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Director of GM Law, Gerard Pagliaro shares his thoughts on this matter:
There are a number of options available to a seller to minimise the risk of these types of clauses. One way of minimizing the risk is arranging for a conveyancing solicitor to draft a clause that requires the buyer to meet various milestones at certain stages of the sale, and if they fail to meet those milestones the seller (and the buyer) can elect to terminate the contract. Examples of milestones include:
In the opinion of Gerard Pagliaro of GM Law, the risk of a seller missing out on a genuine buyer can be mitigated significantly by including , not only a clause that captures the above milestones, but adding another clause to the contract, in addition to the Subject to Sale clause, which the industry generically refer to as a sunset clause ;( also referred to as a 72 hour/48 hour clause).
This is a clause, added to the contract, which gives the seller the right to continue to offer the property for sale, even after they have entered into a contract (containing a Subject to Sale clause) with a buyer. The clause dictates that if the seller gets another offer/contract, they can give notice of that offer/contract to the first buyer, and the first buyer then has a sunset period (usually 72/48 hours) to declare their contract with the seller unconditional. In other words, the first buyer is given the option to waive their rights under the Subject to Sale clause in their contract with the seller, so that they can no longer terminate if they don’t sell or settle their sale contract. This obviously poses risks to a buyer, and they should be directed to their solicitors to seek advice as to what their options are and the risks attaching to those options, if they find themselves in this situation.
Assuming the first buyer does not have a backup plan to fund the sale (e.g. bridging finance or parents) and they do not waive their rights; the sunset clause will give the seller the right to terminate the first contract. If, however, the buyer is able to waive their rights and proceed with the first contract, the seller will be forced to proceed with the first contract.
This means the seller won’t be able to proceed with the second contract, so it is important that any second contract the seller enters into contains a right to terminate the contract, should the first contract proceed.
In Gerard Pagliaro, GM Law’s view, provided the clauses a properly drafted this provides a solution /compromise for all parties.
No. In Gerard Pagliaro’s view it would be fool hearty for a seller to entertain entering into a second contract that also contains a Subject to Sale clause. This would prevent a real risk of the seller terminating the first contract (which may well have eventually been settled) only to take an inferior contract, which ends up falling over anyway. Gerard Pagliaro, of GM Law recommends that if a seller is going to consider entering into a second contract, it should demonstrate clearly better prospects of success than the first. So, the fewer the conditions the better. Sellers should not be fooled by the lure of a higher purchase price, into a weaker contract.
Gerard Pagliaro of GM Lawyers states that this is often a trap for sellers to be weary of.
If the contract contains a Subject to Sale clause and their property doesn’t settle and the contract is lawfully terminated, they will get their deposit back.
The advice of GM Law is to try and find a buyer that doesn’t need to sell. This will increase your prospects of making a sale.
A common outcome, for contracts which are subject to sale clauses, is that they fall over, and the seller has to start again. This is particularly the case in a buyers’ market where sales volumes are low across the board.
You can email us at AgentSupport@gmlaw.com.au to get urgent personalized support.
You can email us at AgentSupport@gmlaw.com.au to get urgent personalized support.
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