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Everything you need to know about unconditional contracts

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Everything you need to know about unconditional contracts in Australia

There are two types of contracts you need to understand when buying or selling property in Australia – conditional contracts and unconditional contracts. While conditional contracts are a very common method of settlement, unconditional contracts aren’t so much.

In this article, we’ll take a look at everything you need to know about unconditional contracts. By the end, you’ll understand your rights and responsibilities as both a buyer and seller. You’ll also understand the risks and benefits of pursuing unconditional contracts.

If you want to know more about unconditional contracts and how they pertain to your specific property matter, get in touch with Complete Conveyancing Solutions. Our team are here to give you qualified conveyancing advice to help you find greater success in the property market.

What is an unconditional contract?

An unconditional contract is a contract in which the parties agree to all terms and conditions without any further negotiation. This type of contract is also known as an “agreed price contract” or a “fixed price contract.” Once both parties have signed an unconditional contract, they are legally bound to its terms and conditions.

In an unconditional contract, the buyer agrees to purchase the property at an agreed upon price. The seller agrees to sell the property at that same price.

A purchaser must be aware that an unconditional contract provides that they have agreed to intentionally become legally bound by the agreement, and that the agreement contains all the terms agreed upon during the negotiations taking place.

It’s important to note that an unconditional contract is a pretty rare occurrence in a standard property transaction. Unconditional contracts are most commonly used in commercial transactions, off-the-plan purchases and also properties that are sold at auction. They are less common in residential property transactions, unless sold at auction, but they can still come up from time to time.

If either party attempts to back out of the deal, they may be liable for damages. However, there may be circumstances that arise that could enable termination of an unconditional contract.

Can a buyer pull out of an unconditional contract?

There are very limited circumstances to which an unconditional contract can be terminated. It’s important to note that an unconditional contract cannot be contingent on finance approval.

A buyer may be able to cancel an unconditional contract if there is a problem with the title of the property. For example, the vendor delays settlement due to an encumbrance affecting the title and prohibiting settlement to be effected, then a buyer can issue a Rescission Notice for breach of Contract which provides the seller with a certain time frame to settle. If the breach is not remedied, then the Contract will be terminated.

Can a seller pull out of an unconditional contract?

There are few circumstances in which a seller can cancel an unconditional contract. These legal matters result in situations that are as rare as they are complex. A seller’s signature effectively ‘seals the deal’ of an unconditional contract, so it is unlikely that a seller would want to pull out. For this reason, unconditional contracts usually benefit sellers.

A seller can also terminate a Contract in the event of a breach of Contract. For example a buyer is unable to obtain finance, and settlement is delayed as a result, then the seller can issue a Rescission Notice which provides a certain time frame for a buyer to complete the Contract at which time the seller can terminate the Contract if the deadline is not met.

What are the benefits of an unconditional contract?

There are a few benefits that come with signing an unconditional contract.

Greater certainty

The first is that it provides certainty for both parties. Once an unconditional contract is signed, both the buyer and the seller know that the deal is going ahead and they can start to make plans accordingly.

Improved process

Another benefit of an unconditional contract is that it can help to speed up the conveyancing process. This is because there is no need for further negotiation once the contract is signed. This can be particularly helpful if you are trying to meet a tight deadline.

Higher prices

Unconditional contracts can also sometimes fetch a higher price than conditional contracts for sellers. This is because the buyer is taking on more of the risk by agreeing to purchase the property without any further negotiation.

What are the risks of an unconditional contract?

Of course, some risks come with signing an unconditional contract.

Less negotiating power

One of the biggest risks is that it takes away the buyer’s negotiating power. Once an unconditional contract is signed, the buyer is committed to purchasing the property at the agreed upon price. This means that if any problems arise, the buyer may have to accept them or pay a fee to get out of the deal.

Over or under valuation

Because the valuation step is often skipped, buyers purchasing in haste can risk paying more than the property’s market value. Conversely, sellers can also risk accepting an unconditional contract for less than the property’s market valuation.

Lack of finance clause

Buyers who haven’t secured pre-approval for a home loan risk forfeiting their deposit if they cannot secure finance after signing an unconditional contract. This is probably the most significant risk to buyers as it can be incredibly detrimental in a financial sense.

What should you do if you’re considering an unconditional contract?

If you’re thinking about signing an unconditional contract you must understand the risks and benefits involved. You should also make sure that you’re comfortable with the property and the price before you commit to anything.

It’s also a good idea to speak to a conveyancer to get expert advice on your situation. They can help you understand the contract and ensure that everything is in order before you sign anything.

Maria Tomlinson holds an unrestricted conveyancing licence together with Professional Indemnity Insurance against civil liability. Maria Tomlinson commenced her career in Conveyancing in 2001. She furthered her studying by completing her Diploma in Conveyancing in 2017 which has led her to hold an unrestricted Conveyancing License and successfully open her conveyancing firm, Complete Conveyancing Solutions.

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