capper v Thorpe (unreported, WASC, Lib No 960220, 24 April 2006. 

Capper v Thorpe was a case involving a lawyer failing to provide adequate notice under the relevant contract no less. In that case, Owen J stated as follows (in the context of whether the lawyer concerned had validly changed their address for service of documents under the contract by sending certain correspondence from a different address to the one listed in the contract):

In my opinion, when clause 21 refers to some "other address for service from time to time nominated in writing" it requires a nomination with some degree of formality. Clause 21 applies to "notices or communications to be given or made under these Conditions". There is an implicit differentiation between notices or communications having some particular legal or commercial significance on the one hand and routine communications in the process towards finalisation of a transaction. It is common conveyancing experience and practice that an address may be specified for a party and yet all or most of the correspondence and contact between the parties during the preparation for settlement are at the addresses of the party's conveyancing agents. However, this does not mean that if something goes awry in the transaction and there is a need to communicate in a formal way either to affect legal relations and interests directly or as a step towards that end a party is justified in communicating at some address other than that ascertained by the appropriate contractual term.

If you ever need to give notice of anything under a contract, get a lawyer (even if you are a lawyer yourself!). Or, at the very least (for standard notices such as finance acceptance notices), use a highly experienced and competent settlement agent.

5. Not investigating whether all structures on the land have been formally approved by the local government before signing the contract of sale. The gold standard here for buyers is to have the seller consent to the buyer applying to the local government for a full copy of its file in relation to all building approvals relating to the land in question (with the right for the buyer to pull out of the contract if any unauthorised structures exist). From there, careful analysis and inspection can uncover whether any unauthorised structures may exist. 

The problem with not taking this step is that, under the standard REIWA contract terms, buyers cannot back out of a contract where unauthorised structures may exist – even if they have been misled by the seller to believe that they have all been local government approved! (See for example clauses 9.3 and 10.2 of 2022 REIWA Joint Form of General Conditions).