Property Investor Tips
Solicitor's warning on dodgy settlement discounts
Posted on Friday, September 11 2009 at 12:35 PM
A judge describes a settlement rebate clause as "quite improper", while an experienced property investor finds the notion "a bit smelly", writes solicitor Tim O’Dwyer.
An API reader who has bought five investment properties over the years recently emailed me about her experience with a house for sale in NSW. Although the list price was $259,000, she made a "one time" offer of $240,000. This was eventually accepted.
The vendor's agent then told the prospective buyer that the vendor wanted the contract price shown as $245,000, but would hand the buyer back $5000 on settlement.
The buyer thought this an "odd arrangement" and recalls the agent explaining somehow that the vendor needed "more money." In the end she felt the whole deal was a "bit smelly," so didn’t proceed.
Around the same time, a colleague referred me to apposite comments by a NSW Supreme Court judge in a decision on a disputed contract with no deposit where the sale price was $450,000 but, because of a clause allowing the buyer a $100,000 rebate, only $350,000 would be payable on settlement.
The judge remarked, "I have said before and say again that this type of clause is quite improper. It can be inserted for no purpose other than to mislead persons such as lending authorities and purchasers of other units in that development. In my view it is likely that solicitors who purposely prepare contracts with contradictory clauses such as this may be guilty of professional misconduct... people who enter into these contracts are asking for the problems that are sure to befall them when disputes arise."
Tim O'Dwyer is a Queensland solicitor.
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